<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
SUPPLEMENT TO
INCOME MANAGER (SERVICE MARK) ROLLOVER IRA
PROSPECTUS DATED MAY 1, 1997
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- -------------------------------------------------------------------------------
This prospectus supplement describes the Combined Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit (Plan A) offered to issue ages 76
or older under the INCOME MANAGER Prospectus for Rollover IRA. Capitalized
terms in this supplement have the same meaning as in the prospectus.
The Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit (Plan A) discussed on page 22 of the prospectus under "baseBUILDER
Benefits" is available for issue ages 76 or older at a charge of 0.45% of the
Guaranteed Minimum Death Benefit in effect on a Processing Date. The benefit is
as discussed below:
The Guaranteed Minimum Death Benefit applicable to the combined benefit is as
follows:
4% to Age 85 Benefit - On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the portion of the initial contribution allocated to
the Investment Funds. Thereafter, the Guaranteed Minimum Death Benefit is
credited with interest at 4% (3% for amounts in the Alliance Money Market
and Alliance Intermediate Government Securities Funds, except as indicated
below) on each Contract Date anniversary through age 85 (or at your death,
if earlier), and 0% thereafter, and is adjusted for any subsequent
contributions and transfers into the Investment Funds and transfers and
withdrawals from such Funds. The Guaranteed Minimum Death Benefit interest
rate applicable to amounts in the Alliance Money Market Fund under the
Special Dollar Cost Averaging program will be 4%.
The Guaranteed Minimum Income Benefit discussed on page 23 of the prospectus
may be exercised only within 30 days following the 7th or later Contract Date
anniversary, but in no event later than your age 90.
The period certain will be 90 less your age at election.
The Guaranteed Minimum Income Benefit benefit base described on page 34 of the
prospectus is as follows:
The Guaranteed Minimum Income Benefit benefit base is equal to the initial
contribution allocated to the Investment Funds on the Contract Date.
Thereafter, the Guaranteed Minimum Income Benefit benefit base is credited
with interest at 4% (3% for amounts in the Alliance Money Market and
Alliance Intermediate Government Securities Funds, except as indicated
below) on each Contract Date anniversary through age 85, and 0% thereafter,
and is adjusted for any subsequent contributions and transfers into the
- -------------------------------------------------------------------------------
SUPPLEMENT DATED MAY 1, 1997
<PAGE>
Investment Funds and transfers and withdrawals from such Funds. The
Guaranteed Minimum Income Benefit benefit base interest rate applicable to
amounts in the Alliance Money Market Fund under the Special Dollar Cost
Averaging program will be 4%. The Guaranteed Minimum Income Benefit benefit
base will also be reduced by any withdrawal charge remaining on the
Transaction Date that you exercise your Guaranteed Minimum Income Benefit.
- -------------------------------------------------------------------------------
SUPPLEMENT DATED MAY 1, 1997
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
MAY 1, 1997
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
PROFILE OF INCOME MANAGER ROLLOVER IRA
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
This Profile is a summary of some of the more important points that you should
know and consider before purchasing a Certificate. The Certificate is more
fully described in the prospectus which accompanies this Profile.
Please read the prospectus carefully.
1. THE ANNUITY CERTIFICATE. The Rollover IRA Certificate is a deferred
individual retirement annuity (IRA) issued by Equitable Life. It is designed to
provide for the accumulation of savings and for retirement income through the
investment, during an accumulation phase, of rollover contributions, direct
transfers from other individual retirement arrangements and regular IRA
contributions. You may invest in Investment Funds where your Certificate's
value may vary up or down depending upon investment performance. You may also
invest in Guarantee Periods (also called GIROs) that when held to maturity
provide guaranteed interest rates that we have set and a guarantee of
principal. If you make any transfers or withdrawals from a GIRO before
maturity, its investment value may increase or decrease due to interest rate
changes. Earnings accumulate under your Certificate on a tax-deferred basis
until amounts are distributed. All amounts distributed are subject to income
tax.
The Investment Funds offer a potential for better returns than the interest
rates guaranteed when GIROs are held to maturity, but the Investment Funds
involve risk and you can lose money. You may make transfers among the
Investment Funds and GIROs. The value of GIROs prior to their maturity
fluctuates and you can lose money on premature transfers or withdrawals.
The Certificate provides a number of distribution methods during the
accumulation phase and for converting to annuity income, which include the
ASSURED PAYMENT OPTION, APO PLUS and other annuity benefits.
The Assured Payment Option may also be elected if you desire to start receiving
a form of lifetime income immediately. When you elect the Assured Payment
Option, your Certificate's value will be reduced to provide for guaranteed
lifetime income. You may also elect APO Plus whereby a portion of your money is
invested under the Assured Payment Option, and the remaining amount is
allocated to the Alliance Common Stock Fund or the Alliance Equity Index Fund,
as you select. Every three years during the fixed period of the Assured Payment
Option, a portion of your money in the selected Investment Fund is applied to
increase the guaranteed payments under the Assured Payment Option. The amount
accumulated under your Certificate during the accumulation phase will affect
the amount of distribution or annuity benefits you will receive.
-------------------
Income Manager and baseBUILDER are service marks of The Equitable Life
Assurance Society of the United States.
1
<PAGE>
2. ANNUITY PAYMENTS. You can have your Certificate's value applied to any of
the following five ANNUITY BENEFITS: (1) Life Annuity - payments for your life,
(2) Life Annuity - Period Certain - payments for your life, but with payments
continuing to the beneficiary for the balance of the 5, 10, 15 or 20 years (as
you select) if you die before the end of the selected period; (3) Life Annuity
- - Refund Certain - payments for your life, with payments continuing to the
beneficiary after your death until any remaining amount applied to this option
runs out; and (4) Period Certain Annuity - payments for a specified period of
time, usually 5, 10, 15 or 20 years, with no life contingencies. Options (2)
and (3) are also available as a Joint and Survivor Annuity - payments for your
life, and after your death, continuation of payments to the survivor for life.
Income Annuity Options (other than the Refund Certain only available on a fixed
basis) are available as a fixed annuity, or as a variable annuity, where the
dollar amount of your payments will depend upon the investment performance of
the Investment Funds. Once you begin receiving income annuity payments, you
cannot change your annuity benefit.
3. PURCHASE. You can purchase a Certificate by rolling over or transferring at
least $5,000 or more from one or more individual retirement arrangements. You
may add additional amounts of $1,000 or more at any time (subject to certain
restrictions). Regular contributions are limited to $2,000 per year, but
additional rollover or IRA transfer amounts are unlimited. Subject to certain
age restrictions, you may purchase the baseBUILDER(SM) guaranteed benefits in
the form of a Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit (Plan A). If you do not elect the combined benefit, the
Guaranteed Minimum Death Benefit is provided under the Certificate at a lower
charge (Plan B). Both benefits are discussed below.
4. INVESTMENT OPTIONS. You may invest in any or all of the following Investment
Funds, which invest in shares of corresponding portfolios of The Hudson River
Trust (HR Trust) and EQ Advisors Trust (EQ Trust). The portfolios are described
in the prospectuses for HR Trust and EQ Trust.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Morgan Stanley Emerging MFS Emerging Growth
Income Value Markets Equity* Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company
Merrill Lynch Basic Value Equity ___________________ Value
T. Rowe Price Equity Income *Available on or about September 2,
1997.
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- -----------------------------------------------------------------------------------------------------------------
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate
EQ/Putnam Balanced Government Securities
Merrill Lynch World Strategy Alliance Money Market
----------------------------------------------------------------------------
Alliance Equity Index Fund (AVAILABLE ONLY UNDER APO PLUS)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
You may also invest in one or more GIROs currently maturing in years 1998
through 2007. Under the Assured Payment Option and APO Plus, GIROs currently
maturing in years 2008 through 2012 are also available.
5. EXPENSES. The Certificate has expenses as follows: There is an annual charge
expressed as a percentage of the Guaranteed Minimum Death Benefit. For Plan A
the percentage is equal to 0.45% for the 6% to Age 80 Benefit; and 0.30% for
the 6% to Age 70 Benefit. For Plan B the percentage is equal to 0.20%. As a
percentage of assets in the Investment Funds, a daily charge is deducted for
mortality and expense risks at an annual rate of 0.90%; and a daily charge is
deducted for administration expenses at an annual rate of 0.25%.
The charges for the portfolios of HR Trust range from 0.63% to 1.33% of the
average daily net assets of HR Trust portfolios, depending upon HR Trust
portfolios selected. The charges for the portfolios of EQ Trust range from
0.85% to 1.75% of the average daily net assets of EQ Trust portfolios,
depending upon the EQ Trust portfolios selected. The amounts for HR Trust are
based on restated values during 1996 (as well as an expense cap for the
Alliance Small Cap Growth portfolio) and the amounts for EQ Trust are based on
a current expense cap. The 12b-1 fees for the portfolios of HR Trust and EQ
Trust are 0.25% of the average daily net assets of HR Trust and EQ Trust,
respectively. Charges for state premium and other applicable taxes may also
apply at the time you elect to start receiving annuity payments.
A withdrawal charge is imposed as a percentage of each contribution withdrawn
in excess of a free corridor amount, or if the Certificate is surrendered. The
free corridor amount for withdrawals is 15% of the Certificate's value at the
beginning of the year, except that under the Assured Payment Option and APO
Plus it is 10%. The withdrawal charge does not apply under certain of the
distribution methods available under the Certificate. When applicable, the
withdrawal charge is determined in accordance with the table below, based on
the year a contribution is withdrawn. The year in which we receive your
contribution is "Year 1."
Year of Contribution Withdrawal
1 2 3 4 5 6 7 8+
--------------------------------------------
Percentage of
Contribution 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
The following chart is designed to help you understand the charges in the
Certificate. The "Total Annual Charges" column shows the combined total of the
Certificate charges deducted as a percentage of assets in the Investment Funds
and the portfolio charges, as shown in the first two columns. The last two
columns show you two examples of the charges, in dollars, that you would pay
under a Certificate, and include the Guaranteed Minimum Death Benefit based
charge for the optional Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit equal to 0.45%. The examples assume that you
invested $1,000 in a Certificate which earns 5% annually and that you withdraw
your money: (1) at the end of year 1, and (2) at the end of year 10. For year
1, the Total Annual Charges are assessed as well as the withdrawal charge. For
year 10, the example shows the aggregate of all the annual charges assessed for
the 10 years, but there is no withdrawal charge. No charges for state premium
and other applicable taxes are assumed in the examples.
3
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
TOTAL ANNUAL TOTAL ANNUAL TOTAL Total Annual
CERTIFICATE PORTFOLIO ANNUAL Expenses at End of:
INVESTMENT FUND CHARGES CHARGES CHARGES (1) (2)
1 Year 10 Years
<S> <C> <C> <C> <C> <C>
HR TRUST
Alliance Conservative
Investors 1.15% 0.80% 1.95% $89.74 $275.75
Alliance Growth
Investors 1.15 0.84 1.99 90.14 279.80
Alliance Growth &
Income 1.15 0.85 2.00 90.24 280.80
Aliance Common Stock 1.15 0.66 1.81 88.35 261.52
Alliance Global 1.15 0.98 2.13 91.53 293.80
Alliance International 1.15 1.33 2.48 95.01 328.00
Alliance Aggressive
Stock 1.15 0.83 1.98 90.04 278.79
Alliance Small Cap
Growth 1.15 1.20 2.35 93.72 315.43
Alliance Money Market 1.15 0.64 1.79 88.15 259.45
Alliance Intermediate
Government
Securities 1.15 0.84 1.99 90.14 279.80
Alliance High Yield 1.15 0.91 2.06 90.84 286.83
UNDER APO PLUS
Alliance Common Stock 1.15% 0.66% 1.81% $88.35 $233.84
Alliance Equity Index 1.15 0.63 1.78 88.05 230.74
EQ TRUST
EQ/Putnam Balanced 1.15% 0.90% 2.05% $90.74 $293.88
EQ/Putnam Growth &
Income Value 1.15 0.85 2.00 90.24 288.87
MFS Emerging Growth
Companies 1.15 0.85 2.00 90.24 288.87
MFS Research 1.15 0.85 2.00 90.24 288.87
Merrill Lynch Basic
Value Equity 1.15 0.85 2.00 90.24 288.87
Merrill Lynch World
Strategy 1.15 1.20 2.35 93.72 323.50
Morgan Stanley
Emerging Markets Equity
(available on or about
September 2, 1997 1.15 1.75 2.90 99.19 375.62
T. Rowe Price Equity
Income 1.15 0.85 2.00 90.24 288.87
T. Rowe Price
International Stock 1.15 1.20 2.35 93.72 323.50
Warburg Pincus Small
Company Value 1.15 1.00 2.15 91.73 303.84
For Investment Funds investing in portfolios with less than 10 years of
operations, charges have been estimated. The charges reflect any expense waiver
or limitation. For more detailed information, see the Fee Table in the
prospectus.
4
<PAGE>
6. TAXES. Your earnings are not taxed until distributions are made from your
Certificate. If you are younger than age 59 1/2 when you receive any
distributions, you may be charged a 10% Federal tax penalty on the amount
received.
7. ACCESS TO YOUR MONEY. During the accumulation phase, you also may receive
distributions under a Certificate through the following WITHDRAWAL OPTIONS: (1)
Lump Sum Withdrawals of at least $1,000 may be taken at any time. Lump Sum
Withdrawals are also available under the Distribution Options. (2)
Substantially Equal Payment Withdrawals (if you are less than age 59 1/2), paid
monthly, quarterly or annually based on life expectancy; (3) Systematic
Withdrawals (if you are age 59 1/2 to 70), paid monthly, quarterly or annually,
subject to certain restrictions, including a maximum percentage of your
Certificate's value; and (4) Minimum Distribution Withdrawals (after you are
age 70 1/2), which pays the minimum amount necessary to meet minimum
distribution requirements in the Internal Revenue Code. You also have access to
your Certificate's value by surrendering the Certificate. All or a portion of
certain withdrawals may be subject to a withdrawal charge to the extent that
the withdrawal exceeds the free corridor amount. A free corridor amount does
not apply to a surrender. Withdrawals and surrenders are subject to income tax
and may be subject to a tax penalty.
8. PERFORMANCE. During the accumulation phase, your Certificate's value in the
Investment Funds may vary up or down depending upon the investment performance
of the Investment Funds you have selected. The following chart shows total
returns for certain Investment Funds for the time periods shown. The results
indicated reflect all of the charges, except the optional Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge, the
withdrawal charge, and any charge for state premium and other applicable taxes.
If included, these charges would reduce the performance numbers shown below.
Past performance is not a guarantee of future results.
The performance data for the Alliance Conservative Investors, Alliance Growth &
Income, Alliance International, and Alliance Intermediate Government Securities
Funds and Alliance Equity Index Fund (under which portfolios of HR Trust with a
12b-l fee were not previously available) and for the other Investment Funds
prior to October 16, 1996, do not reflect the 12b-1 fee. There is no
performance data for the Alliance Small Cap Growth Fund and the Investment
Funds investing in EQ Trust portfolios, as such Investment Funds were not
available under the Certificate prior to May 1, 1997.
</TABLE>
<TABLE>
<CAPTION>
CALENDAR YEAR
INVESTMENT FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------
HR TRUST
- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Conservative
Investors 3.99% 19.02% (5.20)% 9.54% 4.50% 18.51% 5.14% 2.79% -- --
Alliance Growth Investors 11.24 24.92 (4.27) 13.95 3.69 47.19 9.39 3.53 -- --
Alliance Growth & Income 18.70 22.65 (1.72) (0.55) -- -- -- -- -- --
Alliance Common Stock 22.76 30.93 (3.26) 23.39 2.03 36.30 (9.17) 24.16 21.03% 6.21%
Alliance Global 13.20 17.45 4.02 30.60 (1.65) 29.06 (7.15) 25.29 9.61 (13.62)
Alliance Internationa l8.54 10.34 -- -- -- -- -- -- -- --
Alliance Aggressive Stock 20.71 30.13 (4.92) 15.41 (4.28) 84.73 6.92 41.86 (0.03) 6.06
Alliance Money Market 4.05 4.53 2.82 1.78 2.37 4.97 6.99 7.93 6.09 5.41
Alliance Intermediate
Government Securities 2.57 12.03 (5.47) 9.27 4.38 11.30 -- -- -- --
Alliance High Yield 21.39 18.54 (3.90) 21.74 11.02 23.03 (2.26) 3.93 8.48 3.49
Alliance Equity Index 20.97 34.92 0.11 -- -- -- -- -- -- --
</TABLE>
5
<PAGE>
9. DEATH BENEFIT. If you die before amounts are applied under an annuity
benefit, the named beneficiary will be paid a death benefit. The death benefit
(except in New York ) is equal to (1) your Certificate's value in the
Investment Funds, or if greater, the Guaranteed Minimum Death Benefit, and (2)
the amount of the death benefit provided with respect to GIROs.
The Guaranteed Minimum Death Benefit is a "6% to Age 80 Benefit." We add
interest to the initial amount at 6% (3% for amounts in the Alliance Money
Market and Alliance Intermediate Government Securities Funds) through age
80 (or at your death, if earlier). The 6% interest rate will still apply
for amounts in the Alliance Money Market Fund under the Special Dollar Cost
Averaging program discussed below.
If you elect Plan A and are between the ages of 20 through 65, you may
instead elect a 6% to Age 70 Benefit, for a lower charge.
The death benefit with respect to the GIROs is equal to the amounts in the
GIROs, or if greater, the amounts in the GIROs reflecting guaranteed interest,
but not reflecting any increase due to interest rate changes.
The death benefit applicable to Certificates issued in New York is equal to the
amounts in the Investment Funds and the GIROs, or if greater, the Guaranteed
Minimum Death Benefit.
The Guaranteed Minimum Death Benefit is reset each year through age 80 to
your Certificate's value, if it is higher than the prior year's Guaranteed
Minimum Death Benefit. The Guaranteed Minimum Death Benefit at your death
will never be less than the amounts in the Investment Funds, plus the
amounts in the GIROs reflecting guaranteed interest, but not reflecting any
increase due to interest rate changes.
10. OTHER INFORMATION.
BASEBUILDER BENEFIT (PLAN A). The baseBUILDER (available for ages 20 through 75
at issue of the Certificates) is an optional benefit that combines the
Guaranteed Minimum Income Benefit and the Guaranteed Minimum Death Benefit. The
baseBUILDER benefit may be available for ages 76 and older, and is currently
not available in New York.
Income Benefit - The Guaranteed Minimum Income Benefit, as part of the
baseBUILDER, provides a minimum amount of guaranteed lifetime income for
your future. When you are ready to convert (at specified future times) your
Certificate's value to the Assured Payment Option, the amount of lifetime
income that will be provided will be the greater of (i) your Guaranteed
Minimum Income Benefit or (ii) your Certificate's current value applied at
current annuity factors. Investment performance is not guaranteed. The
Guaranteed Minimum Income Benefit provides a safety net for your future.
Death Benefit - As part of the baseBUILDER a Guaranteed Minimum Death
Benefit is provided which is the 6% to Age 80 Benefit or the 6% to Age 70
Benefit, both of which are described in "Death Benefit" above.
6
<PAGE>
FREE LOOK. You can examine the Certificate for a period of 10 days after you
receive it, and return it to us for a refund. The free look period is longer in
some states.
Your refund will equal your Certificate's value, reflecting any investment gain
or loss, in the Investment Funds, and any increase or decrease in the value of
any amounts held in the GIROs, through the date we receive your Certificate.
Some states or Federal income tax regulations may require that we calculate the
refund differently.
PRINCIPAL ASSURANCE. This option is designed to assure the return of your
original amount invested on a GIRO maturity date, by putting a portion of your
money in a particular GIRO, and the balance in the Investment Funds in any way
you choose. Assuming that you make no transfers or withdrawals of the portion
in the GIRO, such amount will grow to your original investment upon maturity.
DOLLAR COST AVERAGING. Special Dollar Cost Averaging - You can elect when you
apply for your Certificate to allocate your contribution to the Alliance Money
Market Fund and have it transferred from the Alliance Money Market Fund into
the other Investment Funds on a monthly basis over the first twelve months
during which time the mortality and expense risks and administration charges
will not be deducted from the Alliance Money Market Fund. General Dollar Cost
Averaging - You can elect at any time to put money into the Alliance Money
Market Fund and have a dollar amount or percentage transferred from the
Alliance Money Market Fund into the other Investment Funds on a periodic basis
over a longer period of time, and all applicable Certificate charges deducted
from the Alliance Money Market Fund will apply. Dollar cost averaging does not
assure a profit or protect against a loss should market prices decline.
REPORTS. We will provide you with an annual statement of your Certificate's
values as of the last day of each year, and three additional reports of your
Certificate's values each year. You also will be provided with written
confirmations of each financial transaction, and copies of annual and
semi-annual statements of HR Trust and EQ Trust.
You may call toll-free at 1-800-789-7771 for a recording of daily Investment
Fund values and guaranteed rates applicable to GIROs.
11. INQUIRIES. If you need more information, please contact your agent. You may
also contact us, at:
The Equitable Life Assurance Society of the United States
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Telephone 1-800-789-7771 and Fax 1-201-583-2224
7
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
INCOME MANAGER (Service Mark) ROLLOVER IRA
PROSPECTUS DATED MAY 1, 1997
------------------------
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- -------------------------------------------------------------------------------
This prospectus describes individual retirement annuity (IRA) certificates
The Equitable Life Assurance Society of the United States (EQUITABLE LIFE,
WE, OUR and US) offers under a combination variable and fixed deferred
annuity contract (ROLLOVER IRA) issued on a group basis or as individual
contracts. Enrollment under a group contract will be evidenced by issuance of
a certificate. Certificates and individual contracts each will be referred to
as "Certificates." Under the Rollover IRA we will accept only initial
contributions that are rollover contributions or that are direct transfers
from other individual retirement arrangements, as described in this
prospectus. A minimum initial contribution of $5,000 is required to put a
Certificate into effect.
The Rollover IRA is designed to provide for the accumulation of retirement
savings and for income. Contributions accumulate on a tax-deferred basis and
can be distributed under a number of different methods which are designed to
be responsive to the owner's (CERTIFICATE OWNER, YOU and YOUR) objectives.
The distribution methods include the ASSURED PAYMENT OPTION, Assured Payment
Option Plus (APO PLUS), and a variety of payout options, including variable
annuities and fixed annuities. The Assured Payment Option and APO Plus are
also available for election in the application if you are interested in
receiving distributions rather than accumulating funds.
The Rollover IRA offers investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 21
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in the
GUARANTEED PERIOD ACCOUNT. There is an additional Investment Fund which is
available only under APO Plus.
We invest each Investment Fund in Class IB shares of a corresponding
portfolio (PORTFOLIO) of The Hudson River Trust (HR TRUST) or EQ Advisors
Trust (EQ TRUST), mutual funds whose shares are purchased by separate
accounts of insurance companies. The prospectuses for HR Trust and EQ Trust,
both of which accompany this prospectus, describe the investment objectives,
policies and risks of the Portfolios.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- -----------------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
<S> <C> <C>
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity _______________
T. Rowe Price Equity Income *Available on or about September 2, 1997.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
------------------------------------------------------------------------------
Alliance Equity Index (AVAILABLE ONLY UNDER APO PLUS)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts allocated to a Guarantee Period accumulate on a fixed basis and are
credited with interest at a rate we set (GUARANTEED RATE) for the entire
period. On each business day (BUSINESS DAY) we will determine the Guaranteed
Rates available for amounts newly allocated to Guarantee Periods. A market
value adjustment (positive or negative) will be made for withdrawals,
transfers, surrender and certain other transactions from a Guarantee Period
before its expiration date (EXPIRATION DATE). Each Guarantee Period has its
own Guaranteed Rates. The Guarantee Periods currently available have
Expiration Dates of February 15, in years 1998 through 2007 under the
Rollover IRA and 1998 through 2012 under the Assured Payment Option and APO
Plus.
This prospectus provides information about the Rollover IRA that prospective
investors should know before investing. You should read it carefully and
retain it for future reference. The prospectus is not valid unless
accompanied by current prospectuses for HR Trust and EQ Trust, both of which
you should also read carefully.
Registration statements relating to Separate Account No. 45 (SEPARATE
ACCOUNT) and interests under the Guarantee Periods have been filed with the
Securities and Exchange Commission (SEC). The statement of additional
information (SAI), dated May 1, 1997, which is part of the registration
statement for the Separate Account, is available free of charge upon request
by writing to our Processing Office or calling 1-800-789-7771, our toll-free
number. The SAI has been incorporated by reference into this prospectus. The
Table of Contents for the SAI appears at the back of this prospectus.
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.
THE CERTIFICATES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED.
THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- -------------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States,
New York, New York 10104.
All rights reserved. Income Manager and baseBUILDER are service marks of The
Equitable Life Assurance Society of the United States.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996 is incorporated herein by reference.
All documents or reports filed by Equitable Life pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(EXCHANGE ACT) after the date hereof and prior to the termination of the
offering of the securities offered hereby shall be deemed to be incorporated
by reference in this prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated herein by reference shall be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified and superseded, to constitute a part of
this prospectus. Equitable Life files its Exchange Act documents and reports,
including its annual and quarterly reports on Form 10-K and Form 10-Q,
electronically pursuant to EDGAR under CIK No. 0000727920. The SEC maintains
a web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
Equitable Life will provide without charge to each person to whom this
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by
reference (other than exhibits not specifically incorporated by reference
into the text of such documents). Requests for such documents should be
directed to The Equitable Life Assurance Society of the United States, 1290
Avenue of the Americas, New York, New York 10104. Attention: Corporate
Secretary (telephone: (212) 554-1234).
2
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS TABLE OF CONTENTS
- -------------------------------------------------------------------------------
GENERAL TERMS PAGE 4
FEE TABLE PAGE 6
PART 1: EQUITABLE LIFE, THE SEPARATE
ACCOUNT AND THE
INVESTMENT FUNDS PAGE 10
Equitable Life 10
Separate Account No. 45 10
HR Trust 11
HR Trust's Manager and Adviser 11
EQ Trust 11
EQ Trust's Manager and Advisers 11
Investment Policies and Objectives
of HR Trust's Portfolios and EQ
Trust's Portfolios 12
PART 2: THE GUARANTEED PERIOD
ACCOUNT PAGE 15
Guarantee Periods 15
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior to
the Expiration Date 16
Modal Payment Portion 17
Investments 17
PART 3: PROVISIONS OF THE
CERTIFICATES AND SERVICES
WE PROVIDE PAGE 19
What is the Rollover IRA? 19
Availability of the Certificates 19
Contributions Under the Certificates 19
Methods of Payment 19
Allocation of Contributions 19
Free Look Period 20
Annuity Account Value 20
Transfers Among Investment Options 21
Dollar Cost Averaging 21
baseBUILDER Benefits 22
Death Benefit 22
Guaranteed Minimum Income Benefit 23
Cash Value 24
Surrendering the Certificates to
Receive the Cash Value 24
When Payments are Made 24
Assignment 24
Services We Provide 25
Distribution of the Certificates 25
PART 4: DISTRIBUTION METHODS UNDER
THE CERTIFICATES PAGE 26
Assured Payment Option 26
APO Plus 29
Withdrawal Options 31
How Withdrawals and Transfers Affect
Your Guaranteed Minimum Death
Benefit and Guaranteed Minimum
Income Benefit 33
Annuity Benefits 34
PART 5: DEDUCTIONS AND CHARGES PAGE 36
Charges Deducted from the Annuity
Account Value 36
Charges Deducted from the Investment
Funds 36
HR Trust Charges to Portfolios 37
EQ Trust Charges to Portfolios 37
Sponsored Arrangements 38
Other Distribution Arrangements 38
PART 6: VOTING RIGHTS PAGE 39
HR Trust and EQ Trust Voting Rights 39
Voting Rights of Others 39
Separate Account Voting Rights 39
Changes in Applicable Law 39
PART 7: TAX ASPECTS OF THE
CERTIFICATES PAGE 40
Tax-Qualified Individual Retirement
Annuities (IRAs) 40
Penalty Tax on Early Distributions 45
Tax Penalty for Insufficient
Distributions 45
Tax Penalty for Excess Distributions
or Accumulation 45
Federal and State Income Tax
Withholding 46
Other Withholding 46
Impact of Taxes to Equitable Life 46
Transfers Among Investment Options 46
Tax Changes 47
PART 8: INDEPENDENT ACCOUNTANTS PAGE 48
PART 9: INVESTMENT PERFORMANCE PAGE 49
Standardized Performance Data 49
Rate of Return Data for Investment
Funds 51
Communicating Performance Data 54
Alliance Money Market Fund and
Alliance Intermediate Government
Securities Fund Yield Information 54
APPENDIX I: MARKET VALUE
ADJUSTMENT EXAMPLE PAGE 56
APPENDIX II: DEATH BENEFIT FOR
CERTIFICATES ISSUED IN NEW YORK PAGE 57
APPENDIX III: GUARANTEED MINIMUM
DEATH BENEFIT EXAMPLE PAGE 58
APPENDIX IV: EXAMPLE OF PAYMENTS
UNDER THE ASSURED PAYMENT
OPTION AND APO PLUS PAGE 59
APPENDIX V: IRS TAX DEDUCTION TABLE PAGE 60
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS PAGE 61
3
<PAGE>
- -------------------------------------------------------------------------------
GENERAL TERMS
- -------------------------------------------------------------------------------
ACCUMULATION UNIT--Contributions that are invested in an Investment Fund
purchase Accumulation Units in that Investment Fund.
ACCUMULATION UNIT VALUE--The dollar value of each Accumulation Unit in an
Investment Fund on a given date.
ANNUITANT--The individual who is the measuring life for determining benefits
under a Certificate. The Annuitant and Certificate Owner must be the same
individual.
ANNUITY ACCOUNT VALUE--The sum of the amounts in the Investment Options under
the Certificate. See "Annuity Account Value" in Part 3.
ANNUITY COMMENCEMENT DATE--The date on which annuity benefit payments are to
commence.
ASSURED PAYMENT OPTION--A distribution option which provides guaranteed
lifetime income. The Assured Payment Option may be elected in the application
or elected as a distribution option at a later date. Under this option
amounts are allocated to the Guaranteed Period Account and the Life
Contingent Annuity. No amounts may be allocated to the Investment Funds.
APO PLUS--A distribution option which provides guaranteed lifetime income.
APO Plus may be elected in the application or as a distribution option at a
later date. Under this option amounts are allocated to the Guaranteed Period
Account, the Life Contingent Annuity and to the Alliance Common Stock Fund or
the Alliance Equity Index Fund. The amount in the selected Fund is then
systematically converted to increase the guaranteed lifetime income.
BASEBUILDER (SERVICE MARK) --Optional protection benefit, consisting of the
Guaranteed Minimum Death Benefit and the Guaranteed Minimum Income Benefit.
BUSINESS DAY--Generally, any day on which the New York Stock Exchange is open
for trading. For the purpose of determining the Transaction Date, our
Business Day ends at 4:00 p.m. Eastern Time or the closing of the New York
Stock Exchange, if earlier.
CASH VALUE--The Annuity Account Value minus any applicable charges.
CERTIFICATE--The Certificate issued under the terms of a group annuity
contract and any individual contract, including any endorsements.
CERTIFICATE OWNER--The person who owns a Certificate and has the right to
exercise all rights under the Certificate. The Certificate Owner must be the
same individual as the Annuitant.
CODE--The Internal Revenue Code of 1986, as amended.
CONTRACT DATE--The effective date of the Certificates. This is usually the
Business Day we receive the initial contribution at our Processing Office.
CONTRACT YEAR--The 12-month period beginning on your Contract Date and each
anniversary of that date.
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants, Inc.
(EQ Financial) is the manager to EQ Trust and has appointed advisers for each
of the Portfolios.
EXPIRATION DATE--The date on which a Guarantee Period ends.
GUARANTEED MINIMUM DEATH BENEFIT--The minimum amount payable with respect to
the Investment Funds (in all states except New York), upon the death of the
Annuitant. The Guaranteed Minimum Death Benefit is different in New York.
GUARANTEED MINIMUM INCOME BENEFIT--The minimum amount of future guaranteed
lifetime income provided with respect to the Investment Funds.
GUARANTEE PERIOD--Any of the periods of time ending on an Expiration Date
that are available for investment under the Certificates. Guarantee Periods
may also be referred to as Guaranteed Interest Rate Options (GIROs).
GUARANTEED PERIOD ACCOUNT--The Account that contains the Guarantee Periods
and the Modal Payment Portion of such Account.
GUARANTEED RATE--The annual interest rate established for each allocation to
a Guarantee Period.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
INVESTMENT FUNDS--The funds of the Separate Account that are available under
the Certificates. The Alliance Equity Index Fund is only available under APO
Plus.
4
<PAGE>
INVESTMENT OPTIONS--The choices for investment: the Investment Funds and each
available Guarantee Period.
IRA--An individual retirement annuity, as defined in Section 408(b) of the
Code.
LIFE CONTINGENT ANNUITY--Provides guaranteed lifetime income beginning at a
future date. Amounts may only be applied under the Life Contingent Annuity
through election of the Assured Payment Option and APO Plus.
MATURITY VALUE--The amount in a Guarantee Period on its Expiration Date.
MODAL PAYMENT PORTION--Under the Assured Payment Option and APO Plus, the
portion of the Guaranteed Period Account from which payments, other than
payments due on an Expiration Date, are made.
PORTFOLIOS--The portfolios of HR Trust and EQ Trust that correspond to the
Investment Funds of the Separate Account.
PROCESSING DATE--The day when we deduct certain charges from the Annuity
Account Value. If the Processing Date is not a Business Day, it will be on
the next succeeding Business Day. The Processing Date will be once each year
on each anniversary of the Contract Date.
PROCESSING OFFICE--The address to which all contributions, written requests
(e.g., transfers, withdrawals, etc.) or other written communications must be
sent. See "Services We Provide" in Part 3.
SAI--The statement of additional information for the Separate Account under
the Certificates.
SEPARATE ACCOUNT--Equitable Life's Separate Account No. 45.
TRANSACTION DATE--The Business Day we receive a contribution or a transaction
request providing all the information we need at our Processing Office. If
your contribution or request reaches our Processing Office on a non-Business
Day, or after the close of the Business Day, the Transaction Date will be the
next following Business Day. Transaction requests must be made in a form
acceptable to us.
VALUATION PERIOD--Each Business Day together with any preceding non-business
days.
5
<PAGE>
- -------------------------------------------------------------------------------
FEE TABLE
- -------------------------------------------------------------------------------
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them with other similar products. The table reflects
both the charges of the Separate Account and the expenses of HR Trust and EQ
Trust. Charges for applicable taxes such as state or local premium taxes may
also apply. For a complete description of the charges under the Certificate,
see "Part 5: Deductions and Charges." For a complete description of each
trust's charges and expenses, see the prospectuses for HR Trust and EQ Trust.
As explained in Part 2, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. See "Part 5: Deductions and
Charges." A market value adjustment (either positive or negative) also may be
applicable as a result of a withdrawal, transfer or surrender of amounts from
a Guarantee Period. See "Part 2: The Guaranteed Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
<S><C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon CONTRACT
surrender or for certain withdrawals. The applicable withdrawal charge YEAR
percentage is determined by the Contract Year in which the withdrawal is ----
made or the Certificate is surrendered beginning with "Contract Year 1" 1.... 7.00%
with respect to each contribution withdrawn or surrendered. For each 2.... 6.00
contribution, the Contract Year in which we receive that contribution is 3.... 5.00
"Contract Year 1")(1) 4.... 4.00
5.... 3.00
6.... 2.00
7.... 1.00
8+... 0.00
</TABLE>
<TABLE>
<CAPTION>
GUARANTEED BENEFIT EXPENSE (DEDUCTED FROM ANNUITY ACCOUNT VALUE)(2)
- ------------------------------------------------------------------------------------
<S> <C>
COMBINED GUARANTEED MINIMUM DEATH BENEFIT AND GUARANTEED MINIMUM INCOME BENEFIT
(PLAN A) (calculated as a percentage of the Guaranteed Minimum Death Benefit) .... 0.45%
GUARANTEED MINIMUM DEATH BENEFIT ONLY (PLAN B) (calculated as a percentage of the
Guaranteed Minimum Death Benefit) ................................................. 0.20%
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- ------------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISKS......................................................... 0.90%
ADMINISTRATION(3)................................................................... 0.25%
-------
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES............................................. 1.15%
=======
</TABLE>
- --------------
See footnotes on next page.
6
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
----------------------------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL INTERNATIONAL
- -------- --------- --------- ------ ----- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65% 0.90%
12b-1 Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08% 0.18%
----- ----- ----- ----- ----- -----
TOTAL HR TRUST ANNUAL EXPENSES(5) 0.80% 0.84% 0.85% 0.66% 0.98% 1.33%
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE ALLIANCE
AGGRESSIVE SMALL MONEY GOVT. HIGH EQUITY
HR TRUST STOCK CAP GROWTH MARKET SECURITIES YIELD INDEX
- -------- ----- ---------- ------ ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.55% 0.90% 0.35% 0.50% 0.60% 0.33%
12b-1 Fee(4) 0.25% 0.25%(7) 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.03% 0.10% 0.04% 0.09% 0.06% 0.05%
----- ----- ----- ----- ----- -----
TOTAL HR TRUST ANNUAL EXPENSES(5) 0.83% 1.20%(7) 0.64% 0.84% 0.91% 0.63%
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
EQ/PUTNAM MFS MERRILL
GROWTH & EMERGING LYNCH
EQ/PUTNAM INCOME GROWTH MFS BASIC VALUE
EQ TRUST BALANCED VALUE COMPANIES RESEARCH EQUITY
- -------- -------- ----- --------- -------- ------
<S> <C>
Investment Advisory Fee 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.10% 0.05% 0.05% 0.05% 0.05%
----- ----- ----- ----- -----
TOTAL EQ TRUST ANNUAL EXPENSES(6) 0.90% 0.85% 0.85% 0.85% 0.85%
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
MORGAN WARBURG
MERRILL STANLEY T. ROWE PINCUS
LYNCH EMERGING T. ROWE PRICE SMALL
WORLD MARKETS PRICE EQUITY INTERNATIONAL COMPANY
EQ TRUST STRATEGY EQUITY* INCOME STOCK VALUE
- -------- -------- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.70% 1.15% 0.55% 0.75% 0.65%
12b-1 Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.25% 0.35% 0.05% 0.20% 0.10%
----- ----- ----- ----- -----
TOTAL EQ TRUST ANNUAL EXPENSES(6) 1.20% 1.75% 0.85% 1.20% 1.00%
===== ===== ===== ===== =====
</TABLE>
- --------------
Notes:
(1) Deducted upon a withdrawal with respect to amounts in excess of the 15%
(10% under the Assured Payment Option and APO Plus) free corridor amount,
and upon a surrender. See "Withdrawal Charge" in Part 5.
(2) The Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit (Plan A) is not available under APO Plus. See APO Plus in
Part 4. If you choose a 6% to Age 70 Benefit (which is only available
under Plan A), the charge is 0.30%. This charge is deducted annually on
each Processing Date. See "Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit Charge (Plan A)" and "Guaranteed
Minimum Death Benefit Only Benefit Charge (Plan B)" in Part 5.
(3) We reserve the right to increase this charge to an annual rate of 0.35%,
the maximum permitted under the Certificates.
(4) The Class IB shares of HR Trust and EQ Trust are subject to fees imposed
under distribution plans (herein, the "Rule 12b-1 Plans") adopted by HR
Trust and EQ Trust pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The Rule 12b-1 Plans provide that HR Trust and EQ Trust, on
behalf of each Portfolio, may pay annually up to 0.25% of the average
daily net assets of a Portfolio attributable to its Class IB shares in
respect of activities primarily intended to result in the sale of the
Class IB shares. This fee will not be increased for the life of the
Certificates.
(5) The amounts shown for the Portfolios of HR Trust (other than Alliance
Small Cap Growth) have been restated to reflect advisory fees which went
into effect as of May 1, 1997. "Other Expenses" are based on average
daily net assets in each Portfolio during 1996. The amounts shown for the
Alliance Small Cap Growth Portfolio are estimated for the current fiscal
year as this Portfolio commenced operations on May 1, 1997. The
investment advisory fee for each Portfolio may vary from year to year
depending upon the average daily net assets of the respective Portfolio
of HR Trust. The maximum investment advisory fees, however, cannot be
increased without a vote of that Portfolio's shareholders. The other
direct operating expenses will also fluctuate from year to year depending
on actual expenses. See "HR Trust Charges to Portfolios" in Part 5.
(6) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust commenced
operations on May 1, 1997. The maximum investment advisory fees cannot be
increased without a vote of that Portfolio's shareholders. The other
direct operating expenses will fluctuate from year to year depending on
actual expenses but pursuant to agreement, cannot together with other
fees specified exceed total annual expenses specified. See "EQ Trust
Charges to Portfolios" in Part 5.
(7) Equitable Distributors Inc. (EDI) has agreed to waive the 0.25% 12b-1 fee
to the extent necessary to limit annual expenses for the Alliance Small
Cap Growth Portfolio to 1.20% of the average daily net assets of that
Portfolio as set forth above. This agreement may be modified by EDI and
HR Trust at any time, and there can be no assurance that the 12b-1 fee
will not be restored to 0.25% in the future.
* Available on or about September 2, 1997.
7
<PAGE>
EXAMPLES
- --------
The examples below show the expenses that a hypothetical Certificate Owner
would pay under the Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit (Plan A), under the Guaranteed Minimum Death Benefit
Only Benefit (Plan B) and under APO Plus in the two situations noted below
assuming a $1,000 contribution invested in one of the Investment Funds
listed, and a 5% annual return on assets.(1)
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be
greater or less than those shown. Similarly, the annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance.
COMBINED GUARANTEED MINIMUM DEATH BENEFIT
AND GUARANTEED MINIMUM INCOME BENEFIT (PLAN A) ELECTION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE
THE EXPENSES WOULD BE: END OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $89.74 $120.55 $154.64 $275.75 $24.51 $ 75.92 $130.68 $283.83
Alliance Growth
Investors 90.14 121.76 156.67 279.80 24.91 77.12 132.69 287.85
Alliance Growth &
Income 90.24 122.06 157.17 280.80 25.01 77.42 133.19 288.87
Alliance Common Stock 88.35 116.35 147.61 261.52 23.12 71.71 123.63 269.57
Alliance Global 91.53 125.95 163.66 293.80 26.30 81.30 139.67 301.85
Alliance International 95.01 136.36 180.97 328.00 29.78 91.73 157.01 336.07
Alliance Aggressive
Stock 90.04 121.46 156.17 278.79 24.81 76.82 132.19 286.85
Alliance Small Cap
Growth 93.72 133.50 -- -- 28.49 87.87 -- --
Alliance Money Market 88.15 115.75 146.59 259.45 22.92 71.11 122.61 267.51
Alliance Intermediate
Gov't Securities 90.14 121.76 156.67 279.80 24.91 77.12 132.69 287.85
Alliance High Yield 90.84 123.86 160.17 286.83 25.61 79.22 136.19 294.89
EQ TRUST
- --------
EQ/Putnam Balanced $90.74 $123.56 -- -- $25.51 $ 78.91 -- --
EQ/Putnam Growth &
Income Value 90.24 122.06 -- -- 25.01 77.42 -- --
MFS Emerging Growth
Companies 90.24 122.06 -- -- 25.01 77.42 -- --
MFS Research 90.24 122.06 -- -- 25.01 77.42 -- --
Merrill Lynch Basic
Value Equity 90.24 122.06 -- -- 25.01 77.42 -- --
Merrill Lynch World
Strategy 93.72 132.50 -- -- 28.49 87.87 -- --
Morgan Stanley
Emerging Markets
Equity 99.19 148.78 -- -- 33.96 104.14 -- --
T. Rowe Price Equity
Income 90.24 122.06 -- -- 25.01 77.42 -- --
T. Rowe Price
International Stock 93.72 132.50 -- -- 28.49 87.87 -- --
Warburg Pincus Small
Company Value 91.73 126.55 -- -- 26.50 81.90 -- --
</TABLE>
- --------------
See note on next page.
8
<PAGE>
GUARANTEED MINIMUM DEATH BENEFIT ONLY BENEFIT (PLAN B) ELECTION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE
THE EXPENSES WOULD BE: END OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $89.74 $115.25 $143.62 $248.28 $21.86 $67.64 $116.31 $251.89
Alliance Growth
Investors 90.14 116.46 145.64 252.38 22.26 68.84 118.33 255.98
Alliance Growth &
Income 90.24 116.76 146.16 253.43 22.36 69.14 118.83 257.01
Alliance Common Stock 88.35 111.05 136.55 233.84 20.47 63.42 109.21 237.42
Alliance Global 91.53 120.66 152.69 266.60 23.65 73.04 125.36 270.18
Alliance International 95.01 131.11 170.11 301.30 27.13 83.49 142.78 304.87
Alliance Aggressive
Stock 90.04 116.16 145.14 251.37 22.16 68.54 117.82 254.95
Alliance Small Cap
Growth 93.72 127.24 -- -- 25.84 79.62 -- --
Alliance Money Market 88.15 110.44 135.53 231.77 20.27 62.82 108.21 235.35
Alliance Intermediate
Gov't Securities 90.14 116.46 145.64 252.38 22.26 68.84 118.33 255.98
Alliance High Yield 90.84 118.56 149.17 259.51 22.96 70.95 121.86 263.11
EQ TRUST
- --------
EQ/Putnam Balanced $90.74 $118.26 -- -- $22.86 $70.65 -- --
EQ/Putnam Growth &
Income Value 90.24 116.76 -- -- 22.36 69.14 -- --
MFS Emerging Growth
Companies 90.24 116.76 -- -- 22.36 69.14 -- --
MFS Research 90.24 116.76 -- -- 22.36 69.14 -- --
Merrill Lynch Basic
Value Equity 90.24 116.76 -- -- 22.36 69.14 -- --
Merrill Lynch World
Strategy 93.72 127.24 -- -- 25.84 79.62 -- --
Morgan Stanley
Emerging Markets
Equity 99.19 143.56 -- -- 31.31 95.94 -- --
T. Rowe Price Equity
Income 90.24 116.76 -- -- 22.36 69.14 -- --
T. Rowe Price
International Stock 93.72 127.24 -- -- 25.84 79.62 -- --
Warburg Pincus Small
Company Value 91.73 121.26 -- -- 23.85 73.64 -- --
</TABLE>
- --------------
See note below.
APO PLUS ELECTION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE END
THE EXPENSES WOULD BE: OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Common
Stock $88.35 $111.05 $136.55 $233.84 $20.47 $63.42 $109.21 $237.42
Alliance Equity
Index 88.05 110.14 135.02 230.74 20.17 62.52 107.69 234.31
</TABLE>
Note:
- --------------
(1) The amount accumulated from the $1,000 contribution could not be paid in
the form of an annuity at the end of any of the periods shown in the
examples. If the amount applied to purchase an annuity is less than
$2,000, or the initial payment is less than $20 we may pay the amount to
the payee in a single sum instead of as payments under an annuity form.
See "Annuity Benefits" in Part 4. The examples do not reflect charges for
applicable taxes such as state or local premium taxes that may also be
deducted in certain jurisdictions.
9
<PAGE>
- -------------------------------------------------------------------------------
PART 1: EQUITABLE LIFE, THE SEPARATE ACCOUNT
AND THE INVESTMENT FUNDS
- -------------------------------------------------------------------------------
EQUITABLE LIFE
Equitable Life is a New York stock life insurance company that has been in
business since 1859. For more than 100 years we have been among the largest
life insurance companies in the United States. Equitable Life has been
selling annuities since the turn of the century. Our home office is located
at 1290 Avenue of the Americas, New York, New York 10104. We are authorized
to sell life insurance and annuities in all fifty states, the District of
Columbia, Puerto Rico and the Virgin Islands. We maintain local offices
throughout the United States.
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding common stock of the Holding Company
(assuming conversion of convertible preferred stock held by AXA). Under its
investment arrangements with Equitable Life and the Holding Company, AXA is
able to exercise significant influence over the operations and capital
structure of the Holding Company and its subsidiaries, including Equitable
Life. AXA, a French company, is the holding company for an international
group of insurance and related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $239.8 billion of assets as of December 31, 1996.
SEPARATE ACCOUNT NO. 45
Separate Account No. 45 is organized as a unit investment trust, a type of
investment company, and is registered with the SEC under the Investment
Company Act of 1940, as amended (1940 Act). This registration does not
involve any supervision by the SEC of the management or investment policies
of the Separate Account. The Separate Account has several Investment Funds,
each of which invests in shares of a corresponding Portfolio of HR Trust and
EQ Trust. Because amounts allocated to the Investment Funds are invested in a
mutual fund, investment return and principal will fluctuate and the
Certificate Owner's Accumulation Units may be worth more or less than the
original cost when redeemed.
Under the New York Insurance Law, the portion of the Separate Account's
assets equal to the reserves and other liabilities relating to the
Certificates are not chargeable with liabilities arising out of any other
business we may conduct. Income, gains or losses, whether or not realized,
from assets of the Separate Account are credited to or charged against the
Separate Account without regard to our other income gains or losses. We are
the issuer of the Certificates, and the obligations set forth in the
Certificates (other than those of Annuitants or Certificate Owners) are our
obligations.
In addition to contributions made under the Rollover IRA Certificates, we may
allocate to the Separate Account monies received under other contracts,
certificates, or agreements. Owners of all such contracts, certificates or
agreements will participate in the Separate Account in proportion to the
amounts they have in the Investment Funds that relate to their contracts,
certificates or agreements. We may retain in the Separate Account assets that
are in excess of the reserves and other liabilities relating to the Rollover
IRA Certificates or to other contracts, certificates or agreements, or we may
transfer the excess to our General Account.
We reserve the right, subject to compliance with applicable law; (1) to add
Investment Funds (or sub-funds of Investment Funds) to, or to remove
Investment Funds (or sub-funds) from, the Separate Account, or to add other
separate accounts; (2) to combine any two or more Investment Funds or
sub-funds thereof; (3) to transfer the assets we determine to be the share of
the class of contracts to which the Certificates belong from any Investment
Fund to another Investment Fund; (4) to operate the Separate Account or any
Investment Fund as a management investment company under the 1940 Act, in
which case charges and expenses that otherwise would be assessed against an
underlying mutual fund would be assessed against the Separate Account; (5) to
deregister the Separate Account under the 1940 Act, provided that such action
conforms with the requirements of applicable law; (6) to restrict or
eliminate any voting rights as to the Separate Account; and (7) to cause one
or more Investment Funds to invest some or all of their assets in one or more
other trusts or investment companies. If any changes are made that result in
a material change in the underlying investment policy of an Investment Fund,
you will be notified as required by law.
10
<PAGE>
HR TRUST
HR Trust is an open-end diversified management investment company, more
commonly called a mutual fund. As a "series" type of mutual fund, it issues
several different series of stock, each of which relates to a different
Portfolio of HR Trust. HR Trust commenced operations in January 1976 with a
predecessor of its Alliance Common Stock Portfolio. HR Trust does not impose
a sales charge or "load" for buying and selling its shares. All dividend
distributions to HR Trust are reinvested in full and fractional shares of the
Portfolio to which they relate. Investment Funds that invest in Portfolios of
HR Trust purchase Class IB shares of a corresponding Portfolio of HR Trust.
More detailed information about HR Trust, its investment objectives,
policies, restrictions, risks, expenses, the Rule 12b-1 Plan relating to
Class IB shares, and all other aspects of its operations appears in its
prospectus which accompanies this prospectus or in its statement of
additional information.
HR TRUST'S MANAGER AND ADVISER
HR Trust is managed and advised by Alliance Capital Management L.P.
(Alliance), which is registered with the SEC as an investment adviser under
the 1940 Act. Alliance, a publicly-traded limited partnership, is indirectly
majority-owned by Equitable Life. On December 31, 1996, Alliance was managing
approximately $182.8 billion in assets. Alliance acts as an investment
adviser to various separate accounts and general accounts of Equitable Life
and other affiliated insurance companies. Alliance also provides management
and consulting services to mutual funds, endowment funds, insurance
companies, foreign entities, qualified and non-tax qualified corporate funds,
public and private pension and profit-sharing plans, foundations and
tax-exempt organizations.
Alliance's main office is located at 1345 Avenue of the Americas, New York,
New York 10105.
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type" of
mutual fund, EQ Trust issues different series of stock, each of which relates
to a different Portfolio of EQ Trust. EQ Trust commenced operations on May 1,
1997. EQ Trust does not impose a sales charge or "load" for buying and
selling its shares. All dividend distributions to EQ Trust are reinvested in
full and fractional shares of the Portfolio to which they relate. Investment
Funds that invest in Portfolios of EQ Trust purchase Class IB shares of a
corresponding Portfolio of EQ Trust. More detailed information about EQ
Trust, its investment objectives, policies and restrictions, risks, expenses,
the Rule 12b-1 Plan relating to the Class IB shares, and all other aspects of
its operations appears in its prospectus which accompanies this prospectus
and in its statement of additional information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has overall
responsibility for the general management and administration of EQ Trust. EQ
Financial is an investment adviser registered under the 1940 Act, and a
broker-dealer registered under the Exchange Act. EQ Financial is a Delaware
corporation and an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, New York 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, Massachusetts Financial Services Company, Merrill Lynch Asset
Management, L.P., Morgan Stanley Asset Management, Inc., T. Rowe Price
Associates, Inc. and Rowe Price-Fleming International, Inc., and Warburg,
Pincus Counsellors, Inc., which serve as advisers to EQ/Putnam, MFS, Merrill
Lynch, Morgan Stanley, T. Rowe Price, and Warburg Pincus Portfolios,
respectively, of EQ Trust.
11
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF HR TRUST'S PORTFOLIOS AND EQ TRUST'S
PORTFOLIOS
Each Portfolio has a different investment objective which it tries to achieve
by following separate investment policies. The policies and objectives of
each Portfolio will affect its return and its risks. There is no guarantee
that these objectives will be achieved. Set forth below is a summary of the
investment policies and objectives of each Portfolio. This summary is
qualified in its entirety by reference to the prospectuses for HR Trust and
EQ Trust both of which accompany this prospectus. Please read the
prospectuses for each of the trusts carefully before investing.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVE
- --------- ----------------- ---------
<S> <C> <C>
HR TRUST
Alliance Conservative Diversified mix of publicly traded equity and debt High total return without, in
Investors securities. the adviser's opinion, undue
risk to principal
Alliance Growth Investors Diversified mix of publicly traded equity and fixed High total return consistent
income securities, including at times common stocks with the adviser's
issued by intermediate and small-sized companies and determination of reasonable
at times lower quality fixed income securities risk
commonly known as "junk bonds."
Alliance Growth & Income Primarily income producing common stocks and High total return through a
securities convertible into common stocks. combination of current income
and capital appreciation
Alliance Common Stock Primarily common stock and other equity-type Long-term growth of capital
instruments. and increasing income
Alliance Global Primarily equity securities of non-United States as Long-term growth of capital
well as United States companies.
Alliance International Primarily equity securities selected principally to Long-term growth of capital
permit participation in non-United States companies
with prospects for growth.
Alliance Aggressive Stock Primarily common stocks and other equity-type Long-term growth of capital
securities issued by quality small and intermediate
sized companies with strong growth prospects and in
covered options on those securities.
Alliance Small Cap Growth Primarily U.S. common stocks and other equity-type Long-term growth of capital
securities issued by smaller companies that, in the
opinion of the adviser, have favorable growth
prospects.
Alliance Money Market Primarily high quality U.S. dollar denominated money High level of current income
market instruments. while preserving assets and
maintaining liquidity
Alliance Intermediate Primarily debt securities issued or guaranteed as to High current income consistent
Government Securities principal and interest by the U.S. government or any with relative stability of
of its agencies or instrumentalities. Each investment principal
will have a final maturity of not more than 10 years
or a duration not exceeding that of a 10-year Treasury
note.
12
<PAGE>
PORTFOLIO INVESTMENT POLICY OBJECTIVE
- --------- ----------------- ---------
Alliance High Yield Primarily a diversified mix of high yield, High return by maximizing
fixed-income securities which generally involve current income and, to the
greater volatility of price and risk of principal and extent consistent with that
income than higher quality fixed-income securities. objective, capital
Lower quality debt securities are commonly known as appreciation
"junk bonds."
Available under APO Plus
Alliance Equity Index Selected securities in the Standard & Poor's 500 Index Total return (before trust and
(the "Index") which the adviser believes will, in the separate account expenses)
aggregate, approximate the performance results of the that approximates the
Index. investment performance of the
Index (including reinvestment
of dividends) at risk level
consistent with that of the
Index
EQ TRUST
EQ/Putnam Balanced A well-diversified portfolio of stocks and bonds that Balanced investment
will produce both capital growth and current income.
EQ/Putnam Growth & Primarily common stocks that offer potential for Capital growth and,
Income Value capital growth and may, consistent with the secondarily, current income
Portfolio's investment objective, invest in common
stocks that offer potential for current income.
MFS Emerging Growth Primarily (i.e., at least 80% of its assets under Long-term growth of capital
Companies normal circumstances) in common stocks of emerging
growth companies that the Portfolio adviser believes
are early in their life cycle but which have the
potential to become major enterprises.
MFS Research A substantial portion of assets invested in common Long-term growth of capital
stock or securities convertible into common stock of and future income
companies believed by the Portfolio adviser to possess
better than average prospects for long-term growth.
Merrill Lynch Basic Value Investment in securities, primarily equities, that Capital appreciation and,
Equity the Portfolio adviser believes are undervalued and secondarily, income
therefore represent basic investment value.
Merrill Lynch World Investment primarily in a portfolio of equity and High total investment return
Strategy fixed-income securities, including convertible
securities, of U.S. and foreign issuers.
Morgan Stanley Emerging Primarily equity securities of emerging market Long-term capital appreciation
Markets Equity* country issuers with a focus on those in which the
Portfolio's adviser believes the economies are
developing strongly and in which the markets
are becoming more sophisticated.
13
<PAGE>
PORTFOLIO INVESTMENT POLICY OBJECTIVE
- --------- ----------------- ---------
T. Rowe Price Equity Primarily dividend paying common stocks of Substantial dividend income
Income established companies. and also capital appreciation
T. Rowe Price International Primarily common stocks of established non-United Long-term growth of capital
Stock States companies.
Warburg Pincus Small Primarily in a portfolio of equity securities of Long-term capital appreciation
Company Value small capitalization companies (i.e., companies
having market capitalizations of $1 billion or
less at the time of initial purchase) that the
Portfolio adviser considers to be relatively
undervalued.
</TABLE>
- --------------
* Will be available on or about September 2, 1997.
14
<PAGE>
- -------------------------------------------------------------------------------
PART 2: THE GUARANTEED PERIOD ACCOUNT
- -------------------------------------------------------------------------------
GUARANTEE PERIODS
Each amount allocated to a Guarantee Period and held to the Period's
Expiration Date accumulates interest at a Guaranteed Rate. The Guaranteed
Rate for each allocation is the annual interest rate applicable to new
allocations to that Guarantee Period, which was in effect on the Transaction
Date for the allocation. We may establish different Guaranteed Rates under
different classes of Certificates. We use the term GUARANTEED PERIOD AMOUNT
to refer to the amount allocated to and accumulated in each Guarantee Period.
The Guaranteed Period Amount is reduced or increased by any market value
adjustment as a result of withdrawals, transfers or charges (see below).
Your Guaranteed Period Account contains the Guarantee Periods to which you
have allocated Annuity Account Value. On the Expiration Date of a Guarantee
Period, its Guaranteed Period Amount and its value in the Guaranteed Period
Account are equal. We call the Guaranteed Period Amount on an Expiration Date
the Guarantee Period's Maturity Value. We report the Annuity Account Value in
your Guaranteed Period Account to reflect any market value adjustment that
would apply if all Guaranteed Period Amounts were withdrawn as of the
calculation date. The Annuity Account Value in the Guaranteed Period Account
with respect to the Guarantee Periods on any Business Day, therefore, will be
the sum of the present value of the Maturity Value in each Guarantee Period,
using the Guaranteed Rate in effect for new allocations to such Guarantee
Period on such date.
Guarantee Periods and Expiration Dates
We currently offer Guarantee Periods ending on February 15th for each of the
maturity years 1998 through 2007. Not all of these Guarantee Periods will be
available for ages 76 and above. See "Allocation of Contributions" in Part 3.
Also, the Guarantee Periods may not be available for investment in all
states. As Guarantee Periods expire we expect to add maturity years so that
generally 10 are available at any time.
Under the Assured Payment Option and APO Plus, in addition to the Guarantee
Periods above, Guarantee Periods ending on February 15th for each of the
maturity years 2008 through 2012 are also available.
Under the Rollover IRA, we will not accept allocations to a Guarantee Period
if, on the Transaction Date:
o Such Transaction Date and the Expiration Date for such Guarantee Period
fall within the same calendar year.
o The Guaranteed Rate is 3%.
o The Guarantee Period has an Expiration Date beyond the February 15th
immediately following the Annuity Commencement Date.
Guaranteed Rates and Price Per $100 of Maturity Value
Because the Maturity Value of a contribution allocated to a Guarantee Period
can be determined at the time it is made, you can determine the amount
required to be allocated to a Guarantee Period in order to produce a target
Maturity Value (assuming no transfers or withdrawals are made and no charges
are allocated to the Guarantee Period). The required amount is the present
value of that Maturity Value at the Guaranteed Rate on the Transaction Date
for the contribution, which may also be expressed as the price per $100 of
Maturity Value on such Transaction Date.
<PAGE>
Guaranteed Rates for new allocations as of April 15, 1997 and the related
price per $100 of Maturity Value for each currently available Guarantee
Period were as follows:
<TABLE>
<CAPTION>
GUARANTEE
PERIODS WITH GUARANTEED
EXPIRATION DATE RATE AS OF PRICE
FEBRUARY 15TH OF APRIL 15, PER $100 OF
MATURITY YEAR 1997 MATURITY VALUE
------------- ---- --------------
<S> <C> <C>
1998 4.93% $96.05
1999 5.40 90.78
2000 5.64 85.58
2001 5.76 80.65
2002 5.86 75.91
2003 5.94 71.39
2004 6.03 66.99
2005 6.09 62.89
2006 6.17 58.89
2007 6.23 55.16
</TABLE>
Available under the Assured Payment Option and APO Plus
<TABLE>
<CAPTION>
<S> <C> <C>
2008 6.20% $52.08
2009 6.20 49.04
2010 6.20 46.17
2011 6.20 43.48
2012 6.20 40.94
</TABLE>
15
<PAGE>
Allocation Among Guarantee Periods
The same approach as described above may also be used to determine the amount
which you would need to allocate to each Guarantee Period in order to create
a series of constant Maturity Values for two or more years.
For example, if you wish to have $100 mature on February 15th of each of
years 1998 through 2002, then according to the above table the lump sum
contribution you would have to make as of April 15, 1997 would be $428.97
(i.e., the sum of the price per $100 of Maturity Value for each maturity year
from 1998 through 2002).
The above example is provided to illustrate the use of present value
calculations. It does not take into account the potential for charges to be
deducted, withdrawals or transfers to be made from Guarantee Periods or for
the market value adjustment that would apply to such transactions. Actual
calculations will be based on Guaranteed Rates on each actual Transaction
Date, which may differ.
Options at Expiration Date
Under the Rollover IRA, we will notify you on or before December 31st prior
to the Expiration Date of each Guarantee Period in which you have any
Guaranteed Period Amount. You may elect one of the following options to be
effective at the Expiration Date, subject to the restrictions set forth on
the prior page and under "Allocation of Contributions" in Part 3:
(a) to transfer the Maturity Value into any Guarantee Period we are then
offering, or into any of our Investment Funds; or
(b) to withdraw the Maturity Value (subject to any withdrawal charges
which may apply).
If we have not received your election as of the Expiration Date, the Maturity
Value in the expired Guarantee Period will be transferred into the Guarantee
Period with the earliest Expiration Date.
MARKET VALUE ADJUSTMENT FOR TRANSFERS, WITHDRAWALS OR SURRENDER PRIOR TO THE
EXPIRATION DATE
Any withdrawal (including transfers, surrender and deductions) from a
Guarantee Period prior to its Expiration Date will cause any remaining
Guaranteed Period Amount for that Guarantee Period to be increased or
decreased by a market value adjustment. The amount of the adjustment will
depend on two factors: (a) the difference between the Guaranteed Rate
applicable to the amount being withdrawn and the Guaranteed Rate on the
Transaction Date for new allocations to a Guarantee Period with the same
Expiration Date, and (b) the length of time remaining until the Expiration
Date. In general, if interest rates have risen between the time when an
amount was originally allocated to a Guarantee Period and the time it is
withdrawn, the market value adjustment will be negative, and vice versa; and
the longer the period of time remaining until the Expiration Date, the
greater the impact of the interest rate difference. Therefore, it is possible
that a significant rise in interest rates could result in a substantial
reduction in your Annuity Account Value in the Guaranteed Period Account
related to longer term Guarantee Periods.
The market value adjustment (positive or negative) resulting from a
withdrawal of all funds from a Guarantee Period will be determined for each
contribution allocated to that Period as follows:
(1) We determine the present value of the Maturity Value on the Transaction
Date as follows:
(a) We determine the Guaranteed Period Amount that would be payable on
the Expiration Date, using the applicable Guaranteed Rate.
(b) We determine the period remaining in your Guarantee Period (based on
the Transaction Date) and convert it to fractional years based on a
365 day year. For example three years and 12 days becomes 3.0329.
(c) We determine the current Guaranteed Rate which applies on the
Transaction Date to new allocations to the same Guarantee Period.
(d) We determine the present value of the Guaranteed Period Amount
payable at the Expiration Date, using the period determined in (b)
and the rate determined in (c).
(2) We determine the Guaranteed Period Amount as of the current date.
(3) We subtract (2) from the result in (1)(d). The result is the market value
adjustment applicable to such Guarantee Period, which may be positive or
negative.
The market value adjustment (positive or negative) resulting from a
withdrawal (including any withdrawal charges) of a portion of the amount in a
Guarantee Period will be a percentage of the market value adjustment that
would be applicable upon a withdrawal of all funds from a Guarantee Period.
This percentage is determined by (i) dividing the amount of the withdrawal or
transfer from the Guarantee Period by (ii) the Annuity Account Value in such
Guarantee Period prior to the withdrawal or transfer. See Appendix I for an
example.
16
<PAGE>
The Guaranteed Rate for new allocations to a Guarantee Period is the rate we
have in effect for this purpose even if new allocations to that Guarantee
Period would not be accepted at the time. This rate will not be less than 3%.
If we do not have a Guaranteed Rate in effect for a Guarantee Period to which
the "current Guaranteed Rate" in (1)(c) would apply, we will use the rate at
the next closest Expiration Date. If we are no longer offering new Guarantee
Periods, the "current Guaranteed Rate" will be determined in accordance with
our procedures then in effect. For purposes of calculating the market value
adjustment only, we reserve the right to add up to 0.25% to the current rate
in (1)(c) above.
MODAL PAYMENT PORTION
Under the Assured Payment Option and APO Plus, a portion of your
contributions or Annuity Account Value is allocated to the Modal Payment
Portion of the Guaranteed Period Account for payments to be made prior to the
Expiration Date of the earliest Guarantee Period we then offer. Such amount
will accumulate interest beginning on the Transaction Date at an interest
rate we set. Interest will be credited daily. Such rate will not be less than
3%.
Upon the expiration of a Guarantee Period, the Guaranteed Period Amount will
be held in the Modal Payment Portion of the Guaranteed Period Account.
Amounts from an expired Guarantee Period held in the Modal Payment Portion of
the Guaranteed Period Account will be credited with interest at a rate equal
to the Guaranteed Rate applicable to the expired Guarantee Period, beginning
on the Expiration Date of such Guarantee Period.
There is no market value adjustment with respect to amounts held in the Modal
Payment Portion of the Guaranteed Period Account.
INVESTMENTS
Amounts allocated to Guarantee Periods or the Modal Payment Portion of the
Guaranteed Period Account will be held in a "nonunitized" separate account
established by Equitable Life under the laws of New York. This separate
account provides an additional measure of assurance that full payment of
amounts due under the Guarantee Periods and the Modal Payment Portion of the
Guaranteed Period Account will be made. Under the New York Insurance Law, the
portion of the separate account's assets equal to the reserves and other
contract liabilities relating to the Certificates are not chargeable with
liabilities arising out of any other business we may conduct.
Investments purchased with amounts allocated to the Guaranteed Period Account
are the property of Equitable Life. Any favorable investment performance on
the assets held in the separate account accrues solely to Equitable Life's
benefit. Certificate Owners do not participate in the performance of the
assets held in this separate account. Equitable Life may, subject to
applicable state law, transfer all assets allocated to the separate account
to its general account. Regardless of whether assets supporting Guaranteed
Period Accounts are held in a separate account or our general account, all
benefits relating to the Annuity Account Value in the Guaranteed Period
Account are guaranteed by Equitable Life.
Equitable Life has no specific formula for establishing the Guaranteed Rates
for the Guarantee Periods. Equitable Life expects the rates to be influenced
by, but not necessarily correspond to, among other things, the yields on the
fixed income securities to be acquired with amounts that are allocated to the
Guarantee Periods at the time that the Guaranteed Rates are established. Our
current plans are to invest such amounts in fixed income obligations,
including corporate bonds, mortgage backed and asset backed securities and
government and agency issues having durations in the aggregate consistent
with those of the Guarantee Periods.
Although the foregoing generally describes Equitable Life's plans for
investing the assets supporting Equitable Life's obligations under the fixed
portion of the Certificates, Equitable Life is not obligated to invest those
assets according to any particular plan except as may be required by state
insurance laws, nor will the Guaranteed Rates Equitable Life establishes be
determined by the performance of the nonunitized separate account.
General Account
Our general account supports all of our policy and contract guarantees,
including those applicable to the Guaranteed Period Account, as well as our
general obligations. Amounts applied under the Life Contingent Annuity become
part of the general account. See "Assured Payment Option," "Life Contingent
Annuity," in Part 4.
The general account is subject to regulation and supervision by the Insurance
Department of the State of New York and to the insurance laws and regulations
of all jurisdictions where we are authorized to do business. Because of
applicable exemptions and exclusionary provisions, interests in the general
account have not been registered under the Securities Act of 1933, as amended
(1933 Act), nor is the general account an investment company under
17
<PAGE>
the 1940 Act. Accordingly, neither the general account nor the Life
Contingent Annuity is subject to regulation under the 1933 Act or the 1940
Act. However, the market value adjustment interests under the Certificates
are registered under the 1933 Act.
We have been advised that the staff of the SEC has not made a review of the
disclosure that is included in the prospectus for your information that
relates to the general account (other than market value adjustment interests)
and the Life Contingent Annuity. The disclosure, however, may be subject to
certain generally applicable provisions of the Federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
18
<PAGE>
- -------------------------------------------------------------------------------
PART 3: PROVISIONS OF THE CERTIFICATES AND SERVICES
WE PROVIDE
- -------------------------------------------------------------------------------
THE PROVISIONS DISCUSSED IN THIS PART 3 APPLY WHEN YOUR CERTIFICATE IS
OPERATING PRIMARILY TO ACCUMULATE ANNUITY ACCOUNT VALUE. DIFFERENT RULES MAY
APPLY WHEN YOU ELECT THE ASSURED PAYMENT OPTION OR APO PLUS IN THE
APPLICATION OR AS LATER ELECTED AS A DISTRIBUTION OPTION UNDER YOUR ROLLOVER
IRA AS DISCUSSED IN PART 4. THE PROVISIONS OF YOUR CERTIFICATE MAY BE
RESTRICTED BY APPLICABLE LAWS OR REGULATIONS.
WHAT IS THE ROLLOVER IRA?
The Rollover IRA is a deferred annuity designed to provide for the
accumulation of retirement savings and for income at a future date.
Investment Options available are Investment Funds providing variable returns
and Guarantee Periods providing guaranteed interest when held to maturity.
Rollover IRA Certificates are issued as individual retirement annuities
(IRAs).
Earnings generally accumulate on a tax-deferred basis until withdrawn or when
distributions become payable. Withdrawals made prior to 59 1/2 may be subject
to tax penalty.
AVAILABILITY OF THE CERTIFICATES
The Certificates are available for issue ages 20 through 78. These
Certificates may not be available in all states. These Certificates are not
available in Puerto Rico.
CONTRIBUTIONS UNDER THE CERTIFICATES
Your initial contribution must be at least $5,000. We will only accept
initial contributions which are either rollover contributions under Sections
402(c), 403(a)(4), 403(b)(8), or 408(d)(3) of the Code, or direct
custodian-to-custodian transfers from other individual retirement
arrangements. See "Part 7: Tax Aspects of the Certificates."
You may make subsequent contributions in an amount of at least $1,000 at any
time until you attain age 79. Subsequent contributions may be "regular" IRA
contributions (limited to a maximum of $2,000 a year), or rollover
contributions or direct transfers as described above.
"Regular" IRA contributions may no longer be made for the taxable year in
which you attain age 70 1/2 or thereafter. Rollover and direct transfer
contributions may be made until you attain age 79. However, any amount
contributed after you attain age 70 1/2 must be net of your required minimum
distribution for the year in which the rollover or direct transfer
contribution is made. See "Part 7: Tax Aspects of the Certificates." For the
consequences of making a "regular" IRA contribution to your Certificate, also
see Part 7.
We may refuse to accept any contribution if the sum of all contributions
under all accumulation Certificates with the same Annuitant would then total
more than $1,500,000. We reserve the right to limit aggregate contributions
made after the first Contract Year to 150% of first year contributions. We
may also refuse to accept any contribution if the sum of all contributions
under all Equitable Life annuity accumulation certificates/contracts you own
would then total more than $2,500,000.
Contributions are credited as of the Transaction Date.
METHODS OF PAYMENT
Except as indicated below, all contributions must be made by check drawn on a
bank or credit union in the U.S., in U.S. dollars and made payable to
Equitable Life. All checks are accepted subject to collection. Contributions
must be sent to Equitable Life at our Processing Office address designated
for contributions. Your initial contribution must be accompanied by a
completed application which is acceptable to us. In the event the application
information or the application is otherwise not acceptable, we may retain
your contribution for a period not exceeding five Business Days while an
attempt is made to obtain the required information. If the required
information cannot be obtained within those five Business Days, the
Processing Office will inform the agent, on behalf of the applicant, of the
reasons for the delay and return the contribution immediately to the
applicant, unless the applicant specifically consents to our retaining the
contribution until the required information is received by the Processing
Office.
ALLOCATION OF CONTRIBUTIONS
You may choose Self-Directed, Principal Assurance or Dollar Cost Averaging
allocations.
19
<PAGE>
A contribution allocated to an Investment Fund purchases Accumulation Units
in that Investment Fund based on the Accumulation Unit Value for that
Investment Fund computed on the Transaction Date. A contribution allocated to
the Guaranteed Period Account will have the Guaranteed Rate for the specified
Guarantee Period offered on the Transaction Date.
Self-Directed Allocation
You allocate your contributions to one or up to all of the available
Investment Options. Allocations among Investment Options must be in whole
percentages. Allocation percentages can be changed at any time by writing to
our Processing Office, or by telephone. The change will be effective on the
Transaction Date and will remain in effect for future contributions unless
another change is requested.
At ages 76 and above, allocations to Guarantee Periods must be limited to
those with maturities of five years or less and with maturity dates no later
than the February 15th immediately following the Annuity Commencement Date.
Principal Assurance
This option (for issue ages 20 through 75) assures that your Maturity Value
in a specified Guarantee Period will equal your initial contribution on the
Guarantee Period's Expiration Date, while at the same time allowing you to
invest in the Investment Funds. It may be elected only at issue of your
Certificate and assumes no withdrawals or transfers from the Guarantee
Period. The maturity year generally may not be later than 10 years nor
earlier than seven years from the Contract Date. In order to accomplish this
strategy, we will allocate a portion of your initial contribution to the
selected Guarantee Period. See "Guaranteed Rates and Price Per $100 of
Maturity Value" in Part 2. The balance of your initial contribution and all
subsequent contributions must be allocated under "Self-Directed Allocation"
as described above.
Before you select a year that would extend beyond the year in which you will
attain age 70 1/2 you should consider your ability to take minimum
distributions from other IRA funds that you may have or from the Investment
Funds to the extent possible. See "Required Minimum Distributions" in Part 7.
FREE LOOK PERIOD
You have the right to examine the Rollover IRA Certificate for a period of 10
days after you receive it, and to return it to us for a refund. You cancel it
by sending it to our Processing Office. The free look is extended if your
state requires a refund period of longer than 10 days.
Your refund will equal the Annuity Account Value reflecting any investment
gain or loss, and any positive or negative market value adjustment, through
the date we receive your Certificate at our Processing Office. Some states or
Federal income tax regulations may require that we calculate the refund
differently. If the Assured Payment Option or APO Plus is elected in the
application for the Certificate, your refund will include any amount applied
under the Life Contingent Annuity. See "Assured Payment Option," "Life
Contingent Annuity" in Part 4. If you cancel your Certificate during the free
look period, we may require that you wait six months before you may apply for
a Certificate with us again.
We follow these same procedures if you change your mind before you receive
your Certificate but after a contribution has been made. See "Part 7: Tax
Aspects of the Certificates" for possible consequences of cancelling your
Certificate during the free look period.
ANNUITY ACCOUNT VALUE
Your Annuity Account Value is the sum of the amounts in the Investment
Options.
Annuity Account Value in Investment Funds
The Annuity Account Value in an Investment Fund on any Business Day is equal
to the number of Accumulation Units in that Investment Fund times the
Accumulation Unit Value for the Investment Fund for that date. The number of
Accumulation Units in an Investment Fund at any time is equal to the sum of
Accumulation Units purchased by contributions and transfers less the sum of
Accumulation Units redeemed for withdrawals, transfers or deductions for
charges.
The number of Accumulation Units purchased or sold in any Investment Fund
equals the dollar amount of the transaction divided by the Accumulation Unit
Value for that Investment Fund for the applicable Transaction Date.
The number of Accumulation Units will not vary because of any later change in
the Accumulation Unit Value. The Accumulation Unit Value varies with the
investment performance of the corresponding Portfolios of each respective
trust, which in turn reflects the investment income and realized and
unrealized capital gains and losses of the Portfolios, as well as each
respective trust's fees and expenses. The Accumulation Unit Value is also
stated after deduction of the Separate Account asset charges relating to the
Certificates. A description of the computation of the Accumulation Unit Value
is found in the SAI.
Annuity Account Value in Guaranteed Period
Account
The Annuity Account Value in the Guaranteed Period Account on any Business
Day will be the sum of
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the present value of the Maturity Value in each Guarantee Period, using the
Guaranteed Rate in effect for new allocations to such Guarantee Period on
such date. (This is equivalent to the Guaranteed Period Amount increased or
decreased by the full market value adjustment.) The Annuity Account Value,
therefore, may be higher or lower than the contributions (less withdrawals)
accumulated at the Guaranteed Rate. At the Expiration Date the Annuity
Account Value in the Guaranteed Period Account will equal the Maturity Value.
While the Assured Payment Option or APO Plus is in effect, the Annuity
Account Value will include any amount in the Modal Payment Portion of the
Guaranteed Period Account. However, amounts held in the Modal Payment Portion
of the Guaranteed Period Account are not subject to a market value
adjustment. See "Part 2: The Guaranteed Period Account."
TRANSFERS AMONG INVESTMENT OPTIONS
At any time prior to the Annuity Commencement Date, you may transfer all or
portions of your Annuity Account Value among the Investment Options, subject
to the following restrictions.
o Transfers out of a Guarantee Period other than at the Expiration Date
will result in a market value adjustment. See "Part 2: The Guaranteed
Period Account."
o At ages 76 and above, transfers to Guarantee Periods must be limited
to those with maturities of five years or less and with maturity
dates no later than February 15th immediately following the Annuity
Commencement Date.
o Transfers may not be made to a Guarantee Period with an Expiration
Date in the current calendar year, or if the Guaranteed Rate is 3%.
Transfer requests must be made directly to our Processing Office. Your
request for a transfer should specify your Certificate number, the amounts or
percentages to be transferred and the Investment Options to and from which
the amounts are to be transferred. Your transfer request may be in writing or
by telephone.
For telephone transfer requests, procedures have been established by
Equitable Life that are considered to be reasonable and are designed to
confirm that instructions communicated by telephone are genuine. Such
procedures include requiring certain personal identification information
prior to acting on telephone instructions and providing written confirmation.
In light of the procedures established, Equitable Life will not be liable for
following telephone instructions that it reasonably believes to be genuine.
We may restrict, in our sole discretion, the use of an agent acting under a
power of attorney, such as a market timer, on behalf of more than one
Certificate Owner to effect transfers. Any agreements to use market timing
services to effect transfers are subject to our rules then in effect and must
be on a form satisfactory to us.
A transfer request will be effective on the Transaction Date and the transfer
to or from Investment Funds will be made at the Accumulation Unit Value next
computed after the Transaction Date. All transfers will be confirmed in
writing.
DOLLAR COST AVERAGING
We offer two Dollar Cost Averaging programs as described below. The main
objective of dollar cost averaging is to attempt to shield your investment
from short term price fluctuations. Since approximately the same dollar
amounts are transferred from the Alliance Money Market Fund to other
Investment Funds periodically, more Accumulation Units are purchased in an
Investment Fund if the value per Accumulation Unit is low and fewer
Accumulation Units are purchased if the value per Accumulation Unit is high.
Therefore, a lower average value per Accumulation Unit may be achieved over
the long term. This plan of investing allows you to take advantage of market
fluctuations but does not assure a profit or protect against a loss in
declining markets.
Special Dollar Cost Averaging
For Certificate Owners who at issue of the Certificate want to dollar cost
average their entire initial contribution from the Alliance Money Market Fund
into the other Investment Funds monthly over a period of twelve months, we
offer a Special Dollar Cost Averaging program under which the mortality and
expense risks and administration charges normally deducted from the Alliance
Money Market Fund will not be deducted. See "Charges Deducted from the
Investment Funds" in Part 5.
General Dollar Cost Averaging
If you have at least $5,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market Fund
to other Investment Funds on a monthly, quarterly or annual basis. This
program may be elected at any time.
The minimum amount that may be transferred on each Transaction Date is $250.
The maximum amount which may be transferred is equal to the Annuity Account
Value in the Alliance Money Mar-
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<PAGE>
ket Fund at the time the option is elected, divided by the number of
transfers scheduled to be made each Contract Year. Dollar Cost Averaging may
not be elected while the Systematic Withdrawal option (described under
"Withdrawal Options" in Part 4) is in effect.
The transfer date will be the same calendar day of the month as the Contract
Date. If, on any transfer date, the Annuity Account Value in the Alliance
Money Market Fund is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the dollar cost
averaging option will end. You may change the transfer amount once each
Contract Year, or cancel this option by sending us satisfactory notice to our
Processing Office at least seven calendar days before the next transfer date.
BASEBUILDER BENEFITS
The baseBUILDER option provides guaranteed benefits in the form of a Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit. The
combined benefit (Plan A) for which there is a charge is available for issue
ages 20 through 75. You elect Plan A in the application. Once elected, the
benefit may not be changed. See "Combined Guaranteed Minimum Death Benefit
and Guaranteed Minimum Income Benefit Charge" in Part 5. If you do not elect
the combined benefit, the Guaranteed Minimum Death Benefit is still provided
under the Certificate at a lower charge. The combined benefit (Plan A) is not
currently available in New York.
DEATH BENEFIT
Generally, upon receipt of proof satisfactory to us of your death prior to
the Annuity Commencement Date, we will pay the death benefit to the
beneficiary named in your Certificate. You designate the beneficiary at the
time you apply for the Certificate. While the Certificate is in effect, you
may change your beneficiary by writing to our Processing Office. The change
will be effective on the date the written submission was signed. The death
benefit payable will be determined as of the date we receive such proof of
death and any required instructions as to the method of payment.
The death benefit applicable to Certificates issued in all states except New
York is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater, the
Guaranteed Minimum Death Benefit defined below; and
(2) the death benefit provided with respect to the Guaranteed Period Account,
which is equal to the Annuity Account Value in the Guaranteed Period
Account or, if greater, the sum of the Guaranteed Period Amounts in each
Guarantee Period, plus any amounts in the Modal Payment Portion of the
Guaranteed Period Account. See "Part 2: The Guaranteed Period Account."
GUARANTEED MINIMUM DEATH BENEFIT
Your Guaranteed Minimum Death Benefit is the minimum amount payable with
respect to the Investment Funds upon your death.
6% to Age 80 Benefit--On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the portion of the initial contribution allocated to the
Investment Funds. Thereafter, the Guaranteed Minimum Death Benefit is
credited with interest at 6% (3% for amounts in the Alliance Money Market and
Alliance Intermediate Government Securities Funds, except as indicated below)
on each Contract Date anniversary through age 80 (or at your death, if
earlier) and 0% thereafter, and is adjusted for any subsequent contributions
and transfers into the Investment Funds and transfers and withdrawals from
such Funds. The Guaranteed Minimum Death Benefit interest applicable to
amounts in the Alliance Money Market Fund under the Special Dollar Cost
Averaging program (described above) will be 6%.
Withdrawals and transfers will reduce your Guaranteed Minimum Death Benefit,
see "How Withdrawals and Transfers Affect Your Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit" in Part 4.
For the death benefit applicable to Certificates issued in New York, see
Appendix II.
See Appendix III for an example of the calculation of the Guaranteed Minimum
Death Benefit.
HOW DEATH BENEFIT PAYMENT IS MADE
We will pay the death benefit to the beneficiary in the form of the annuity
benefit you have chosen under your Certificate. If no annuity benefit has
been chosen at the time of your death, the beneficiary will receive the death
benefit in a lump sum. However, subject to any exceptions in the Certificate,
Equitable Life's rules then in effect and any other applicable requirements
under the Code, the beneficiary may elect to apply the death benefit amount
to one or more annuity benefits offered by Equitable Life. See "Annuity
Benefits" in Part 4.
Successor Annuitant
If you elect to have your spouse be both the sole primary beneficiary and the
successor Annuitant/
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Certificate Owner, then no death benefit is payable until your surviving
spouse's death.
On the Processing Date following your death, if the successor
Annuitant/Certificate Owner election was elected at issue of your Certificate
and is in effect at your death, the Guaranteed Minimum Death Benefit will be
reset at the greater of the then current Guaranteed Minimum Death Benefit and
the then current Annuity Account Value in the Investment Funds. In
determining whether the Guaranteed Minimum Death Benefit will continue to
grow, we will use the age (as of the Processing Date) of the successor
Annuitant/Certificate Owner.
GUARANTEED MINIMUM INCOME BENEFIT
The Guaranteed Minimum Income Benefit provides a minimum amount of guaranteed
lifetime income with respect to the Investment Funds. It operates through
application of your Annuity Account Value in the Investment Funds under the
Assured Payment Option (discussed in Part 4).
On the Transaction Date that you exercise your Guaranteed Minimum Income
Benefit, the annual lifetime income that will be provided under the Assured
Payment Option will be the greater of (i) your Guaranteed Minimum Income
Benefit, and (ii) the income provided by application of your Annuity Account
Value in the Investment Funds at our then current annuity factors. The
Guaranteed Minimum Income Benefit does not provide an Annuity Account Value
or guarantee performance of your Investment Funds. Because it is based on
conservative actuarial factors, the level of lifetime income that it
guarantees may often be less than the level that would be provided by
application of your Annuity Account Value at current annuity factors. It
should therefore be regarded as a safety net.
If you have any Annuity Account Value in the Guaranteed Period Account as of
the Transaction Date that you exercise your Guaranteed Minimum Income
Benefit, such Annuity Account Value will also be applied (at current annuity
factors) toward providing payments under the Assured Payment Option. Such
Annuity Account Value will increase the payments provided by the Guaranteed
Minimum Income Benefit. A market value adjustment may apply.
Illustrated below are Guaranteed Minimum Income Benefit amounts per $100,000
of initial contribution, for a male age 60 (at issue) on Contract Date
anniversaries as indicated below, assuming allocation only to the Investment
Funds (excluding the Alliance Money Market and Alliance Intermediate
Government Securities Funds), no subsequent contributions, transfers or
withdrawals.
<TABLE>
<CAPTION>
GUARANTEED MINIMUM
INCOME BENEFIT ANNUAL
INCOME PAYABLE
CONTRACT DATE FOR LIFE WITH
ANNIVERSARY 10 YEAR FIXED
AT ELECTION PERIOD
----------- ------
<S> <C>
7 $ 8,992
10 12,160
15 18,358
</TABLE>
Withdrawals and transfers will reduce your Guaranteed Minimum Income Benefit,
see "How Withdrawals and Transfers Affect Your Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit" in Part 4.
The Guaranteed Minimum Income Benefit may be exercised only within 30 days
following the seventh or later Contract Date anniversary. However, it may not
be exercised earlier than your age 60, nor later than age 83; except that for
issue ages 20 through 44, it may be exercised following the 15th or later
Contract Date anniversary.
When you exercise your Guaranteed Minimum Income Benefit, you will receive at
least the minimum annual income specified and a fixed period based on your
age at the time the benefit is exercised as follows:
<TABLE>
<CAPTION>
LEVEL PAYMENTS*
---------------
AGE AT ELECTION FIXED PERIOD YEARS
--------------- ------------------
<S> <C>
60 through 75 10
76 9
77 8
78 through 83 7
</TABLE>
- --------------
* Other forms and fixed periods may also be available.
Payments start one payment mode after the Assured Payment Option goes into
effect.
Each year on your Contract Date anniversary, if you are eligible to exercise
your Guaranteed Minimum Income Benefit, we will send you an eligibility
notice illustrating how much income could be provided on the Contract Date
anniversary. You may then notify us within 30 days following the Contract
Date anniversary if you want to exercise your Guaranteed Minimum Income
Benefit by submitting the proper form. The amount of income you actually
receive will be determined on the Transaction Date that we receive your
properly completed exercise notice.
The Guaranteed Minimum Death Benefit, which relates to the Investment Funds,
will no longer be in effect if you elect the Assured Payment Option. If you
subsequently terminate the Assured Payment Option and have your Certificate
operate under the Rollover IRA rules, then the Guaranteed Minimum
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<PAGE>
Death Benefit will go back into effect based on your Annuity Account Value in
the Investment Funds as of the Transaction Date that the Rollover IRA goes
into effect.
You may always apply your Annuity Account Value to any of our life annuity
benefits. The annuity benefits are discussed in Part 4. These benefits differ
from the Assured Payment Option and may provide higher or lower income
levels, but do not have all the features under the Assured Payment Option.
You may request and illustration from your agent.
Successor Annuitant/Certificate Owner
If the successor Annuitant/Certificate Owner election (discussed above) was
elected at issue of the Certificate and is in effect at your death, the
Guaranteed Minimum Income Benefit will continue to be available on Contract
Date anniversaries seven and later based on the Contract Date, provided the
Guaranteed Minimum Income Benefit is exercised as specified above based on
the age of the successor Annuitant/Certificate Owner.
Alternate Plan A Arrangements
Available for issue ages 20 through 65--In addition to a baseBUILDER Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit where
the Guaranteed Minimum Death Benefit interest is credited through age 80 (6%
to Age 80 Benefit), there is a lower cost benefit where interest is credited
through age 70 (6% to Age 70 Benefit) to the Guaranteed Minimum Death Benefit
and Guaranteed Minimum Income Benefit. If you wish to elect this alternate
benefit, you must do so in the application; otherwise the 6% to Age 80
Benefit will apply. Once elected, the benefit may not be changed.
Available for issue ages 76 through 78--If you are age 76 or older and you
are interested in the Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit, ask your agent for a copy of the
prospectus supplement describing this benefit.
CASH VALUE
The Cash Value under the Certificate fluctuates daily with the investment
performance of the Investment Funds you have selected and reflects any upward
or downward market value adjustment. See "Part 2: The Guaranteed Period
Account." We do not guarantee any minimum Cash Value except for amounts in a
Guarantee Period held to the Expiration Date. On any date before the Annuity
Commencement Date while the Certificate is in effect, the Cash Value is equal
to the Annuity Account Value less any withdrawal charge. The free corridor
amount will not apply when calculating the withdrawal charge applicable upon
a surrender. See "Part 5: Deductions and Charges."
SURRENDERING THE CERTIFICATES TO
RECEIVE THE CASH VALUE
You may surrender a Certificate to receive the Cash Value at any time while
you are living and before the Annuity Commencement Date. For a surrender to
be effective, we must receive your written request and the Certificate at our
Processing Office. The Cash Value will be determined on the Transaction Date.
All benefits under the Certificate will be terminated as of that date, other
than any Life Contingent Annuity Benefits, discussed in Part 4.
You may receive the Cash Value in a single sum payment or apply it under one
or more of the income annuity options. See "Annuity Benefits" in Part 4. We
will usually pay the Cash Value within seven calendar days, but we may delay
payment as described in "When Payments are Made" below.
For the tax consequences of surrenders, see "Part 7: Tax Aspects of the
Certificates."
WHEN PAYMENTS ARE MADE
Under applicable law, application of proceeds from the Investment Funds to a
variable annuity, payment of a death benefit from the Investment Funds,
payment of any portion of the Annuity Account Value (less any applicable
withdrawal charge) from the Investment Funds, and, upon surrender, payment of
the Cash Value from the Investment Funds will be made within seven calendar
days after the Transaction Date. Payments or application of proceeds from the
Investment Funds can be deferred for any period during which (1) the New York
Stock Exchange is closed or trading on it is restricted, (2) sales of
securities or determination of the fair value of an Investment Fund's assets
is not reasonably practicable because of an emergency, or (3) the SEC, by
order, permits us to defer payment in order to protect persons with interest
in the Investment Funds.
We can defer payment of any portion of the Annuity Account Value in the
Guaranteed Period Account for up to six months while you are living. We may
also defer payments for any amount attributable to a contribution made in the
form of a check for a reasonable amount of time (not to exceed 15 days) to
permit the check to clear.
ASSIGNMENT
The Certificates are not assignable or transferrable except through surrender
to us. They may not be borrowed against or used as collateral for a loan or
other obligation.
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<PAGE>
SERVICES WE PROVIDE
o REGULAR REPORTS
o Statement of your Certificate values as of
the last day of the calendar year;
o Three additional reports of your Certificate
values each year;
o Annual and semi-annual statements of each
trust; and
o Written confirmation of financial transactions.
o TOLL-FREE TELEPHONE SERVICES
o Call 1-800-789-7771 for a recording of daily
Accumulation Unit Values and Guaranteed
Rates applicable to the Guarantee Periods. Also
call during our regular business hours to speak
to one of our customer service representatives.
o PROCESSING OFFICE
o FOR CONTRIBUTIONS SENT BY REGULAR MAIL:
Equitable Life
Income Management Group
Post Office Box 13014
Newark, NJ 07188-0014
o FOR CONTRIBUTIONS SENT BY EXPRESS MAIL:
Equitable Life
c/o First Chicago National Processing Center
300 Harmon Meadow Boulevard, 3rd Floor
Attn: Box 13014
Secaucus, NJ 07094
o FOR ALL OTHER COMMUNICATIONS (E.G., RE-
QUESTS FOR TRANSFERS, WITHDRAWALS) SENT BY
REGULAR MAIL:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
o FOR ALL OTHER COMMUNICATIONS (E.G., RE-
QUESTS FOR TRANSFERS, WITHDRAWALS) SENT BY
EXPRESS MAIL:
Equitable Life
Income Management Group
200 Plaza Drive, 4th Floor
Secaucus, NJ 07096
DISTRIBUTION OF THE CERTIFICATES
As the distributor of the Certificates, Equitable Distributors, Inc. (EDI),
an indirect wholly owned subsidiary of Equitable Life, has responsibility for
sales and marketing functions for the Certificates. EDI also serves as the
principal underwriter of the Separate Account under the 1940 Act. EDI is
registered with the SEC as a broker-dealer under the Exchange Act and is a
member of the National Association of Securities Dealers, Inc. EDI's
principal business address is 1290 Avenue of the Americas, New York, New York
10104. EDI was paid a fee of $1,204,370 for 1996 and $126,914 for 1995 for
its services under its "Distribution Agreement" with Equitable Life and the
Separate Account.
The Certificates will be sold by registered representatives of EDI and its
affiliates, who are also our licensed insurance agents. Broker-dealer sales
compensation for EDI and its affiliates will generally not exceed six percent
of total contributions made under a Certificate. EDI may also receive
compensation and reimbursement for its marketing services under the terms of
its distribution agreement with Equitable Life. Broker-dealers receiving
sales compensation will generally pay a portion thereof to their registered
representatives as commissions related to sales of the Certificates. The
offering of the Certificates is intended to be continuous.
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<PAGE>
- -------------------------------------------------------------------------------
PART 4: DISTRIBUTION METHODS UNDER THE CERTIFICATES
- -------------------------------------------------------------------------------
The Rollover IRA Certificates offer several distribution methods specifically
designed to provide retirement income. The Assured Payment Option and APO
Plus, may be elected in the application or as a distribution option at a
later date. In addition, the Certificates provide for Lump Sum Withdrawals,
Substantially Equal Payment Withdrawals, Systematic Withdrawals and Minimum
Distribution Withdrawals. Fixed and variable annuity benefit options are also
available for amounts to be applied at the Annuity Commencement Date. The
Assured Payment Option and APO Plus may not be available in all states.
The Certificates are subject to the Code's minimum distribution requirements.
Generally, distributions from these Certificates must commence by April 1 of
the calendar year following the calendar year in which you attain age 70 1/2.
Subsequent distributions must be made by December 31st of each calendar year.
If you do not commence minimum distributions in the calendar year in which
you attain age 70 1/2, and wait until the three month period (January 1 to
April 1) in the next calendar year to commence minimum distributions, then
you must take two required minimum distributions in that calendar year. If
the required minimum distribution is not made, a penalty tax in an amount
equal to 50% of the difference between the amount required to be withdrawn
and the amount actually withdrawn may apply. See "Part 7: Tax Aspects of the
Certificates" for a discussion of various special rules concerning the
minimum distribution requirements.
For IRA retirement benefits subject to minimum distribution requirements, we
will send a form outlining the distribution options available before you
reach age 70 1/2 (if you have not annuitized before that time).
ASSURED PAYMENT OPTION
The Assured Payment Option is designed to provide you with guaranteed
payments for your life (SINGLE LIFE) or for the lifetime of you and a joint
Annuitant you designate (JOINT AND SURVIVOR) through a series of
distributions from the Annuity Account Value that are followed by Life
Contingent Annuity payments. Payments you receive during the fixed period are
designed to pay out the entire Annuity Account Value by the end of the fixed
period and to meet or exceed minimum distribution requirements, if
applicable. See "Minimum Distribution Withdrawals" below. The fixed period
ends with the distribution of the Maturity Value of the last Guarantee
Period, or distribution of the final amount in the Modal Payment Portion of
the Guaranteed Period Account. The fixed period may also be referred to as
the "liquidity period" as during this period, you have access to the Cash
Value through Lump Sum Withdrawals or surrender of the Certificate, with
lifetime income continuing in reduced amounts.
After the fixed period, the payments are made under the Life Contingent
Annuity described below.
You may elect the Assured Payment Option at any time if your initial
contribution or Annuity Account Value is at least $10,000 at the time of
election, by submitting a written request satisfactory to us. The Assured
Payment Option may be elected at ages 59 1/2 through 83. If you are over age
70 1/2, the availability of this option may be restricted under certain
limited circumstances. See "Tax Considerations for the Assured Payment Option
and APO Plus" in Part 7. The Assured Payment Option with level payments
(described below) may be elected at ages as young as 45. However, there are
tax considerations that should be taken into account before electing level
payments under the Assured Payment Option if you are under age 59 1/2. See
"Penalty Tax on Early Distributions" in Part 7. The Assured Payment Option
with increasing payments (described below) may be elected at ages as young 53
1/2 provided payments do not start before you attain age 59 1/2.
Once the Assured Payment Option is elected, all amounts currently held under
your Rollover IRA must be allocated to the Guarantee Periods, the Modal
Payment Portion of the Guaranteed Period Account, if applicable, and the Life
Contingent Annuity. See "Allocation of Contributions or Annuity Account
Value" below. Subsequent contributions may be made according to the rules set
forth below and in "Tax-Free Transfers and Rollovers" in Part 7.
Subsequent Contributions under the Assured
Payment Option
Subsequent "regular" IRA contributions may no longer be made for the taxable
year in which you attain age 70 1/2 and thereafter. Subsequent rollover and
direct transfer contributions may be made at any time until the earlier of
(i) when you attain age 84 and (ii) when the Certificate is within seven
years of the end of the fixed period while the Assured Payment Option is in
effect. However, any amount contributed after you attain age 70 1/2 must be
net of your required minimum distribution for the year in which the rollover
or direct transfer contribution is made.
Payments
You may elect to receive monthly, quarterly or annual payments. However, all
payments are made on
26
<PAGE>
the 15th of the month. Payments to be made on an Expiration Date during the
fixed period represent distributions of the Maturity Values of serially
maturing Guarantee Periods on their Expiration Dates. Payments to be made
monthly, quarterly or annually on dates other than an Expiration Date
represent distributions from amounts in the Modal Payment Portion of the
Guaranteed Period Account. See "Part 2: The Guaranteed Period Account."
You have a choice of receiving level payments during the fixed period and
then under the Life Contingent Annuity. Or, you may elect to receive payments
that increase. During the fixed period, payments are designed to increase by
10% every three years on each third anniversary of the payment start date.
After the end of the fixed period, your first payment under the Life
Contingent Annuity will be 10% greater than the final payment made under the
fixed period. Thereafter, payments will increase annually on each anniversary
of the payment start date under the Life Contingent Annuity based on the
annual increase, if any, in the Consumer Price Index, but in no event greater
than 3% per year.
Payments will generally start one payment mode from the date the Assured
Payment Option goes into effect. Or you may choose to defer the date payments
will start generally for a period of up to 72 months. Deferral of the payment
start date permits you to lock in rates at a time when you may consider
current rates to be high, while permitting you to delay receiving payments if
you have no immediate need to receive income under your Certificate. In
making this decision, you should consider that the amount of income you
purchase is based on the rates applicable on the Transaction Date, so if
rates rise during the interim, your payments may be less than they would have
been if you had elected the Assured Payment Option at a later date. Deferral
of the payment start date is not available above age 80. Before you elect to
defer the date your payments will start, you should consider the consequences
of this decision on the requirement under the Code that you take minimum
distributions each calendar year with respect to the value of your IRA. See
"Required Minimum Distributions" in Part 7. The ability to defer the payment
start date may not be available in all states. Also, if amounts are applied
to the Assured Payment Option as a result of the Guaranteed Minimum Income
Benefit (discussed in Part 3), deferral of the payment start date is not
permitted.
Required minimum distributions will be calculated based on the Annuity
Account Value in each Guarantee Period and the deemed value of the Life
Contingent Annuity for tax purposes. If at any time your payment under the
Assured Payment Option would be less than the minimum amount required to be
distributed under minimum distribution rules, we will notify you of the
difference. You will have the option to have an additional amount withdrawn
under your Certificate and such withdrawal will be treated as a Lump Sum
Withdrawal; however, no withdrawal charge will apply. An adjustment will be
made to future scheduled payments. Or, you may take the amount from other IRA
funds you may have. See "Lump Sum Withdrawals" below and "Required Minimum
Distributions" in Part 7.
See Appendix IV for an example of payments purchased under an Assured Payment
Option.
Fixed Period
If you elect level payments, you may select a fixed period of not less than
seven years nor more than 15 years. The maximum fixed period available based
on your age at issue of the Certificate (or age at the time of election if
the Assured Payment Option is elected after issue) is as follows:
<TABLE>
<CAPTION>
MAXIMUM
AGE* FIXED PERIOD
---- ------------
<S> <C>
45 through 70 15 years
71 through 78 85 less your age
79 through 83 7 years
</TABLE>
The minimum and maximum fixed period will be reduced by each year you defer
the date payments will start.
If you elect increasing payments, you do not have a choice as to the fixed
period. Based on your age at issue of the Certificate (or age at the time of
election if the Assured Payment Option is elected after issue), your fixed
period will be as follows:
<TABLE>
<CAPTION>
AGE* FIXED PERIOD
---- ------------
<S> <C>
59 1/2 through 70 15 years
71 through 75 12 years
76 through 80 9 years
81 through 83 6 years
</TABLE>
If you elect increasing payments and defer the date payments will start, your
fixed period will be as follows:
<TABLE>
<CAPTION>
FIXED PERIOD BASED ON
DEFERRAL PERIOD
-----------------------------------
1-36 37-60 61-72
AGE* MONTHS MONTHS MONTHS
---- ------ ------ ------
<S> <C> <C> <C>
53 1/2 through 70 12 years 9 years 9 years
71 through 75 9 years 9 years N/A
76 through 80 6 years 6 years N/A
81 through 83 N/A N/A N/A
</TABLE>
* For joint and survivor, the fixed period is based on the age of the younger
Annuitant.
If amounts are applied to the Assured Payment Option as a result of the
Guaranteed Minimum Income Benefit, the fixed periods will be as discussed
under "Guaranteed Minimum Income Benefit" in Part 3.
27
<PAGE>
Allocation of Contributions or Annuity Account Value
If the Assured Payment Option is elected in the application, then based on
the amount of your initial contribution, your age and sex (and the age and
sex of the joint Annuitant, if applicable), the mode of payment, the form of
payments and the fixed period you select, your entire contribution will be
allocated by us. A portion of the initial contribution will be allocated
among the Guarantee Periods and the Modal Payment Portion of the Guaranteed
Period Account, if applicable, to provide fixed period payments and a portion
will be applied under the Life Contingent Annuity in order to provide the
payments for life. For initial contributions of $500,000 or more, amounts
allocated to the Life Contingent Annuity may also be based on your
underwriting classification. In general, underwriting classification is based
on your medical history and smoker status and may result in a smaller
allocation of amounts to the Life Contingent Annuity if your classification
is lower than our standard class. If the Assured Payment Option is elected
any time after issue of the Rollover IRA Certificate or if you cancel APO
Plus (discussed below) and elect the Assured Payment Option, then based on
your Annuity Account Value and the information you provide as described
above, your entire Annuity Account Value, including any amounts currently
invested in the Investment Funds, will be allocated by us among the Guarantee
Periods, the Modal Payment Portion of the Guaranteed Period Account, if
applicable, and applied under the Life Contingent Annuity. While the Assured
Payment Option is in effect, no amounts may be allocated to the Investment
Funds. If amounts in the Guarantee Periods are transferred, a market value
adjustment may apply.
If you elect the Assured Payment Option in the application and your initial
contribution will come from multiple sources, your application must also
indicate that contributions are to be allocated to the Alliance Money Market
Fund under the Rollover IRA described in Part 3. Election of the Assured
Payment Option must include your instructions to apply your Annuity Account
Value, on the date the last such contribution is received, under the Assured
Payment Option as described above.
Any subsequent contributions made while the Assured Payment Option is in
effect must be allocated to the Guarantee Periods and applied to the Life
Contingent Annuity. We will determine the allocation of such contributions,
such that your payments will be increased and the fixed period and date that
payments are to start under the Life Contingent Annuity will remain the same.
Life Contingent Annuity
The Life Contingent Annuity provides lifetime payments starting after the end
of the fixed period. The portion of your contributions or Annuity Account
Value applied under the Life Contingent Annuity does not have a Cash Value or
an Annuity Account Value and, therefore, does not provide for transfers or
withdrawals. Once the fixed period has ended and payments have begun under
the Life Contingent Annuity, subsequent amounts may no longer be applied
under the Life Contingent Annuity.
THERE IS NO DEATH BENEFIT PROVIDED UNDER THE LIFE CONTINGENT ANNUITY AND
ANNUITY INCOME IS PAID ONLY IF YOU (OR A JOINT ANNUITANT) ARE LIVING AT THE
DATE ANNUITY BENEFITS BEGIN. BENEFITS ARE ONLY PAID DURING YOUR LIFETIME AND,
IF APPLICABLE, THE LIFETIME OF A JOINT ANNUITANT. CONSEQUENTLY, YOU SHOULD
CONSIDER THE POSSIBILITY THAT NO AMOUNTS WILL BE PAID UNDER THE LIFE
CONTINGENT ANNUITY IF YOU (OR A JOINT ANNUITANT) DO NOT SURVIVE TO THE DATE
PAYMENTS ARE TO START UNDER SUCH ANNUITY.
You may elect to have the Life Contingent Annuity provide level or increasing
payments on a Single Life or a Joint and 100% to Survivor basis. If you elect
increasing payments, the payments will increase annually based on the
increase, if any, in the Consumer Price Index, but in no event greater than
3% per year. The Life Contingent Annuity may also provide payments on a Joint
and one-half to Survivor or a Joint and two-thirds to Survivor basis.
Payments under the Life Contingent Annuity will be made to you during your
lifetime (and the lifetime of the joint Annuitant, if applicable) on the same
payment mode and date as the payments that were made during the fixed period.
Election Restrictions under Joint and
Survivor
Election of the Assured Payment Option with a Joint and Survivor form of the
Life Contingent Annuity is subject to the following restrictions: (i) the
joint Annuitant must be your spouse; (ii) neither you nor the joint Annuitant
can be over age 83; (iii) under level payments if you elect the Joint and
100% to Survivor form, only the longest fixed period is permitted; and (iv)
the fixed period may be limited by the minimum distribution rules. See
"Required Minimum Distributions" in Part 7.
Withdrawals under the Assured Payment Option
While the Assured Payment Option is in effect, if you take a Lump Sum
Withdrawal as described under "Lump Sum Withdrawals" below (or if a Lump Sum
Withdrawal is made to satisfy minimum distribu-
28
<PAGE>
tion requirements under the Certificate), such withdrawals will be taken from
all remaining Guarantee Periods to which your Annuity Account Value is
allocated and the Modal Payment Portion of the Guaranteed Period Account, if
applicable, such that the amount of the payments and the length of the fixed
period will be reduced, and the date payments are to start under the Life
Contingent Annuity will be accelerated. Additional amounts above the amount
of the requested withdrawal will be withdrawn from the Guaranteed Period
Account and applied to the Life Contingent Annuity to the extent necessary to
achieve this result. As a result, the same pattern of payments will continue
in reduced amounts for your life, and if applicable, the life of your joint
Annuitant. If you have elected increasing payments, the first reduction in
your payments will take place no later than the date of the next planned
increase.
Substantially Equal Payment Withdrawals, Systematic Withdrawals and Minimum
Distribution Withdrawals may not be elected while the Assured Payment Option
is in effect. See "Substantially Equal Payment Withdrawals," "Systematic
Withdrawals" and "Minimum Distribution Withdrawals," below.
Death Benefit
Once you have elected the Assured Payment Option, if a death benefit becomes
payable during the fixed period we will pay the death benefit amount, as
described under "Death Benefit" in Part 3, to the designated beneficiary.
Unless you have elected a Joint and Survivor form under the Life Contingent
Annuity, no payment will be made under the Life Contingent Annuity. The death
benefit payable relates only to the Guarantee Periods under the Certificate;
a death benefit is never payable under the Life Contingent Annuity.
If you have elected a Joint and Survivor form of annuity under the Life
Contingent Annuity, payments will be made to you or the joint Annuitant, if
living on the date payments are to start. The designated beneficiary and the
joint Annuitant must be your spouse.
Termination of the Assured Payment Option
The Assured Payment Option will be terminated if: (i) you cancel such option
at any time by sending a written request satisfactory to us; (ii) you submit
a subsequent contribution and you do not want it applied under the Assured
Payment Option; (iii) you request a transfer of your Annuity Account Value as
described under "Transfers Among Investment Options" in Part 3, while the
Assured Payment Option is in effect; or (iv) you request a change in the date
the payments are to start under the Life Contingent Annuity. Once the Assured
Payment Option is terminated, in order to receive distributions from your
Annuity Account Value you must utilize the withdrawal options described under
"Withdrawal Options" below. Although the Life Contingent Annuity will
continue in effect and payments will be made if you or your joint Annuitant,
if applicable, are living on the date payments are to start, additional Life
Contingent Annuity payments may not be purchased. You may elect to start the
Assured Payment Option again by submitting a written request satisfactory to
us, but no sooner than three years after the Option was terminated. If you
elected the Assured Payment Option at age 70 1/2 or older and subsequently
terminate this Option, required minimum distributions must continue to be
made with respect to your Certificate.
Before terminating the Assured Payment Option, you should consider the
implications this may have under the minimum distribution requirements. See
"Tax Considerations for the Assured Payment Option and APO Plus" in Part 7.
Income Annuity Options and Surrendering
the Certificates
If you elect an annuity benefit as described under "Income Annuity Options"
below, or surrender the Certificate for its Cash Value as described under
"Surrendering the Certificates to Receive the Cash Value" in Part 3, once we
receive your returned Certificate, your Certificate will be returned to you
with a notation that the Life Contingent Annuity is still in effect.
Thereafter, no subsequent contributions will be accepted under the
Certificate and no amounts may be applied under the Life Contingent Annuity.
Withdrawal Charge
While the Assured Payment Option is in effect, withdrawal charges will not
apply to the level or increasing payments made during the fixed period.
Except as necessary to meet minimum distribution requirements under the
Certificate, Lump Sum Withdrawals will be subject to a withdrawal charge and
will have a 10% free corridor available. Upon termination of the Assured
Payment Option, the free corridor will apply as described under "Withdrawal
Charge" in Part 5.
APO PLUS
APO Plus is a variation of the Assured Payment Option. APO Plus is available
at ages 59 1/2 through 83. It may also be elected at ages as young as 53 1/2
provided payments under APO Plus do not start before you attain age 59 1/2.
Except as indicated below, all provisions of the Assured Payment Option apply
to APO Plus. APO Plus enables you to keep a
29
<PAGE>
portion of your Annuity Account Value in the Alliance Common Stock Fund or
the Alliance Equity Index Fund as you select, while periodically converting
such Annuity Account Value to increase the guaranteed lifetime income under
the Assured Payment Option. You select either the Alliance Common Stock Fund
or Alliance Equity Index Fund in the application and once elected it may not
be changed. When you elect APO Plus, a portion of your initial contribution
or Annuity Account Value as applicable is allocated by us to the Assured
Payment Option to provide a minimum guaranteed lifetime income through
allocation of amounts to the Guarantee Periods and the Modal Payment Portion
of the Guaranteed Period Account, if applicable, and application of amounts
to the Life Contingent Annuity. The remaining Annuity Account Value remains
in the Investment Fund you selected. Periodically during the fixed period (as
described below), a portion of the remaining Annuity Account Value in such
Investment Fund is applied to increase the guaranteed level payments under
the Assured Payment Option.
APO Plus allows you to remain invested in an Investment Fund for longer than
would be possible if you applied your entire Annuity Account Value all at
once to the Assured Payment Option or to an income annuity option, while
utilizing an "exit strategy" to provide retirement income.
The fixed period under APO Plus will be based on your age (or the age of the
younger Annuitant if Joint and Survivor is elected) at issue of the
Certificate (or age at the time of election if APO Plus is elected after
issue) and will be the same as the periods indicated for increasing payments
under "Assured Payment Option" above.
You may elect to defer the payment start date as described in "Payments"
under "Assured Payment Option," above. The fixed period will also be as
indicated for deferral of the payment start date for increasing payments
under the Assured Payment Option.
You elect APO Plus in the application or at a later date by submitting the
proper form. APO Plus may not be elected if the Assured Payment Option is
already in effect.
The amount applied under APO Plus is either the initial contribution if APO
Plus is elected at issue of the Certificate, or the Annuity Account Value if
APO Plus is elected after issue of the Certificate. Out of a portion of the
amount applied, level payments are provided under the Assured Payment Option
equal to the initial payment that would have been provided on the Transaction
Date by the allocation of the entire amount to increasing payments as
described in "Payments" under "Assured Payment Option," above. The difference
between the amount required for level payments and the amount required for
increasing payments is allocated to the Investment Fund. If you have Annuity
Account Value in the Guaranteed Period Account at the time this option is
elected, a market value adjustment may apply as a result of such amounts
being transferred to effect the Assured Payment Option.
On the third February 15th following the date the first payment is made (if
payments are to be made on February 15th, the date of the first payment will
be counted as the first February 15th) during the fixed period while you are
living, a portion of the Annuity Account Value in the Investment Fund is
applied to increase the level payments under the Assured Payment Option. If a
deferral period of three years or more is elected, a portion of the Annuity
Account Value in the Investment Fund will be applied on the February 15th
prior to the date the first payment is made, to increase the initial level
payments. If payments are to be made on February 15th, the date of the first
payment will be counted as the first February 15th.
The amount applied is the amount which provides for level payments equal to
the initial payment that would have been provided by the allocation of the
entire Annuity Account Value to increasing payments, as described in the
preceding paragraph. This process is repeated each third year during the
fixed period. The first increased payment will be reflected in the payment
made following three full years of payments and then every three years
thereafter. On the Transaction Date immediately following the last payment
during the fixed period, the remaining Annuity Account Value in the
Investment Fund is first applied to the Life Contingent Annuity to change the
level payments previously purchased to increasing payments. If there is any
Annuity Account Value remaining after the increasing payments are purchased,
this balance is applied to the Life Contingent Annuity to further increase
such increasing payments. If the Annuity Account Value in the Investment Fund
is insufficient to purchase the increasing payments, then the level payments
previously purchased will be increased to the extent possible.
While APO Plus provides a minimum guaranteed lifetime payment under the
Assured Payment Option, the total amount of income that can be provided over
time will depend on the investment performance of the Investment Fund in
which you have Annuity Account Value, as well as the current Guaranteed Rates
and the cost of the Life Contingent Annuity, which may vary. Consequently,
the aggregate amount of guaranteed lifetime income under
30
<PAGE>
APO Plus may be more or less than the amount that could have been purchased
by application at the outset of the entire initial contribution or Annuity
Account Value to the Assured Payment Option.
See Appendix IV for an example of the payments purchased under Assured
Payment Option and APO Plus.
In calculating your required minimum distributions your Annuity Account Value
in the Investment Fund, the Annuity Account Value in each Guarantee Period,
any amount in the Modal Payment Portion of the Guaranteed Period Account, and
the deemed value of the Life Contingent Annuity for tax purposes will be
taken into account as described in "Payments" under "Assured Payment Option,"
above. Also see "Required Minimum Distributions" in Part 7.
Allocation of Subsequent Contributions under IRA APO Plus
Any subsequent contributions you make may only be allocated to the Investment
Fund you selected, where it is later applied by us under the Assured Payment
Option. Subsequent contributions may no longer be made after the end of the
fixed period.
Withdrawals under APO Plus
While APO Plus is in effect, if you take a Lump Sum Withdrawal as described
under "Lump Sum Withdrawals" below (or if a Lump Sum Withdrawal is made to
satisfy minimum distribution requirements under the Certificate), such
withdrawals will be taken from your Annuity Account Value in the Investment
Fund unless you specify otherwise. If there is insufficient value in the
Investment Fund the excess will be taken from the Guarantee Periods and the
Modal Payment Portion of the Guaranteed Period Account, if applicable, as
described under "Withdrawals under the Assured Payment Option" above.
A Lump Sum Withdrawal taken to satisfy minimum distribution requirements
under the Certificate will not be subject to a withdrawal charge.
Death Benefit
Once you have elected APO Plus, if a death benefit becomes payable during the
fixed period we will pay the death benefit amount as described under "Death
Benefit" in Part 3, to the designated beneficiary. Unless you have elected
Joint and Survivor under the Life Contingent Annuity, no payment will be made
under the Life Contingent Annuity. The death benefit relates only to the
Investment Funds and the Guarantee Periods under the Certificate; a death
benefit is never payable under the Life Contingent Annuity.
Termination of APO Plus
You may terminate APO Plus at any time by submitting a request satisfactory
to us. In connection with the termination, you may either (i) elect to
terminate APO Plus at any time and have your Certificate operate under the
Rollover IRA rules (see "Part 3: Provisions of the Certificates and Services
We Provide") or (ii) elect the Assured Payment Option (Guaranteed Minimum
Income Benefit, discussed in Part 3 may apply) with level or increasing
payments. In the latter case your remaining Annuity Account Value in the
Investment Fund will be allocated to the Guaranteed Period Account and
applied under the Life Contingent Annuity. A market value adjustment may
apply for any amounts allocated from a Guarantee Period. At least 45 days
prior to the end of each three year period, we will send you a quote
indicating how much future income could be provided under the Assured Payment
Option. The quote would be based on your current Annuity Account Value,
current Guaranteed Rates for the Guarantee Periods and current purchase rates
under the Life Contingent Annuity as of the date of the quote. The actual
amount of future income would depend on the rates in effect on the
Transaction Date.
WITHDRAWAL OPTIONS
The Rollover IRA is an annuity contract, even though you may elect to receive
your benefits in a non-annuity form. You may take withdrawals from your
Certificate before the Annuity Commencement Date and while you are alive.
Four withdrawal options are available: Lump Sum Withdrawals, Substantially
Equal Payment Withdrawals, Systematic Withdrawals and Minimum Distribution
Withdrawals. Withdrawals may result in withdrawal charges. See "Part 5:
Deductions and Charges." Special withdrawal rules may apply under the Assured
Payment Option and APO Plus.
Amounts withdrawn from the Guaranteed Period Account, other than at the
Expiration Date, will result in a market value adjustment. See "Market Value
Adjustment for Transfers, Withdrawals or Surrender Prior to the Expiration
Date" in Part 2. Withdrawals may be taxable and subject to tax penalty. See
"Part 7: Tax Aspects of the Certificates."
As a deterrent to early withdrawal (generally prior to age 59 1/2) the Code
provides certain penalties. We may also be required to withhold income taxes
from the amount distributed. These rules are outlined in "Part 7: Tax Aspects
of the Certificates."
LUMP SUM WITHDRAWALS
You may take a Lump Sum Withdrawal at any time subject to a minimum
withdrawal amount of $1,000.
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A request to withdraw more than 90% of the Cash Value as of the Transaction
Date will result in the termination of the Certificate and will be treated as
a surrender of the Certificate for its Cash Value. See "Surrendering the
Certificates to Receive the Cash Value," in Part 3.
To make a Lump Sum Withdrawal, you must submit a request satisfactory to us
which specifies the Investment Options from which the Lump Sum Withdrawal
will be taken. If we have received the information we require, the requested
withdrawal will become effective on the Transaction Date and proceeds will
usually be mailed within seven calendar days thereafter, but we may delay
payment as described in "When Payments Are Made" in Part 3. If we receive
only partially completed information, our Processing Office will contact you
for specific instructions before your request can be processed.
Lump Sum Withdrawals in excess of the 15% free corridor amount may be subject
to a withdrawal charge. While either the Assured Payment Option or APO Plus
is in effect, Lump Sum Withdrawals that exceed the 10% free corridor amount
may be subject to a withdrawal charge. See "Withdrawal Charge" in Part 5.
SUBSTANTIALLY EQUAL PAYMENT WITHDRAWALS
Substantially Equal Payment Withdrawals provide distributions from the
Annuity Account Value of the amounts necessary so that the 10% penalty tax,
normally applicable to distributions made prior to age 59 1/2, does not
apply. See "Penalty Tax on Early Distributions," in Part 7. Once
distributions begin, they should not be changed or stopped until the later of
age 59 1/2 or five years from the date of the first distribution. If you
change or stop the distributions or take a Lump Sum Withdrawal, you may be
liable for the 10% penalty tax that would have otherwise been due on all
prior distributions made under this option and for any interest thereon.
Substantially Equal Payment Withdrawals may be elected at any time if you are
below age 59 1/2. You can elect this option by submitting the proper form.
You select the day and the month when the first withdrawal will be made, but
it may not be sooner than 28 days after the issue of the Certificate. In no
event may you elect to receive the first payment in the same Contract Year in
which a Lump Sum Withdrawal was taken. We will calculate the amount of the
distribution under a method we select and payments will be made monthly,
quarterly or annually as you select. These payments will continue to be made
until we receive written notice from you to cancel this option. Such notice
must be received at our Processing Office at least seven calendar days prior
to the next scheduled withdrawal date. A Lump Sum Withdrawal taken while
Substantially Equal Payment Withdrawals are in effect will cancel such
withdrawals. You may elect to start receiving Substantially Equal Payment
Withdrawals again, but in no event can the payments start in the same
Contract Year in which a Lump Sum Withdrawal was taken. We will calculate a
new distribution amount.
Unless you specify otherwise, Substantially Equal Payment Withdrawals will be
withdrawn on a pro rata basis from your Annuity Account Value in the
Investment Funds. If there is insufficient value or no value in the
Investment Funds, any additional amount of the withdrawal or the total amount
of the withdrawal, as applicable, will be withdrawn from the Guarantee
Periods in order of the earliest Expiration Date(s) first.
Substantially Equal Payment Withdrawals are not subject to a withdrawal
charge.
SYSTEMATIC WITHDRAWALS
This option may be elected if you are age 59 1/2 to 70 1/2. Systematic
Withdrawals provide level percentage or level amount payouts. You may choose
to receive Systematic Withdrawals on a monthly, quarterly or annual
frequency. You select a dollar amount or percentage of the Annuity Account
Value to be withdrawn, subject to a maximum of 1.2% monthly, 3.6% quarterly
and 15.0% annually, but in no event may any payment be less than $250. If at
the time a Systematic Withdrawal is to be made, the withdrawal amount would
be less than $250, no payment will be made and your Systematic Withdrawal
election will terminate.
You select the date of the month when the withdrawals will be made, but you
may not choose a date later than the 28th day of the month. If no date is
selected, withdrawals will be made on the same calendar day of the month as
the Contract Date. The commencement of payments under the Systematic
Withdrawal option may not be elected to start sooner than 28 days after issue
of the Certificate.
You may elect Systematic Withdrawals at any time by completing the proper
form and sending it to our Processing Office. You may change the payment
frequency of your Systematic Withdrawals once each Contract Year or cancel
this withdrawal option at any time by sending notice in a form satisfactory
to us. The notice must be received at our Processing Office at least seven
calendar days prior to the next scheduled withdrawal date. You may also
change the amount or percentage of your Systematic Withdrawals once in each
Contract Year. However, you may not change the amount or percentage in any
Contract Year where you have previously taken another withdrawal under the
Lump Sum Withdrawal option described above.
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<PAGE>
Unless you specify otherwise, Systematic Withdrawals will be withdrawn on a
pro rata basis from your Annuity Account Value in the Investment Funds. If
there is insufficient value or no value in the Investment Funds, any
additional amount of the withdrawal required or the total amount of the
withdrawal, as applicable, will be withdrawn from the Guarantee Periods in
order of the earliest Expiration Date(s) first.
Systematic Withdrawals are not subject to a withdrawal charge, except to the
extent that, when added to a Lump Sum Withdrawal previously taken in the same
Contract Year, the Systematic Withdrawal exceeds the 15% free corridor
amount. See "Withdrawal Charge" in Part 5.
MINIMUM DISTRIBUTION WITHDRAWALS
Minimum Distribution Withdrawals provide distributions from the Annuity
Account Value of the amounts necessary to meet minimum distribution
requirements set forth in the Code. This option may be elected in the year in
which you attain age 70 1/2. You can elect Minimum Distribution Withdrawals
by submitting the proper election form. The minimum amount we will pay out is
$250. You may elect Minimum Distribution Withdrawals for each Certificate you
own, subject to our rules then in effect. Currently, Minimum Distribution
Withdrawal payments will be made annually.
Unless you specify otherwise, Minimum Distributions Withdrawals will be
withdrawn on a pro rata basis from your Annuity Account Value in the
Investment Funds. If there is insufficient value or no value in the
Investment Funds, any additional amount of the withdrawal required or the
total amount of the withdrawal, as applicable, will be withdrawn from the
Guarantee Periods in order of the earliest Expiration Date(s) first.
Minimum Distribution Withdrawals are not subject to a withdrawal charge,
except to the extent that, when added to a Lump Sum Withdrawal previously
taken in the same Contract Year, the Minimum Distribution Withdrawal exceeds
the 15% free corridor amount. See "Withdrawal Charge" in Part 5.
Example
The chart below illustrates the pattern of payments, under Minimum
Distribution Withdrawals for a male who purchases the Rollover IRA at age 70
with a single contribution of $100,000, with payments commencing at the end
of the first Contract Year.
PATTERN OF MINIMUM DISTRIBUTION WITHDRAWALS
$100,000 SINGLE CONTRIBUTION FOR A
SINGLE LIFE-MALE AGE 70
[THE FOLLOWING TABLE WAS REPRESENTED
AS AN AREA GRAPH IN THE PROSPECTUS]
Assumes 6.0% Rate of Return
Amount
Age Withdrawn
----- ---------
70 $6,250
75 7,653
80 8,667
85 8,770
90 6,931
95 3,727
100 1,179
[END OF GRAPHICALLY REPRESENTED DATA]
Payments are calculated each year based on the Annuity Account Value at the
end of each year, using the recalculation method of determining payments.
(See "Part 1--Minimum Distribution Withdrawals" in the SAI.) Payments are
made annually, and it is further assumed that no Lump Sum Withdrawals are
taken.
This example assumes an annual rate of return of 6.0% compounded annually for
both the Investment Funds and the Guaranteed Period Account. This rate of
return is for illustrative purposes only and is not intended to represent an
expected or guaranteed rate of return. Your investment results will vary. In
addition, this example does not reflect any charges that may be applicable
under the Rollover IRA. Such charges would effectively reduce the actual
return.
HOW WITHDRAWALS AND TRANSFERS AFFECT YOUR GUARANTEED MINIMUM DEATH BENEFIT
AND GUARANTEED MINIMUM INCOME BENEFIT
Except as described in the next sentence, each withdrawal and transfer will
cause a reduction in your current Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit benefit base (described below) on a pro
rata basis. Your current Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit benefit base will be reduced on a dollar-for-dollar
basis as long as the sum of your withdrawals and transfers from the
Investment Funds in any Contract Year is 6% or less of the beginning of
Contract Year Guaranteed Minimum Death Benefit. Once a withdrawal or transfer
is made that causes cumulative withdrawals and transfers from the Investment
Funds in a Contract Year to exceed 6% of the beginning of Contract Year
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Guaranteed Minimum Death Benefit, that withdrawal or transfer and any
subsequent withdrawals and transfers in that Contract Year will cause a pro
rata reduction to occur.
Reduction on a dollar-for-dollar basis means your current Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit benefit base will be
reduced by the dollar amount of the withdrawal. Reduction on a pro rata basis
means that we calculate the percentage of the Annuity Account Value as of the
Transaction Date that is being withdrawn and we reduce your current
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit
benefit base by that same percentage. For example, if your Annuity Account
Value is $10,000 and you withdraw $4,000 you have withdrawn 40%
($4,000/$10,000) of your Annuity Account Value. If your Guaranteed Minimum
Death Benefit was $20,000 prior to the withdrawal, it would be reduced by
$8,000 ($20,000 x .40) and your new Guaranteed Minimum Death Benefit after
the withdrawal would be $12,000 ($20,000 -$8,000).
The timing of your withdrawals and whether they exceed the 6% threshold
described above can have a significant impact on your Guaranteed Minimum
Death Benefit or Guaranteed Minimum Income Benefit.
GUARANTEED MINIMUM INCOME BENEFIT BENEFIT BASE
The Guaranteed Minimum Income Benefit benefit base is equal to the portion of
the initial contribution allocated to the Investment Funds on the Contract
Date. Thereafter, the Guaranteed Minimum Income Benefit benefit base is
credited with interest at 6% (3% for amounts in the Alliance Money Market and
Alliance Intermediate Government Securities Funds, except as indicated below)
on each Contract Date anniversary through age 80, and 0% thereafter, and is
adjusted for any subsequent contributions and transfers into the Investment
Funds and transfers and withdrawals from such Funds. The Guaranteed Minimum
Income Benefit benefit base interest applicable to amounts in the Alliance
Money Market Fund under the Special Dollar Cost Averaging program (described
in Part 3) will be 6%. The Guaranteed Minimum Income Benefit benefit base
will also be reduced by any withdrawal charge remaining on the Transaction
Date that you exercise your Guaranteed Minimum Income Benefit.
Your Guaranteed Minimum Income Benefit benefit base is applied to guaranteed
minimum annuity factors to determine the Guaranteed Minimum Income Benefit.
The guaranteed minimum annuity factors are based on (i) interest at 2.5% if
the Guaranteed Minimum Income Benefit is exercised within 30 days following a
Contract Date anniversary in years 7 through 9 and at 3% if exercised within
30 days following the 10th or later Contract Date anniversary, and (ii)
mortality tables that assume increasing longevity. These interest and
mortality factors are generally more conservative than the basis underlying
current annuity factors, which means that they would produce less periodic
income for an equal amount applied.
Your Guaranteed Minimum Income Benefit benefit base does not create an
Annuity Account Value or a Cash Value and is used solely for purposes of
calculating the Guaranteed Minimum Income Benefit.
ANNUITY BENEFITS
Annuity benefits provide periodic payments over a specified period of time
which may be fixed or may be based on your life. Annuity forms of payment are
calculated as of the Annuity Commencement Date, which is on file with our
Processing Office. You can change the Annuity Commencement Date by writing to
our Processing Office any time before the Annuity Commencement Date. However,
you may not choose a date later than the 28th day of any month. Also, no
Annuity Commencement Date will be later than the Processing Date which
follows your 90th birthday (may be different in some states).
Before the Annuity Commencement Date, we will send you a letter advising that
annuity benefits are available. Unless you otherwise elect, we will pay you a
fixed annuity benefit on the "normal form" indicated for your Certificate as
of your Annuity Commencement Date. The amount applied to provide the annuity
benefit will be (1) the Annuity Account Value for any life annuity form or
(2) the Cash Value for any period certain only annuity form except that if
the period certain is more than five years, the amount applied will be no
less than 95% of the Annuity Account Value.
Amounts in the Guarantee Periods that are applied to an annuity benefit prior
to an Expiration Date will result in a market value adjustment. See "Market
Value Adjustment for Transfers, Withdrawals or Surrender Prior to the
Expiration Date" in Part 2.
ANNUITY FORMS
o Life Annuity: An annuity which guarantees payments for the rest of your
life. Payments end with the last monthly payment before your death.
Because there is no death benefit associated with this annuity form, it
provides the highest monthly payment of any of the life income annuity
options, so long as you are living.
o Life Annuity-Period Certain: This annuity form also guarantees payments
for the rest of your life. In addition, if you die before a specific
period of time (the "certain period") has ended, payments will continue
to your beneficiary for the balance of the certain period. Certain
periods may be 5, 10,
34
<PAGE>
15 or 20 years. A life annuity with a certain period of 10 years is the
normal form of annuity under the Certificates.
o Life Annuity-Refund Certain: This annuity form guarantees payments to
you for the rest of your life. In addition, if you die before the amount
applied to purchase this annuity option has been recovered, payments
will continue to your beneficiary until that amount has been recovered.
This option is available only as a fixed annuity.
o Period Certain Annuity: This annuity form guarantees payments for a
specific period of time, usually 5, 10, 15 or 20 years, and does not
involve life contingencies.
o Joint and Survivor Life Annuity: This annuity form guarantees life
income to you and, after your death, continuation of income to the
survivor.
The life annuity-period certain and the life annuity-refund certain are
available on either a single life or joint and survivor life basis.
The annuity forms outlined above are available in both fixed and variable
form, unless otherwise indicated. Fixed annuity payments are guaranteed by us
and will be based either on the tables of guaranteed annuity payments in your
Certificate or on our then current annuity rates, whichever is more favorable
for you. Variable income annuities may be funded through the Investment Funds
through the purchase of annuity units. The amount of each variable annuity
payment may fluctuate, depending upon the performance of the Investment
Funds. That is because the annuity unit value rises and falls depending on
whether the actual rate of net investment return (after deduction of charges)
is higher or lower than the assumed base rate. See "Annuity Unit Values" in
the SAI. Variable income annuities may also be available by separate
prospectus through the Investment Funds of other separate accounts we offer.
For all Annuitants, the normal form of annuity provides for fixed payments.
We may offer other forms not outlined here. Your agent can provide details.
For each annuity benefit, we will issue a separate written agreement putting
the benefit into effect. Before we pay any annuity benefit, we require the
return of the Certificate.
The amount of the annuity payments will depend on the amount applied to
purchase the annuity, the type of annuity chosen and, in the case of a life
annuity form, your age (or your and the joint Annuitant's ages) and in
certain instances, the sex of the Annuitant(s). Once an annuity form is
chosen and payments have commenced, no change can be made.
If, at the time you elect an annuity form, the amount to be applied is less
than $2,000 or the initial payment under the form elected is less than $20
monthly, we reserve the right to pay the Annuity Account Value in a single
sum rather than as payments under the annuity form chosen.
35
<PAGE>
- -------------------------------------------------------------------------------
PART 5: DEDUCTIONS AND CHARGES
- -------------------------------------------------------------------------------
CHARGES DEDUCTED FROM THE
ANNUITY ACCOUNT VALUE
We allocate the entire amount of each contribution to the Investment Options
you select, subject to certain restrictions. We then periodically deduct
certain amounts from your Annuity Account Value. Unless otherwise indicated,
the charges described below and under "Charges Deducted from the Investment
Funds" below will not be increased by us for the life of the Certificates. We
may reduce certain charges under sponsored arrangements. See "Sponsored
Arrangements" below. Charges are deducted proportionately from all the
Investment Funds in which your Annuity Account Value is invested on a pro
rata basis, except as noted below.
Withdrawal Charge
A withdrawal charge will be imposed as a percentage of each contribution made
to the extent that (i) a Lump Sum Withdrawal or cumulative withdrawals during
a Contract Year exceed the free corridor amount, or (ii) if the Certificate
is surrendered to receive its Cash Value. We determine the withdrawal charge
separately for each contribution in accordance with the table below.
<TABLE>
<CAPTION>
CONTRACT YEAR
1 2 3 4 5 6 7 8+
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of
Contribution 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
</TABLE>
If the Assured Payment Option or APO Plus is in effect, the withdrawal charge
will be imposed as a percentage of contributions (less withdrawals), less the
amount applied under the Life Contingent Annuity.
The applicable withdrawal charge percentage is determined by the Contract
Year in which the excess withdrawal is made or the Certificate is
surrendered, beginning with "Contract Year 1" with respect to each
contribution withdrawn or surrendered. For purposes of the table, for each
contribution, the Contract Year in which we receive that contribution is
"Contract Year 1."
The withdrawal charge is deducted from the Investment Options from which each
such withdrawal is made in proportion to the amount being withdrawn from each
Investment Option.
Free Corridor Amount
The free corridor amount is 15% of the Annuity Account Value at the
beginning of the Contract Year, minus any amount previously withdrawn
during that Contract Year.
While either the Assured Payment Option or APO Plus is in effect, the free
corridor amount is 10% of the Annuity Account Value at the beginning of
the Contract Year.
There is no withdrawal charge if a Lump Sum Withdrawal is taken to satisfy
minimum distribution requirements under the Certificate. A free corridor
amount is not applicable to a surrender.
For purposes of calculating the withdrawal charge, (1) we treat contributions
as being withdrawn on a first-in first-out basis, and (2) amounts withdrawn
up to the free corridor amount are not considered a withdrawal of any
contributions.
The withdrawal charge is to help cover sales expenses.
Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit
Charge (Plan A)
We deduct a charge annually on each Processing Date for providing the
Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit (Plan A). The charge is equal to a percentage of the Guaranteed
Minimum Death Benefit in effect on the Processing Date. The percentage is
equal to 0.45% for the 6% to Age 80 Benefit and 0.30% for the 6% to Age 70
Benefit.
Guaranteed Minimum Death Benefit Only Benefit Charge (Plan B)
We deduct a charge annually on each Processing Date for providing the
Guaranteed Minimum Death Benefit Only Benefit (Plan B). The charge is equal
to a percentage of the Guaranteed Minimum Death Benefit in effect on the
Processing Date. The percentage is equal to 0.20%.
Charges for State Premium and Other
Applicable Taxes
We deduct a charge for applicable taxes, such as state or local premium
taxes, that might be imposed in your state. Generally we deduct this charge
from the amount applied to provide an annuity benefit. In certain states,
however, we may deduct the charge for taxes from contributions. The current
tax charge that might be imposed varies by state and ranges from 0% to 2.25%.
CHARGES DEDUCTED FROM THE
INVESTMENT FUNDS
Mortality and Expense Risks Charge
We will deduct a daily charge from the assets in each Investment Fund to
compensate us for mortality
36
<PAGE>
and expense risks. The daily charge is at the rate of 0.002477%, which is
equivalent to an annual rate of 0.90%, on the assets in each Investment Fund.
The mortality risk assumed is the risk that Annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would be
paying more in annuity income than we planned. We also assume a risk that the
mortality assumptions reflected in our guaranteed annuity payment tables,
shown in each Certificate, will differ from actual mortality experience.
Lastly, we assume a mortality risk to the extent that at the time of death,
the Guaranteed Minimum Death Benefit exceeds the Cash Value of the
Certificate. The expense risk assumed is the risk that it will cost us more
to issue and administer the Certificates than we expect.
Administration Charge
We will deduct a daily charge from the assets in each Investment Fund, to
compensate us for administration expenses under the Certificates. The daily
charge is at a rate of 0.000692% (equivalent to an annual rate of 0.25%) on
the assets in each Investment Fund. We reserve the right to increase this
charge to an annual rate of 0.35%, the maximum permitted under the
Certificates.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, the 12b-1
fee, direct operating expenses of HR Trust (such as trustees' fees, expenses
of independent auditors and legal counsel, bank and custodian charges and
liability insurance), and certain investment-related expenses of HR Trust
(such as brokerage commissions and other expenses related to the purchase and
sale of securities), are reflected in each Portfolio's daily share price. The
maximum investment advisory fees paid annually by the Portfolios cannot be
changed without a vote by shareholders. They are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
--------------------------------------------------
FIRST NEXT NEXT NEXT
$750 $750 $1 $2.5
MILLION MILLION BILLION BILLION THEREAFTER
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Alliance
Conservative
Investors..... 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance
Growth
Investors .... 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance
Growth &
Income ....... 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance
Common Stock 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance
Global........ 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance
International 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance
Aggressive
Stock ........ 0.625% 0.575% 0.525% 0.500% 0.475%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS (CONTINUED)
--------------------------------------------------
FIRST NEXT NEXT NEXT
$750 $750 $1 $2.5
MILLION MILLION BILLION BILLION THEREAFTER
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Alliance Small
Cap Growth...... 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Money
Market ......... 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance
Intermediate
Gov't
Securities...... 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance High
Yield .......... 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Equity
Index Fund...... 0.325% 0.300% 0.275% 0.255% 0.245%
</TABLE>
- --------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Investment advisory fees are established under HR Trust's investment advisory
agreements between HR Trust and its investment adviser, Alliance. The Rule
12b-1 Plan provides that HR Trust, on behalf of each Portfolio may pay
annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. This fee will not be
increased for the life of the Certificates. EDI is currently waiving a
portion of the 12b-1 fee with respect to the Alliance Small Cap Growth
Portfolio. Fees and expenses are described more fully in the HR Trust
prospectus.
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the 12b-1
fee, other direct operating expenses of EQ Trust (such as trustees' fees,
expenses of independent auditors and legal counsel, administrative service
fees, custodian fees, and liability insurance), and certain
investment-related expenses of EQ Trust (such as brokerage commissions and
other expenses related to the purchase and sale of securities), are reflected
in each Portfolio's daily share price. The investment management fees paid
annually by the Portfolios cannot be changed without a vote by shareholders.
They are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
------------------------
<S> <C>
EQ/Putnam Balanced ..................... 0.55%
EQ/Putnam Growth and Income Value ..... 0.55
MFS Emerging Growth Companies .......... 0.55
MFS Research ........................... 0.55
Merrill Lynch Basic Value Equity ...... 0.55
Merrill Lynch World Strategy ........... 0.70
Morgan Stanley Emerging Markets Equity . 1.15
T. Rowe Price Equity Income ............ 0.55
T. Rowe Price International Stock ..... 0.75
Warburg Pincus Small Company Value .... 0.65
</TABLE>
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ
37
<PAGE>
Financial. EQ Financial has entered into expense limitation agreements with
EQ Trust, with respect to each Portfolio, pursuant to which EQ Financial has
agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolio's average daily net assets) to
0.85% each for the EQ/Putnam Growth & Income Value, MFS Research, Merrill
Lynch Basic Value Equity, T. Rowe Price Equity, and MFS Emerging Growth
Companies Portfolios; 0.90% for the EQ/Putnam Balanced Portfolio; 1.00% for
Warburg Pincus Small Company Value Portfolio; 1.20% each for T. Rowe Price
International Stock and Merrill Lynch World Strategy Portfolios; and 1.75%
for Morgan Stanley Emerging Markets Equity Portfolio. See the prospectus for
EQ Trust for more information.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. This fee will not be
increased for the life of the Certificates. Fees and expenses are described
more fully in the EQ Trust prospectus.
SPONSORED ARRANGEMENTS
For certain sponsored arrangements, we may reduce the withdrawal charge or
change the minimum initial contribution requirements. Under the Assured
Payment Option and APO Plus, we may increase Guaranteed Rates and reduce
purchase rates under the Life Contingent Annuity. We may also change the
guaranteed minimum death benefit and the guaranteed minimum income benefit.
We may offer Investment Funds investing in Class IA shares of HR Trust and EQ
Trust, which are not subject to the 12b-1 fee. Sponsored arrangements include
those in which an employer allows us to sell Certificates to its employees or
retirees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the sponsoring organization among other factors. We
take all these factors into account when reducing charges. To qualify for
reduced charges, a sponsored arrangement must meet certain requirements,
including our requirements for size and number of years in existence.
Sponsored arrangements that have been set up solely to buy Certificates or
that have been in existence less than six months will not qualify for reduced
charges.
We will make these and any similar reductions according to our rules in
effect when a Certificate is approved for issue. We may change these rules
from time to time. Any variation in the withdrawal charge will reflect
differences in costs or services and will not be unfairly discriminatory.
Sponsored arrangements may be governed by the Code, the Employee Retirement
Income Security Act of 1974 (ERISA), or both. We make no representations as
to the impact of those and other applicable laws on such programs. WE
RECOMMEND THAT EMPLOYERS PURCHASING OR MAKING CERTIFICATES AVAILABLE FOR
PURCHASE UNDER A SPONSORED ARRANGEMENT SEEK THE ADVICE OF THEIR OWN LEGAL AND
BENEFITS ADVISERS.
OTHER DISTRIBUTION ARRANGEMENTS
Charges may be reduced or eliminated when sales are made in a manner that
results in savings of sales and administrative expenses, such as sales
through persons who are compensated by clients for recommending investments
and receive no commission or reduced commissions in connection with the sale
of the Certificates. In no event will a reduction or elimination of charges
be permitted where it would be unfairly discriminatory.
38
<PAGE>
- -------------------------------------------------------------------------------
PART 6: VOTING RIGHTS
- -------------------------------------------------------------------------------
HR TRUST AND EQ TRUST VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of HR Trust and EQ Trust.
Since we own the assets of the Separate Account, we are the legal owner of
the shares and, as such, have the right to vote on certain matters. Among
other things, we may vote:
o to elect each trust's Board of Trustees,
o to ratify the selection of independent auditors for each trust, and
o on any other matters described in each trust's current prospectus or
requiring a vote by shareholders under the 1940 Act.
Because HR Trust is a Massachusetts business trust and EQ Trust is a Delaware
business trust, annual meetings are not required. Whenever a shareholder vote
is taken, we will give Certificate Owners the opportunity to instruct us how
to vote the number of shares attributable to their Certificates. If we do not
receive instructions in time from all Certificate Owners, we will vote the
shares of a Portfolio for which no instructions have been received in the
same proportion as we vote shares of that Portfolio for which we have
received instructions. We will also vote any shares that we are entitled to
vote directly because of amounts we have in an Investment Fund in the same
proportions that Certificate Owners vote.
Each share of each trust is entitled to one vote. Fractional shares will be
counted. Voting generally is on a Portfolio-by-Portfolio basis except that
shares will be voted on an aggregate basis when universal matters, such as
election of Trustees and ratification of independent auditors, are voted
upon. However, if the Trustees determine that shareholders in a Portfolio are
not affected by a particular matter, then such shareholders generally would
not be entitled to vote on that matter.
VOTING RIGHTS OF OTHERS
Currently, we control each trust. EQ Trust shares currently are sold only to
our separate accounts. HR Trust shares are held by other separate accounts of
ours and by separate accounts of insurance companies affiliated and
unaffiliated with us. Shares held by these separate accounts will probably be
voted according to the instructions of the owners of insurance policies and
contracts issued by those insurance companies. While this will dilute the
effect of the voting instructions of the Rollover IRA Certificate Owners, we
currently do not foresee any disadvantages arising out of this. HR Trust's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts that possibly may arise and to determine what
action, if any, should be taken in response. If we believe that HR Trust's
response to any of those events insufficiently protects our Certificate
Owners, we will see to it that appropriate action is taken to protect our
Certificate Owners.
SEPARATE ACCOUNT VOTING RIGHTS
If actions relating to the Separate Account require Certificate Owner
approval, Certificate Owners will be entitled to one vote for each
Accumulation Unit they have in the Investment Funds. Each Certificate Owner
who has elected a variable annuity payout may cast the number of votes equal
to the dollar amount of reserves we are holding for that annuity in an
Investment Fund divided by the Accumulation Unit Value for that Investment
Fund. We will cast votes attributable to any amounts we have in the
Investment Funds in the same proportion as votes cast by Certificate Owners.
CHANGES IN APPLICABLE LAW
The voting rights we describe in this prospectus are created under applicable
Federal securities laws. To the extent that those laws or the regulations
promulgated under those laws eliminate the necessity to submit matters for
approval by persons having voting rights in separate accounts of insurance
companies, we reserve the right to proceed in accordance with those laws or
regulations.
39
<PAGE>
- -------------------------------------------------------------------------------
PART 7: TAX ASPECTS OF THE CERTIFICATES
- -------------------------------------------------------------------------------
TAX-QUALIFIED INDIVIDUAL RETIREMENT
ANNUITIES (IRAS)
This prospectus contains the information which the Internal Revenue Service
(IRS) requires to be disclosed to an individual before he or she purchases an
IRA.
The Rollover IRA Certificate is designed to qualify as an IRA under Section
408(b) of the Code. Your rights under the Rollover IRA cannot be forfeited.
This Part covers some of the special tax rules that apply to individual
retirement arrangements. You should be aware that an IRA is subject to
certain restrictions in order to qualify for its special treatment under the
Federal tax law.
This prospectus provides our general understanding of applicable Federal
income tax rules, but does not provide detailed tax information and does not
address issues such as state income and other taxes or Federal gift and
estate taxes. Please consult a tax adviser when considering the tax aspects
of the Rollover IRA Certificates.
Further information on IRA tax matters can be obtained from any IRS district
office. Additional information regarding IRAs, including a discussion of
required distributions, can be found in IRS Publication 590, entitled
"Individual Retirement Arrangements (IRAs)," which is generally updated
annually.
The Rollover IRA Certificate has been approved by the IRS as to form for use
as an IRA. This IRS approval is a determination only as to the form of the
annuity and does not represent a determination of the merits of the annuity
as an investment, and may not address certain features under the
Certificates.
Cancellation
You can cancel a Certificate issued as an IRA by following the directions in
Part 3 under "Free Look Period." Since there may be adverse tax consequences
if a Certificate is cancelled (and because we are required to report to the
IRS certain distributions from cancelled IRAs), you should consult with a tax
adviser before making any such decision. If you cancel this Certificate, you
may establish a new individual retirement arrangement if at the time you meet
the requirements for establishing an individual retirement arrangement.
Contributions to IRAs
Individuals may make three different types of contributions to purchase an
IRA, or as later additions to an existing IRA: "regular" contributions out of
earnings, tax-free "rollover" contributions from tax-qualified plans, or
direct custodian-to-custodian transfers from other individual retirement
arrangements ("direct transfers").
The initial contribution to the Certificate must be either a rollover or a
direct custodian-to-custodian transfer. See "Tax-Free Transfers and
Rollovers," discussed below. Any subsequent contributions you make may be any
of rollovers, direct transfers or "regular" IRA contributions. See
"Contributions Under the Certificates" in Part 3. The immediately following
discussion relates to "regular" IRA contributions. For the reasons noted in
"Tax-Free Transfers and Rollovers" below, you should consult with your tax
adviser before making any subsequent contributions to an IRA which is
intended to serve as a "conduit" IRA.
Generally, $2,000 is the maximum amount of deductible and nondeductible
contributions which may be made to all IRAs by an individual in any taxable
year. The above limit may be less when the individual's earnings are below
$2,000. This limit does not apply to rollover contributions or direct
custodian-to-custodian transfers into an IRA.
The amount of IRA contributions for a tax year that an individual can deduct
depends on whether the individual (or the individual's spouse, if a joint
return is filed) is covered by an employer-sponsored tax-favored retirement
plan. If the individual's spouse does not work or elects to be treated as
having no compensation, the individual and the individual's spouse may
contribute up to $4,000 to individual retirement arrangements (but no more
than $2,000 to any one individual retirement arrangement). The non-working
spouse owns his or her individual retirement arrangements, even if the
working spouse makes contributions to purchase the spousal individual
retirement arrangements.
If neither the individual nor the individual's spouse is covered during any
part of the taxable year by an employer-sponsored tax-favored retirement plan
(including a qualified plan, a tax sheltered account or annuity under Section
403(b) of the Code (TSA) or a simplified employee pension plan), then
regardless of adjusted gross income (AGI), each working spouse may make
deductible contributions to an IRA for each tax year (MAXIMUM PERMISSIBLE
DOLLAR DEDUCTION) up to the lesser of $2,000 or 100% of compensation. In
certain cases, individuals covered by a tax-favored retirement plan include
persons eligible to participate in the plan although not actually
participating. Whether or not a person is covered by a retirement plan will
be reported on an employee's Form W-2.
40
<PAGE>
If the individual is single and covered by a retirement plan during any part
of the taxable year, the deduction for IRA contributions phases out with AGI
between $25,000 and $35,000. If the individual is married and files a joint
return, and either the individual or the spouse is covered by a tax-favored
retirement plan during any part of the taxable year, the deduction for IRA
contributions phases out with AGI between $40,000 and $50,000. If the
individual is married, files a separate return and is covered by a
tax-favored retirement plan during any part of the taxable year, the
deduction for IRA contributions phases out with AGI between $0 and $10,000.
Married individuals filing separate returns must take into account the
retirement plan coverage of the other spouse, unless the couple has lived
apart for the entire taxable year. If AGI is below the phase-out range, an
individual is entitled to the Maximum Permissible Dollar Deduction. In
computing the partial deduction for IRA contributions the individual must
round the amount of the deduction to the nearest $10. The permissible
deduction for IRA contributions is a minimum of $200 if AGI is less than the
amount at which the deduction entirely phases out.
If the individual (or the individual's spouse, unless the couple has lived
apart the entire taxable year and their filing status is married, filing
separately) is covered by a tax-favored retirement plan, the deduction for
IRA contributions must be computed using one of two methods. Under the first
method, the individual determines AGI and subtracts $25,000 if the individual
is a single person, $40,000 if the individual is married and files a joint
return with the spouse, or $0 if the individual is married and files a
separate return. The resulting amount is the individual's Excess AGI. The
individual then determines the limit on the deduction for IRA contributions
using the following formula:
<TABLE>
<CAPTION>
<S> <C> <C>
Maximum Adjusted
$10,000-Excess AGI Permissible Dollar
- ------------------ X Dollar = Deduction
$10,000 Deduction Limit
</TABLE>
Under the second method, the individual determines his or her Excess AGI and
then refers to the table in Appendix IV originally prepared by the IRS to
determine the deduction.
Contributions may be made for a tax year until the deadline for filing a
Federal income tax return for that tax year (without extensions). No
contributions are allowed for the tax year in which an individual attains age
70 1/2 or any tax year after that. A working spouse age 70 1/2 or over,
however, can contribute up to the lesser of $2,000 or 100% of "earned income"
to a spousal individual retirement arrangement for a non-working spouse until
the year in which the non-working spouse reaches age 70 1/2.
An individual not eligible to deduct part or all of the IRA contribution may
still make nondeductible contributions on which earnings will accumulate on a
tax-deferred basis. The deductible and nondeductible contributions to the
individual's IRA (or the nonworking spouse's IRA) may not, however, together
exceed the maximum $2,000 per person limit. See "Excess Contributions" below.
Individuals must keep their own records of deductible and nondeductible
contributions in order to prevent double taxation on the distribution of
previously taxed amounts. See "Distributions from IRA Certificates" below.
An individual making nondeductible contributions in any taxable year, or any
individual who has made nondeductible contributions to an IRA in prior years
and is receiving amounts from any IRA must file the required information with
the IRS. Moreover, individuals making nondeductible IRA contributions must
retain all income tax returns and records pertaining to such contributions
until interests in all IRAs are fully distributed.
Excess Contributions
Excess contributions to an IRA are subject to a 6% excise tax for the year in
which made and for each year thereafter until withdrawn. In the case of
"regular" IRA contributions any contribution in excess of the lesser of
$2,000 or 100% of compensation or earned income is an "excess contribution,"
(without regard to the deductibility or nondeductibility of IRA contributions
under this limit). Also, any "regular" contributions made after you reach age
70 1/2 are excess contributions. In the case of rollover IRA contributions,
excess contributions are amounts which are not eligible to be rolled over
(for example, after tax contributions to a qualified plan or minimum
distributions required to be made after age 70 1/2). An excess contribution
(rollover or "regular") which is withdrawn, however, before the time for
filing the individual's Federal income tax return for the tax year (including
extensions) is not includable in income and therefore is not subject to the
10% penalty tax on early distributions (discussed below under "Penalty Tax on
Early Distributions"), provided any earnings attributable to the excess
contribution are also withdrawn and no tax deduction is taken for the excess
contribution. The withdrawn earnings on the excess contribution, however,
would be includable in the individual's gross income and would be subject to
the 10% penalty tax. If excess contributions are not withdrawn before the
time for filing the individual's Federal income tax return for
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the year (including extensions), "regular" contributions may still be
withdrawn after that time if the IRA contribution for the tax year did not
exceed $2,000 and no tax deduction was taken for the excess contribution; in
that event, the excess contribution would not be includable in gross income
and would not be subject to the 10% penalty tax. Lastly, excess "regular"
contributions may also be removed by underutilizing the allowable
contribution limits for a later year.
If excess rollover contributions are not withdrawn before the time for filing
the individual's Federal tax return for the year (including extensions) and
the excess contribution occurred as a result of incorrect information
provided by the plan, any such excess amount can be withdrawn if no tax
deduction was taken for the excess contribution. As above, excess rollover
contributions withdrawn under those circumstances would not be includable in
gross income and would not be subject to the 10% penalty tax.
Tax-Free Transfers and Rollovers
Rollover contributions may be made to an IRA from these sources: (i)
qualified plans, (ii) TSAs (including 403(b)(7) custodial accounts) and (iii)
other individual retirement arrangements.
The rollover amount must be transferred to the Certificate either as a direct
rollover of an "eligible rollover distribution" (described below) or as a
rollover by the individual plan participant or owner of the individual
retirement arrangement. In the latter cases, the rollover must be made within
60 days of the date the proceeds from another individual retirement
arrangement or an eligible rollover distribution from a qualified plan or TSA
were received. Generally the taxable portion of any distribution from a
qualified plan or TSA is an eligible rollover distribution and may be rolled
over tax-free to an IRA unless the distribution is (i) a required minimum
distribution under Section 401(a)(9) of the Code; or (ii) one of a series of
substantially equal periodic payments made (not less frequently than
annually) (a) for the life (or life expectancy) of the plan participant or
the joint lives (or joint life expectancies) of the plan participant and his
or her designated beneficiary, or (b) for a specified period of ten years or
more.
Under some circumstances, amounts from a Certificate may be rolled over on a
tax-free basis to a qualified plan. To get this "conduit" IRA treatment, the
source of funds used to establish the IRA must be a rollover contribution
from the qualified plan and the entire amount received from the IRA
(including any earnings on the rollover contribution) must be rolled over
into another qualified plan within 60 days of the date received. Similar
rules apply in the case of a TSA. If you make a contribution to the
Certificate which is from an eligible rollover distribution and you commingle
such contribution with other contributions, you may not be able to roll over
these eligible rollover distribution contributions and earnings to another
qualified plan (or TSA, as the case may be) at a future date, unless the Code
permits.
Under the conditions and limitations of the Code, an individual may elect for
each IRA to make a tax-free rollover once every 12-month period among
individual retirement arrangements (including rollovers from retirement bonds
purchased before 1983). Custodian-to-custodian transfers are not rollovers
and can be made more frequently than once a year.
The same tax-free treatment applies to amounts withdrawn from the Certificate
and rolled over into other individual retirement arrangements unless the
distribution was received under an inherited IRA. Tax-free rollovers are also
available to the surviving spouse beneficiary of a deceased individual, or a
spousal alternate payee of a qualified domestic relations order applicable to
a qualified plan. In some cases, IRAs can be transferred on a tax-free basis
between spouses or former spouses incidental to a judicial decree of divorce
or separation.
Distributions from IRA Certificates
Income or gains on contributions under IRAs are not subject to Federal income
tax until benefits are distributed to the individual. Distributions include
withdrawals from your Certificate, surrender of your Certificate and annuity
payments from your Certificate. Death benefits are also distributions. Except
as discussed below, the amount of any distribution from an IRA is fully
includable as ordinary income by the individual in gross income.
If the individual has made non-deductible IRA contributions, those
contributions are recovered tax-free when distributions are received. The
individual must keep records of all nondeductible contributions. At the end
of each tax year in which the individual has received a distribution, the
individual determines a ratio of the total nondeductible IRA contributions
(less any amounts previously withdrawn tax-free) to the total account
balances of all IRAs held by the individual at the end of the tax year
(including rollover IRAs) plus all IRA distributions made during such tax
year. The resulting ratio is then multiplied by all distributions from the
IRA during that tax year to determine the nontaxable portion of each
distribution.
In addition, a distribution (other than a required minimum distribution
received after age 70 1/2) is not
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taxable if (1) the amount received is a return of excess contributions which
are withdrawn, as described under "Excess Contributions" above, (2) the
entire amount received is rolled over to another individual retirement
arrangement (see "Tax-Free Transfers and Rollovers" above) or (3) in certain
limited circumstances, where the IRA acts as a "conduit," the entire amount
is paid into a qualified plan or TSA that permits rollover contributions.
Distributions from an IRA are not entitled to the special favorable five-year
averaging method (or, in certain cases, favorable ten-year averaging and
long-term capital gain treatment) available in certain cases to distributions
from qualified plans.
Required Minimum Distributions
The minimum distribution rules require IRA owners to start taking annual
distributions from their retirement plans by age 70 1/2. The distribution
requirements are designed to provide for distribution of the owner's interest
in the IRA over the owner's life expectancy. Whether the correct amount has
been distributed is calculated on a year by year basis; there are no
provisions in the Code to allow amounts taken in excess of the required
amount to be carried over or carried back and credited to other years.
Generally, an individual must take the first required minimum distribution
with respect to the calendar year in which the individual turns age 70 1/2.
The individual has the choice to take the first required minimum distribution
during the calendar year he or she turns age 70 1/2, or to delay taking it
until the three month (January 1-April 1) period in the next calendar year.
(Distributions must commence no later than the "Required Beginning Date,"
which is the April 1st of the calendar year following the calendar year in
which the individual turns age 70 1/2.) If the individual chooses to delay
taking the first annual minimum distribution, then the individual will have
to take two minimum distributions in that year--the delayed one for the first
year and the one actually for that year. Once minimum distributions begin,
they must be made at some time every year.
There are two approaches to taking minimum distributions--"account based" or
"annuity based"--and there are a number of distribution options in both of
these categories. These choices are intended to give individuals a great deal
of flexibility to provide for themselves and their families.
An account based minimum distribution approach may be a lump sum payment, or
periodic withdrawals made over a period which does not extend beyond the
individual's life expectancy or the joint life expectancies of the individual
and a designated beneficiary. An annuity based approach involves application
of the Annuity Account Value to an annuity for the life of the individual or
the joint lives of the individual and a designated beneficiary, or for a
period certain not extending beyond applicable life expectancies.
You should discuss with your tax adviser which minimum distribution options
are best for your own personal situation. Individuals who are participants in
more than one tax-favored retirement plan may be able to choose different
distribution options for each plan.
Your required minimum distribution for any taxable year is calculated by
taking into account the required minimum distribution from each of your
individual retirement arrangements. The IRS, however, does not require that
you make the required distribution from each individual retirement
arrangement that you maintain. As long as the total amount distributed
annually satisfies your overall minimum distribution requirement, you may
choose to take your annual required distribution from any one or more
individual retirement arrangements that you maintain.
An individual may recompute his or her minimum distribution amount each year
based on the individual's current life expectancy as well as that of the
spouse. No recomputation is permitted, however, for a beneficiary other than
a spouse. If there is an insufficient distribution in any year, a 50% tax may
be imposed on the amount by which the minimum required to be distributed
exceeds the amount actually distributed. The penalty tax may be waived by the
Secretary of the Treasury in certain limited circumstances. Failure to have
distributions made as the Code and Treasury regulations require may result in
disqualification of your IRA. See "Tax Penalty for Insufficient
Distributions" below.
Except as described in the next sentence, if the individual dies after
distribution in the form of an annuity has begun, or after the Required
Beginning Date, payment of the remaining interest must be made at least as
rapidly as under the method used prior to the individual's death. (The IRS
has indicated that an exception to the rule that payment of the remaining
interest must be made at least as rapidly as under the method used prior to
the individual's death applies if the beneficiary of the IRA is the surviving
spouse. In some circumstances, the surviving spouse may elect to "make the
IRA his or her own" and halt distributions until he or she reaches age 70
1/2).
If an individual dies before the Required Beginning Date and before
distributions in the form of an
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annuity begin, distributions of the individual's entire interest under the
Certificate must be completed within five years after death, unless payments
to a designated beneficiary begin within one year of the individual's death
and are made over the beneficiary's life or over a period certain which does
not extend beyond the beneficiary's life expectancy.
If the surviving spouse is the designated beneficiary, the spouse may delay
the commencement of such payments up until the individual would have attained
70 1/2. In the alternative, a surviving spouse may elect to roll over the
inherited IRA into the surviving spouse's own IRA.
Taxation of Death Benefits
Distributions received by a beneficiary are generally given the same tax
treatment the individual would have received if distribution had been made to
the individual.
If you elect to have your spouse be the sole primary beneficiary and to be
the successor Annuitant and Certificate Owner, then your surviving spouse
automatically becomes both the successor Certificate Owner and Annuitant, and
no death benefit is payable until the surviving spouse's death.
Guaranteed Minimum Death Benefit
The Code provides that no part of an individual retirement account may be
invested in life insurance contracts. Treasury Regulations provide that an
individual retirement account may be invested in an annuity contract which
provides a death benefit of the greater of premiums paid or the contract's
cash value. Your Certificate provides a minimum death benefit guarantee that
in certain circumstances may be greater than either of contributions made or
the Annuity Account Value. Although there is no ruling regarding the type of
minimum death benefit guarantee provided by the Certificate, Equitable Life
believes that the Certificate's minimum death benefit guarantee should not
adversely affect the qualification of the Certificate as an IRA.
Nevertheless, it is possible that the IRS could disagree, or take the
position that some portion of the charge in the Certificate for the minimum
death benefit guarantee should be treated for Federal income tax purposes as
a taxable partial withdrawal from the Certificate. If this were so, such a
deemed withdrawal would also be subject to tax penalty for Certificate Owners
under age 59 1/2.
Tax Considerations for the Assured Payment Option and APO Plus
Although the Life Contingent Annuity does not have a Cash Value, it will be
assigned a value for tax purposes which will generally change each year. This
value must be taken into account when determining the amount of required
minimum distributions from your IRA even though the Life Contingent Annuity
may not be providing a source of funds to satisfy such required minimum
distribution. Accordingly, before you apply any IRA funds under the Assured
Payment Option or APO Plus or terminate such Options, you should be aware of
the tax considerations discussed below. Consult with your tax adviser to
determine the impact of electing the Assured Payment Option and APO Plus in
view of your own particular situation.
When funds have been allocated to the Life Contingent Annuity, you will
generally be required to determine your required minimum distribution by
annually recalculating your life expectancy. The Assured Payment Option and
APO Plus will not be available if you have previously made a different
election. Recalculation is no longer required once the only payments you or
your spouse receive are under the Life Contingent Annuity.
If prior to the date payments are to start under the Life Contingent Annuity,
you surrender your Certificate, or withdraw any remaining Annuity Account
Value, it may be necessary for you to satisfy your required minimum
distribution by accelerating the start date of payments for your Life
Contingent Annuity, or to the extent available, take distributions from other
IRA funds you may have. Alternatively you may convert your IRA Life
Contingent Annuity under the IRA Rollover to a non-qualifed Life Contingent
Annuity. This would be viewed as a distribution of the value of the Life
Contingent Annuity from the IRA, and therefore, would be a taxable event.
However, since the Life Contingent Annuity would no longer be part of an IRA,
its value would not have to be taken into account in determining future
required minimum distributions.
If you have elected a Joint and Survivor form of the Life Contingent Annuity,
the joint Annuitant must be your spouse. You must determine your required
minimum distribution by annually recalculating both your life expectancy and
your spouse's life expectancy. The Assured Payment Option and APO Plus will
not be available if you have previously made a different election.
Recalculation is no longer required once the only payments you or your spouse
receive are under the Life Contingent Annuity. The value of such an annuity
will change in the event of your death or the death of your spouse. For this
reason, it is important that we be informed if you or your spouse dies before
the Life Contingent Annuity has started payments so that a lower valuation
can be made. Otherwise a higher tax value may result in an overstatement of
the amount that would be necessary to satisfy your required minimum
distribution amount.
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Allocations of funds to the Life Contingent Annuity may prevent the
Certificate from later receiving "conduit" IRA treatment. See "Tax-Free
Transfers and Rollovers" above.
Prohibited Transaction
An IRA may not be borrowed against or used as collateral for a loan or other
obligation. If the IRA is borrowed against or used as collateral, its
tax-favored status will be lost as of the first day of the tax year in which
the event occurred. If this happens, the individual must include in Federal
gross income for that year an amount equal to the fair market value of the
IRA Certificate as of the first day of that tax year, less the amount of any
nondeductible contributions not previously withdrawn. Also, the early
distribution penalty tax of 10% will apply if the individual has not reached
age 59 1/2 before the first day of that tax year. See "Penalty Tax on Early
Distributions" below.
PENALTY TAX ON EARLY DISTRIBUTIONS
The taxable portion of IRA distributions will be subject to a 10% penalty tax
unless the distribution is made (1) on or after your death, (2) because you
have become disabled, (3) on or after the date when you reach age 59 1/2, or
(4) in accordance with the exception outlined below if you are under 59 1/2.
Also not subject to penalty tax are IRA distributions used to pay certain
extraordinary medical expenses or medical insurance premiums for defined
unemployed individuals.
A payout over your life or life expectancy (or joint and survivor lives or
life expectancies), which is part of a series of substantially equal periodic
payments made at least annually, is also not subject to penalty tax. To
permit you to meet this exception, Equitable Life has two options:
Substantially Equal Payment Withdrawals and the Assured Payment Option with
level payments, both of which are described in Part 4. If you are a Rollover
IRA Certificate Owner who will be under age 59 1/2 as of the date the first
payment is expected to be received and you choose either option, Equitable
Life will calculate the substantially equal annual payments under a method we
will select based on guidelines issued by the IRS (currently contained in IRS
Notice 89-25, Question and Answer 12). Although Substantially Equal Payment
Withdrawals and Assured Payment Option level payments are not subject to the
10% penalty tax, they are taxable as discussed in "Distributions from IRA
Certificates," above. Once Substantially Equal Payment Withdrawals or Assured
Payment Option level payments begin, the distributions should not be stopped
or changed until the later of your attaining age 59 1/2 or five years after
the date of the first distribution, or the penalty tax, including an interest
charge for the prior penalty avoidance, may apply to all prior distributions
under this option. Also, it is possible that the IRS could view any
additional withdrawal or payment you take from your Certificate as changing
your pattern of Substantially Equal Payment Withdrawals or IRA Assured
Payment Option payments for purposes of determining whether the penalty
applies.
Where a taxpayer under age 59 1/2 purchases an individual retirement annuity
contract calling for substantially equal periodic payments during a fixed
period, continuing afterwards under a joint life contingent annuity with a
reduced payment to the survivor (e.g., a joint and 50% to survivor), the
question might be raised whether payments will not be substantially equal for
the joint lives of the taxpayer and survivor, as the payments will be reduced
at some point. In issuing our information returns, we code the substantially
equal periodic payments from such a contract as eligible for an exception
from the early distribution penalty. We believe that any change in payments
to the survivor would come within the statutory provision covering change of
payments on account of death. As there is no direct authority on this point,
however, if you are under age 59 1/2, you should discuss this item with your
own tax adviser when electing a reduced survivorship option.
TAX PENALTY FOR INSUFFICIENT
DISTRIBUTIONS
Failure to make required distributions discussed above in "Required Minimum
Distributions" may cause the disqualification of the IRA. Disqualification
may result in current taxation of your entire benefit. In addition a 50%
penalty tax may be imposed on the difference between the required
distribution amount and the amount actually distributed, if any.
We do not automatically make distributions from a Certificate before the
Annuity Commencement Date unless a request has been made. It is your
responsibility to comply with the minimum distribution rules. We will notify
you when our records show that your age 70 1/2 is approaching. If you do not
select a method, we will assume you are taking your minimum distribution from
another IRA that you maintain. You should consult with your tax adviser
concerning these rules and their proper application to your situation.
TAX PENALTY FOR EXCESS DISTRIBUTIONS
OR ACCUMULATION
A 15% excise tax is imposed on an individual's aggregate excess distributions
from all tax-favored
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retirement plans. The excise tax is in addition to the ordinary income tax
due, but is reduced by the amount (if any) of the early distribution penalty
tax imposed by the Code. This tax is temporarily suspended for distributions
to the individual for the years 1997, 1998 and 1999. However, the excise tax
continues to apply for estate tax purposes. In certain cases the estate tax
imposed on a deceased individual's estate will be increased if the
accumulated value of the individual's interest in tax-favored retirement
plans is excessive. The aggregate accumulations will be subject to excise tax
in 1997 if they exceed the present value of a hypothetical life annuity
paying $160,000 a year.
FEDERAL AND STATE INCOME TAX
WITHHOLDING
Equitable Life is required to withhold Federal income tax from IRA
distributions, unless the recipient elects not to be subject to income tax
withholding. The rate of withholding will depend on the type of distribution
and, in certain cases, the amount of the distribution. Special withholding
rules apply to foreign recipients and United States citizens residing outside
the United States. If a recipient does not have sufficient income tax
withheld or does not make sufficient estimated income tax payments, however,
the recipient may incur penalties under the estimated income tax rules.
Recipients should consult their tax advisers to determine whether they should
elect out of withholding. Requests not to withhold Federal income tax must be
made in writing prior to receiving benefits under the Certificate. Our
Processing Office will provide forms for this purpose. No election out of
withholding is valid unless the recipient provides us with the correct
taxpayer identification number and a United States residence address.
Certain states have indicated that income tax withholding will apply to
payments made from the Certificates to residents. In some states, a recipient
may elect out of state withholding. Generally, an election out of Federal
withholding will also be considered an election out of state withholding. If
you need more information concerning a particular state or any required
forms, call our Processing Office at the toll-free number and consult your
tax adviser.
Periodic payments are generally subject to wage-bracket type withholding (as
if such payments were payments of wages by an employer to an employee) unless
the recipient elects no withholding. If a recipient does not elect out of
withholding or does not specify the number of withholding exemptions,
withholding will generally be made as if the recipient is married and
claiming three withholding exemptions. There is an annual threshold of
taxable income from periodic annuity payments which is exempt from
withholding based on this assumption. For 1997, a recipient of periodic
payments (e.g., monthly or annual payments) which total less than a $14,400
taxable amount will generally be exempt from Federal income tax withholding,
unless the recipient specifies a different choice of withholding exemptions.
A withholding election may be revoked at any time and remains effective until
revoked. If a recipient fails to provide a correct taxpayer identification
number, withholding is made as if the recipient is single with no exemptions.
A recipient of a non-periodic distribution (total or partial) will generally
be subject to withholding at a flat 10% rate. A recipient who provides a
United States residence address and a correct taxpayer identification number
will generally be permitted to elect not to have tax withheld.
All recipients receiving periodic and non-periodic payments will be further
notified of the withholding requirements and of their right to make
withholding elections.
OTHER WITHHOLDING
As a general rule, if death benefits are payable to a person two or more
generations younger than the Certificate Owner, a Federal generation skipping
tax may be payable with respect to the benefit at rates similar to the
maximum estate tax rate in effect at the time. The generation skipping tax
provisions generally apply to transfers which would also be subject to the
gift and estate tax rules. Individuals are generally allowed an aggregate
generation skipping tax exemption of $1 million. Because these rules are
complex, you should consult with your tax adviser for specific information,
especially where benefits are passing to younger generations, as opposed to a
spouse or child.
If we believe a benefit may be subject to generation skipping tax we may be
required to withhold for such tax unless we receive acceptable written
confirmation that no such tax is payable.
IMPACT OF TAXES TO EQUITABLE LIFE
The Certificates provide that Equitable Life may charge the Separate Account
for taxes. Equitable Life can set up reserves for such taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers among the Investment Funds or between the Guaranteed Period Account
and one or more Investment Funds are not taxable.
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TAX CHANGES
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities and individual retirement arrangements. In addition,
the Treasury Department may amend existing regulations, issue new
regulations, or adopt new interpretations of existing laws. State tax laws
or, if you are not a United States resident, foreign tax laws, may affect the
tax consequences to you or the beneficiary. These laws may change from time
to time without notice and, as a result, the tax consequences may be altered.
There is no way of predicting whether, when or in what form any such change
would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
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PART 8: INDEPENDENT ACCOUNTANTS
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The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 included in Equitable
Life's Annual Report on Form 10-K, incorporated by reference in the
prospectus, have been examined by Price Waterhouse LLP, independent
accountants, whose reports thereon are incorporated herein by reference. Such
consolidated financial statements and consolidated financial statement
schedules have been incorporated herein by reference in reliance upon the
reports of Price Waterhouse LLP given upon their authority as experts in
accounting and auditing.
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PART 9: INVESTMENT PERFORMANCE
- -------------------------------------------------------------------------------
This Part presents performance data for each of the Investment Funds included
in the tables below. The performance data were calculated by two methods. The
first method presented in the tables under "Standardized Performance Data,"
reflects all applicable fees and charges, including the Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge, but not
the charge for tax such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does
not reflect the withdrawal charge, the Combined Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit Charge, or the charge for tax
such as premium taxes. These additional charges would effectively reduce the
rates of return credited to a particular Certificate.
HR Trust Portfolios
The performance data shown below for the Investment Funds investing in Class
IB shares or HR Trust Portfolios (other than the Alliance Small Cap Growth
Portfolio which commenced operations on May 1, 1997) are based on the actual
investment results of the Portfolios and have been adjusted for the fees and
charges applicable under the Certificates. However, the investment results
for the Alliance Growth & Income, Alliance International, Alliance
Conservative Investors and Alliance Intermediate Government Securities
Portfolios (under which Class IB shares were not available prior to the date
of this prospectus) and for the other Portfolios prior to October 1996, when
Class IB shares were not available under such Portfolios, do not reflect
12b-1 fees, which would effectively reduce such investment performance.
The performance data for the Alliance Money Market and Alliance Common Stock
Investment Funds that invest in corresponding HR Trust Portfolios, for
periods prior to March 22, 1985, reflect the investment results of two
open-end management separate accounts (the "predecessor separate accounts")
which were reorganized in unit investment trust form. The "Since Inception"
figures for these Investment Funds are based on the date of inception of the
predecessor separate accounts. These performance data have been adjusted to
reflect the maximum investment advisory fee payable for the corresponding
Portfolio of HR Trust, as well as an assumed charge of 0.06% for direct
operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares
of Portfolios of EQ Trust have only recently been established and no
Certificates funded by those Investment Funds have been issued as of the date
of this Prospectus. EQ Trust commenced operations on May 1, 1997. Therefore,
no actual historical performance data for any of these Portfolios are
available. In this connection, see the discussion immediately following the
tables below.
See "Part 2: The Guaranteed Period Account" for information on the Guaranteed
Period Account.
STANDARDIZED PERFORMANCE DATA
The standardized performance data in the following tables illustrate the
average annual total return of the Investment Funds over the periods shown,
assuming a single initial contribution of $1,000 and the surrender of the
Certificate at the end of each period. These tables (which reflect the first
calculation method described above) are prepared in a manner prescribed by
the SEC for use when we advertise the performance of the Separate Account. An
Investment Fund's average annual total return is the annual rate of growth of
the Investment Fund that would be necessary to achieve the ending value of a
contribution kept in the Investment Fund for the period specified.
Each calculation assumes that the $1,000 contribution was allocated to only
one Investment Fund, no transfers or subsequent contributions were made and
no amounts were allocated to any other Investment Option under the
Certificate.
In order to calculate annualized rates of return, we divide the Cash Value of
a Certificate which is surrendered on December 31, 1996 by the $1,000
contribution made at the beginning of each period illustrated. The result of
that calculation is the total growth rate for the period. Then we annualize
that growth rate to obtain the average annual percentage increase (decrease)
during the period shown. When we "annualize," we assume that a single rate of
return applied each year during the period will produce the ending value,
taking into account the effect of compounding.
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STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
-----------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
---- ---- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative Investors (3.01)% 3.61% 5.20% -- 6.60%
Alliance Growth Investors 4.24 8.24 8.65 -- 12.44
Alliance Growth & Income 11.70 11.01 -- -- 8.04
Alliance Common Stock 15.76 14.24 13.64 14.14% 13.57
Alliance Global 6.20 9.72 11.42 -- 9.26
Alliance International 1.54 -- -- -- 13.25
Alliance Aggressive Stock 13.71 12.66 9.70 16.91 18.36
Alliance Money Market (2.95) 1.89 2.15 4.23 5.43
Alliance Intermediate Govt. Securities (4.43) 0.85 3.47 -- 4.85
Alliance High Yield 14.39 9.69 12.59 -- 9.69
Alliance Equity Index 13.97 -- -- -- 16.23
</TABLE>
- --------------
See footnotes below.
The table below illustrates the growth of an assumed investment of $1,000,
with fees and charges deducted on the standardized basis described above for
the first method of calculation.
STANDARDIZED PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
---- ---- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative Investors $ 970 $1,112 $1,288 -- $ 1,668
Alliance Growth Investors 1,042 1,268 1,514 -- 2,555
Alliance Growth & Income 1,117 1,368 -- -- 1,362
Alliance Common Stock 1,158 1,491 1,895 $3,752 14,485
Alliance Global 1,062 1,321 1,717 -- 2,424
Alliance International 1,015 -- -- -- 1,132
Alliance Aggressive Stock 1,137 1,430 1,589 4,770 6,388
Alliance Money Market 971 1,058 1,112 1,514 2,332
Alliance Intermediate Govt. Securities 956 1,026 1,186 -- 1,328
Alliance High Yield 1,144 1,320 1,809 -- 2,522
Alliance Equity Index 1,140 -- -- -- 1,570
</TABLE>
- --------------
* For all the Investment Funds shown other than the Alliance Equity Index,
the tables reflect the withdrawal charge and charges under a Certificate
with the 0.45% Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit Charge. The values shown for the Alliance Equity
Index Fund reflect the withdrawal charge and charges under a Certificate
with the 0.20% Guaranteed Minimum Death Benefit Only Benefit Charge.
** The "Since Inception" dates for the Portfolios of HR Trust are as
follows: Alliance Conservative Investors (October 2, 1989); Alliance
Growth Investors (October 2, 1989); Alliance Growth & Income (October 1,
1993); Alliance Common Stock (January 13, 1976); Alliance Global (August
27, 1987); Alliance International (April 3, 1995); Alliance Aggressive
Stock (January 27, 1986); Alliance Money Market (July 13, 1981); Alliance
Intermediate Government Securities (April 1, 1991); Alliance High Yield
(January 2, 1987); and Alliance Equity Index (March 1, 1994).
Additional investment performance information appears in the attached HR
Trust and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations on
May 1, 1997. Therefore, no actual historical performance data are available.
However, historical performance of a composite of six other advisory accounts
managed by Alliance is described in the attached HR Trust prospectus.
According to that prospectus, these accounts have substantially the same
investment objectives and policies, and are managed in accordance with
essentially the same investment strategies and techniques, as those of the
Alliance Small Cap Growth Portfolio. It should be noted that these accounts
are not subject to certain of the requirements and re-
50
<PAGE>
strictions to which the Alliance Small Cap Growth Portfolio is subject and
that they are managed for tax exempt clients of Alliance. The investment
performance information included in the HR Trust prospectus for all
Portfolios other than the Alliance Small Cap Growth Portfolio is based on
actual historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR
Trust and the EQ Trust prospectuses, are provided by those prospectuses to
illustrate the past performance of each respective Portfolio adviser in
managing substantially similar investment vehicles as measured against
specified market indices and do not represent the past or future performance
of any Portfolio. None of the performance data contained in the HR Trust and
EQ Trust prospectuses reflects fees and charges imposed under your
Certificate, which fees and charges would reduce such performance figures.
Therefore, the performance data for each of the Portfolios described in the
EQ Trust prospectus and for the Alliance Small Cap Growth Portfolio in the HR
Trust propsectus may be of limited use and are not intended to be a
substitute for actual performance of the corresponding Portfolios, nor are
such results an estimate or guarantee of future performance for these
Portfolios.
RATE OF RETURN DATA FOR INVESTMENT FUNDS
The following tables (which reflect the second calculation method described
above) provide you with information on rates of return on an annualized,
cumulative and year-by-year basis.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends. Cumulative rates of
return reflect performance over a stated period of time. Annualized rates of
return represent the annual rate of growth that would have produced the same
cumulative return, if performance had been constant over the entire period.
BENCHMARKS
Market indices are not subject to any charges for investment advisory fees,
brokerage commission or other operating expenses typically associated with a
managed portfolio. Nor do they reflect other charges such as the mortality
and expense risks charge and the administration charge or any withdrawal
charge under the Certificates. Comparisons with these benchmarks, therefore,
are of limited use. We include them because they are widely known and may
help you to understand the universe of securities from which each Portfolio
is likely to select its holdings. Benchmark data reflect the reinvestment of
dividend income.
PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS:
ALLIANCE CONSERVATIVE INVESTORS: October 2, 1989; 70% Lehman Treasury Bond
Composite Index and 30% Standard & Poor's 500 Index.
ALLIANCE GROWTH INVESTORS: October 2, 1989; 30% Lehman Government/Corporate
Bond Index and 70% Standard & Poor's 500 Index.
ALLIANCE GROWTH & INCOME: October 1, 1993; 75% Standard & Poor's 500 Index
and 25% Value Line Convertible Index.
ALLIANCE COMMON STOCK: January 13, 1976; Standard & Poor's 500 Index.
ALLIANCE GLOBAL: August 27, 1987; Morgan Stanley Capital International World
Index.
ALLIANCE INTERNATIONAL: April 3, 1995; Morgan Stanley Capital International
Europe, Australia, Far East Index.
ALLIANCE AGGRESSIVE STOCK: January 27, 1986; 50% Standard & Poor's Mid-Cap
Total Return Index and 50% Russell 2000 Small Stock Index.
ALLIANCE MONEY MARKET: July 13, 1981; Salomon Brothers Three-Month T-Bill
Index.
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES: April 1, 1991; Lehman
Intermediate Government Bond Index.
ALLIANCE HIGH YIELD: January 2, 1987; Merrill Lynch Master High Yield.
ALLIANCE EQUITY INDEX FUND: March 1, 1994; Standard & Poor's 500 Index.
The Lipper Variable Insurance Products Performance Analysis Survey (Lipper)
records the performance of a large group of variable annuity products,
including managed separate accounts of insurance companies. According to
Lipper Analytical Services, Inc., the data are presented net of investment
management fees, direct operating expenses and asset-based charges applicable
under annuity contracts. Lipper data provide a more accurate picture than
market benchmarks of the Rollover IRA performance relative to other variable
annuity products.
51
<PAGE>
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 5.47% 6.08% -- -- -- 7.77%
Lipper Income 8.95 8.91 9.55 -- -- -- 9.55
Benchmark 8.78 10.14 9.64 -- -- -- 10.42
ALLIANCE GROWTH INVESTORS 11.24 9.98 9.47 -- -- -- 14.22
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GROWTH & INCOME 18.70 12.69 -- -- -- -- 11.47
Lipper Growth & Income 19.96 15.39 -- -- -- -- 14.78
Benchmark 21.28 17.93 -- -- -- -- 17.24
ALLIANCE COMMON STOCK 22.76 15.85 14.38 14.48% 15.16% 14.16% 13.90
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE GLOBAL 13.20 11.42 12.18 -- -- -- 10.42
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 10.90
Lipper International 13.36 -- -- -- -- -- 14.33
Benchmark 6.05 -- -- -- -- -- 8.74
ALLIANCE AGGRESSIVE STOCK 20.71 14.31 10.53 17.23 -- -- 18.79
Lipper Small Company
Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
ALLIANCE MONEY MARKET 4.05 3.80 3.11 4.68 5.87 -- 6.07
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES 2.57 2.80 4.38 -- -- -- 5.75
Lipper Gen. U.S.
Government 1.57 3.99 5.21 -- -- -- 6.76
Benchmark 4.06 5.37 6.23 -- -- -- 7.43
ALLIANCE HIGH YIELD 21.39 11.41 13.32 -- -- -- 10.13
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
ALLIANCE EQUITY INDEX 20.97 -- -- -- -- -- 18.92
Lipper S&P Index 21.10 -- -- -- -- -- 18.87
Benchmark 22.96 -- -- -- -- -- 20.90
</TABLE>
52
<PAGE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 17.34% 34.32% -- -- -- 72.02%
Lipper Income 8.95 29.47 58.37 -- -- -- 94.21
Benchmark 8.78 33.60 58.40 -- -- -- 105.23
ALLIANCE GROWTH INVESTORS 11.24 33.03 57.18 -- -- -- 162.01
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GROWTH & INCOME 18.70 43.09 -- -- -- -- 42.30
Lipper Growth & Income 19.96 53.82 -- -- -- -- 56.73
Benchmark 21.28 63.99 -- -- -- -- 67.75
ALLIANCE COMMON STOCK 22.76 55.49 95.76 286.77% 731.08% 1,313.81% 1,429.67
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1,416.26 1,655.74
ALLIANCE GLOBAL 13.20 38.31 77.66 -- -- -- 152.53
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 -- -- -- 95.62
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 19.76
Lipper International 13.36 -- -- -- -- -- 26.53
Benchmark 6.05 -- -- -- -- -- 15.78
ALLIANCE AGGRESSIVE STOCK 20.71 49.35 64.99 390.16 -- -- 556.01
Lipper Small Company
Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 48.69 99.38 280.32 -- -- 318.19
ALLIANCE MONEY MARKET 4.05 11.83 16.52 57.94 135.33 -- 148.77
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 -- 184.26
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57 8.63 23.89 -- -- -- 37.89
Lipper Gen. U.S.
Government 1.57 12.45 28.92 -- -- -- 45.71
Benchmark 4.06 16.98 35.30 -- -- -- 51.07
ALLIANCE HIGH YIELD 21.39 38.28 86.89 -- -- -- 162.22
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
ALLIANCE EQUITY INDEX 20.97 -- -- -- -- -- 63.39
Lipper S&P Index 21.10 63.19
Benchmark 22.96 71.28
</TABLE>
53
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.79%
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.53
ALLIANCE GROWTH
& INCOME -- -- -- -- -- --
ALLIANCE COMMON
STOCK** (3.09)% 31.90% 16.02% 6.21% 21.03% 24.16
ALLIANCE GLOBAL -- -- -- (13.62) 9.61 25.29
ALLIANCE
INTERNATIONAL -- -- -- -- -- --
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.83 6.06 (0.03) 41.86
ALLIANCE MONEY
MARKET** 9.59 7.22 5.39 5.41 6.09 7.93
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- --
ALLIANCE HIGH
YIELD -- -- -- 3.49 8.48 3.93
ALLIANCE EQUITY
INDEX -- -- -- -- -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS 5.14% 18.51% 4.50% 9.54% (5.20)% 19.02% 3.99%
ALLIANCE GROWTH
INVESTORS 9.39 47.19 3.69 13.95 (4.27) 24.92 11.24
ALLIANCE GROWTH
& INCOME -- -- -- (0.55) (1.72) 22.65 18.70
ALLIANCE COMMON
STOCK** (9.17) 36.30 2.03 23.29 (3.26) 30.93 22.76
ALLIANCE GLOBAL (7.15) 29.06 (1.65) 30.60 4.02 17.45 13.20
ALLIANCE
INTERNATIONAL -- -- -- -- -- 10.34 8.54
ALLIANCE
AGGRESSIVE
STOCK 6.92 84.73 (4.28) 15.41 (4.92) 30.13 20.71
ALLIANCE MONEY
MARKET** 6.99 4.97 2.37 1.78 2.82 4.53 4.05
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- 11.30 4.38 9.27 (5.47) 12.03 2.57
ALLIANCE HIGH
YIELD (2.26) 23.03 11.02 21.74 (3.90) 18.54 21.39
ALLIANCE EQUITY
INDEX -- -- -- -- 0.11 34.92 20.97
<FN>
- --------------
* Returns do not reflect the withdrawal charge, the Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge and
any charge for tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were: 1976 1977 1978 1979 1980 1981 1982 1983
---- ---- ---- ---- ---- ---- ---- ----
ALLIANCE COMMON STOCK 8.20% (10.28)% 6.99% 28.35% 48.39% (6.94)% 16.22% 24.67%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.71 11.72 7.70
</FN>
</TABLE>
COMMUNICATING PERFORMANCE DATA
In reports or other communications or in advertising material, we may
describe general economic and market conditions affecting the Separate
Account and each respective trust and may present the performance of the
Investment Funds or compare it with (1) that of other insurance company
separate accounts or mutual funds included in the rankings prepared by Lipper
Analytical Services, Inc., Morningstar, Inc., VARDS or similar investment
services that monitor the performance of insurance company separate accounts
or mutual funds, (2) other appropriate indices of investment securities and
averages for peer universes of funds which are shown under "Benchmarks" and
"Portfolio Inception Dates and Comparative Benchmarks" in this Part 9, or (3)
data developed by us derived from such indices or averages. The Morningstar
Variable Annuity/Life Report consists of nearly 700 variable life and annuity
funds, all of which report their data net of investment management fees,
direct operating expenses and separate account charges. VARDS is a monthly
reporting service that monitors approximately 760 variable life and variable
annuity funds on performance and account information. Advertisements or other
communications furnished to present or prospective Certificate Owners may
also include evaluations of an Investment Fund or Portfolio by financial
publications that are nationally recognized such as Barron's, Morningstar's
Variable Annuity Sourcebook, Business Week, Chicago Tribune, Forbes, Fortune,
Institutional Investor, Investment Adviser, Investment Dealer's Digest,
Investment Management Weekly, Los Angeles Times, Money, Money Management
Letter, Kiplinger's Personal Finance, Financial Planning, National
Underwriter, Pension & Investments, USA Today, Investor's Daily, The New York
Times, and The Wall Street Journal.
ALLIANCE MONEY MARKET FUND AND ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES
FUND YIELD INFORMATION
The current yield and effective yield of the Alliance Money Market Fund and
Alliance Intermediate Government Securities Fund may appear in reports and
promotional material to current or prospective Certificate Owners.
Alliance Money Market Fund
Current yield for the Alliance Money Market Fund will be based on net changes
in a hypothetical investment over a given seven-day period, exclusive of
capital changes, and then "annualized" (assuming that the same seven-day
result would occur each week for 52 weeks). "Effective yield" is calculated
in
54
<PAGE>
a manner similar to that used to calculate current yield, but when
annualized, any income earned by the investment is assumed to be reinvested.
The "effective yield" will be slightly higher than the "current yield"
because any earnings are compounded weekly. Alliance Money Market Fund yields
and effective yields assume the deduction of all Certificate charges and
expenses other than the withdrawal charge, Combined Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit Charge and any charge for tax
such as premium tax. The effective yields for the Alliance Money Market Fund
when used for the Special Dollar Cost Averaging program assume no Certificate
charges are deducted. See "Part 5: Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund Yield Information" in the SAI.
Alliance Intermediate Government Securities Fund
Current yield for the Alliance Intermediate Government Securities Fund will
be based on net changes in a hypothetical investment over a given 30-day
period, exclusive of capital changes, and then "annualized" (assuming that
the same 30-day result would occur each month for 12 months). "Effective
yield" is calculated in a manner similar to that used to calculate current
yield, but when annualized, any income earned by the investment is assumed to
be reinvested. The "effective yield" will be higher than the "current yield"
because any earnings are compounded monthly.
Alliance Intermediate Government Securities Fund yields and effective yields
assume the deduction of all Certificate charges and expenses other than the
withdrawal charge, Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit Charge and any charge for tax such as premium tax. See
"Part 5: Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund Yield Information" in the SAI.
55
<PAGE>
APPENDIX I: MARKET VALUE ADJUSTMENT EXAMPLE
- -------------------------------------------------------------------------------
The example below shows how the market value adjustment would be determined
and how it would be applied to a withdrawal, assuming that $100,000 were
allocated on February 15, 1998 to a Guarantee Period with an Expiration Date
of February 15, 2007 at a Guaranteed Rate of 7.00% resulting in a Maturity
Value at the Expiration Date of $183,846, and further assuming that a
withdrawal of $50,000 were made on February 15, 2002.
<TABLE>
<CAPTION>
ASSUMED
GUARANTEED RATE ON FEBRUARY 15, 2002
--------------------------------------
5.00% 9.00%
----- -----
<S> <C> <C>
As of February 15, 2002 (Before Withdrawal)
- -------------------------------------------
(1) Present Value of Maturity Value, also
Annuity Account Value................... $144,048 $119,487
(2) Guaranteed Period Amount................ 131,080 131,080
(3) Market Value Adjustment: (1)-(2) ....... 12,968 (11,593)
On February 15, 2002 (After Withdrawal)
- ---------------------------------------
(4) Portion of (3) Associated
with Withdrawal: (3) x [$50,000 / (1)] . $ 4,501 $ (4,851)
(5) Reduction in Guaranteed
Period Amount: [$50,000-(4)]............ 45,499 54,851
(6) Guaranteed Period Amount: (2)-(5) ...... 85,581 76,229
(7) Maturity Value.......................... 120,032 106,915
(8) Present Value of (7), also
Annuity Account Value................... 94,048 69,487
</TABLE>
You should note that under this example if a withdrawal is made when rates
have increased (from 7.00% to 9.00% in the example), a portion of a negative
market value adjustment is realized. On the other hand, if a withdrawal is
made when rates have decreased (from 7.00% to 5.00% in the example), a
portion of a positive market value adjustment is realized.
56
<PAGE>
APPENDIX II: DEATH BENEFIT FOR CERTIFICATES ISSUED IN NEW YORK
- -------------------------------------------------------------------------------
The death benefit applicable to Certificates issued in New York is equal to
the Annuity Account Value or, if greater, the Guaranteed Minimum Death
Benefit.
GUARANTEED MINIMUM DEATH BENEFIT
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
initial contribution. Thereafter, the Guaranteed Minimum Death Benefit is
reset through age 80, to the Annuity Account Value on a Contract Date
anniversary if higher than the then current Guaranteed Minimum Death Benefit,
and is adjusted for any subsequent contributions and withdrawals. In no event
will the Guaranteed Minimum Death Benefit at your death be less than the
Annuity Account Value in the Investment Funds, plus the sum of the Guaranteed
Period Amounts in each Guarantee Period. See "Guarantee Periods" in Part 2.
Withdrawals will cause a reduction in your current Guaranteed Minimum Death
Benefit on a pro rata basis. Reduction on a pro rata basis means that we
calculate the percentage of the Annuity Account Value as of the Transaction
Date this is being withdrawn and we reduce your current Guaranteed Minimum
Death Benefit by that same percentage. For an example of the calculation, see
"How Withdrawals and Transfers Affect Your Guaranteed Minimum Death Benefit
and Guaranteed Minimum Income Benefit" in Part 4.
57
<PAGE>
APPENDIX III: GUARANTEED MINIMUM DEATH BENEFIT EXAMPLE
- -------------------------------------------------------------------------------
Under the Certificates the death benefit for Certificates issued in all
states except New York is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater,
the Guaranteed Minimum Death Benefit (see "Guaranteed Minimum Death
Benefit" in Part 3); and
(2) the death benefit provided with respect to the Guaranteed Period
Account (see "Death Benefit" in Part 3).
See Appendix II for the description of the death benefit applicable to
Certificates issued in New York.
The following is an example illustrating the calculation of the Guaranteed
Minimum Death Benefit. Assuming $100,000 is allocated to the Investment Funds
(with no allocation to the Alliance Money Market and Alliance Intermediate
Government Securities Funds), no subsequent contributions, no transfers and
no withdrawals, the Guaranteed Minimum Death Benefit for an Annuitant age 45
would be calculated as follows:
<TABLE>
<CAPTION>
END OF NON-NEW YORK NEW YORK
CONTRACT ANNUITY GUARANTEED MINIMUM GUARANTEED MINIMUM
YEAR ACCOUNT VALUE DEATH BENEFIT(1) DEATH BENEFIT
---- ------------- ---------------- -------------
<S> <C> <C> <C>
1 $105,000 $106,000 $105,000(2)
2 $115,500 $112,360 $115,500(2)
3 $132,825 $119,102 $132,825(2)
4 $106,260 $126,248 $132,825(3)
5 $116,886 $133,823 $132,825(3)
6 $140,263 $141,852 $140,263(2)
7 $140,263 $150,363 $140,263(3)
</TABLE>
The Annuity Account Values for Contract Years 1 through 8 are determined
based on hypothetical rates of return of 5.00%, 10.00%, 15.00%, 20.00%,
10.00%, (20.00)% and 0.00%, respectively.
6% TO AGE 80 BENEFIT
(1) For Contract Years 1 through 7, the Guaranteed Minimum Death Benefit
equals the initial contribution increased by 6%.
NEW YORK
(2) At the end of Contract Years 1, 2, and 3 again at the end of Contract
Year 6, the Guaranteed Minimum Death Benefit is equal to the current
Annuity Account Value.
(3) At the end of Contract Years 4, 5 and 7, the Guaranteed Minimum Death
Benefit is equal to the Guaranteed Minimum Death Benefit at the end of
the prior year since it is equal to or higher than the current Annuity
Account Value.
58
<PAGE>
APPENDIX IV: EXAMPLE OF PAYMENTS UNDER THE ASSURED PAYMENT
OPTION AND APO PLUS
- -------------------------------------------------------------------------------
The second column in the chart below illustrates the payments for a male age
70 who purchased the Assured Payment Option on April 15, 1997 with a single
contribution of $100,000, with increasing annual payments. The payments are
to commence on February 15, 1998. It assumes that the fixed period is 15
years and that the Life Contingent Annuity will provide payments on a Single
Life basis. Based on Guaranteed Rates for the Guarantee Periods and the
current purchase rate for the Life Contingent Annuity, on April 15, 1997, the
initial payment would be $7,178.53 and would increase in each three year
period to a final payment of $10,510.08. The first payment under the Life
Contingent Annuity would be $11,561.09
Alternatively as shown in the third and fourth columns, this individual could
purchase APO Plus with the same $100,000 contribution, with the same fixed
period and the Life Contingent Annuity on a Single Life basis. Assuming
election of the Alliance Common Stock Fund based on Guaranteed Rates for the
Guarantee Periods and the current purchase rate for the Life Contingent
Annuity, on April 15, 1997, the same initial payment of $7,178.53 would be
purchased under APO Plus. However, unlike the payment under the Assured
Payment Option that will increase every three years, this initial payment
under APO Plus is not guaranteed to increase. Therefore, only $79,640.00 is
needed to purchase the initial payment stream, and the remaining $20,360.00
is invested in the Investment Funds. Any future increase in payments under
APO Plus will depend on the investment performance in the Alliance Common
Stock Fund.
Assuming hypothetical average annual rates of return of 0% and 8% (after
deduction of charges) for the Investment Fund, the Annuity Account Value in
the Investment Fund would grow to $20,360.00 and $25,647.73 respectively
after three years. A portion of this amount is used to purchase the increase
in the payments at the beginning of the fourth year. The remainder will stay
in the Investment Fund to be drawn upon for the purchase of increases in
payments at the end of each third year thereafter during the fixed period and
at the end of the fixed period under the Life Contingent Annuity. Based on
Guaranteed Rates for the Guarantee Periods and purchase rates for the Life
Contingent Annuity as of April 15, 1997, the third and fourth columns
illustrate the increasing payments that would be purchased under APO Plus
assuming 0% and 8% rates of return respectively.
Under both options, while the Certificate Owner is living payments increase
annually after the 16th year under the Life Contingent Annuity based on the
increase, if any, in the Consumer Price Index, but in no event greater than
3% per year.
ANNUAL PAYMENTS
<TABLE>
<CAPTION>
ILLUSTRATIVE ILLUSTRATIVE
GUARANTEED INCREASING PAYMENTS PAYMENTS PAYMENTS
UNDER THE UNDER UNDER
YEARS ASSURED PAYMENT OPTION APO PLUS AT 0% APO PLUS AT 8%
----- ---------------------- -------------- --------------
<S> <C> <C> <C>
1-3 $ 7,178.53 $7,178.53 $ 7,178.53
4-6 7,896.38 7,380.16 7,754.69
7-9 8,686.02 7,732.40 8,553.00
10-12 9,554.62 8,084.63 9,367.45
13-15 10,510.08 8,399.11 10,151.22
16 11,561.09 8,626.70 10,839.98
</TABLE>
As described above, a portion of the illustrated contribution is applied to
the Life Contingent Annuity. This amount will generally be larger under the
Assured Payment Option than under APO Plus. Also, a larger portion of the
contribution will be allocated to Guarantee Periods under the former than the
latter. In this illustration, $81,843.99 is allocated under the Assured
Payment Option to the Guarantee Periods and under APO Plus, $69,418.56 is
allocated to the Guarantee Periods. In addition, under APO Plus $20,360.00 is
allocated to the Investment Fund. The balance of the $100,000 ($18,156.01 and
$10,221.44, respectively) is applied to the Life Contingent Annuity.
The rates of return of 0% and 8% are for illustrative purposes only and are
not intended to represent an expected or guaranteed rate of return. Your
investment results will vary. Payments will also depend on the Guaranteed
Rates and Life Contingent Annuity purchase rates in effect as of the
Transaction Date. It is assumed that no Lump Sum Withdrawals are taken.
59
<PAGE>
APPENDIX V: IRS TAX DEDUCTION TABLE
- -------------------------------------------------------------------------------
If your Maximum Permissible Dollar Deduction is $2,000, use this table to
estimate the amount of your contribution which will be deductible.
<TABLE>
<CAPTION>
EXCESS AGI DEDUCTION EXCESS AGI DEDUCTION EXCESS AGI DEDUCTION EXCESS AGI DEDUCTION
---------- --------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 $2,000 $2,550 $1,490 $5,050 $990 $ 7,550 $490
50 1,990 2,600 1,480 5,100 980 7,600 480
100 1,980 2,650 1,470 5,150 970 7,650 470
150 1,970 2,700 1,460 5,200 960 7,700 460
200 1,960 2,750 1,450 5,250 950 7,750 450
250 1,950 2,800 1,440 5,300 940 7,800 440
300 1,940 2,850 1,430 5,350 930 7,850 430
350 1,930 2,900 1,420 5,400 920 7,900 420
400 1,920 2,950 1,410 5,450 910 7,950 410
450 1,910 3,000 1,400 5,500 900 8,000 400
500 1,900 3,050 1,390 5,550 890 8,050 390
550 1,890 3,100 1,380 5,600 880 8,100 380
600 1,880 3,150 1,370 5,650 870 8,150 370
650 1,870 3,200 1,360 5,700 860 8,200 360
700 1,860 3,250 1,350 5,750 850 8,250 350
750 1,850 3,300 1,340 5,800 840 8,300 340
800 1,840 3,350 1,330 5,850 830 8,350 330
850 1,830 3,400 1,320 5,900 820 8,400 320
900 1,820 3,450 1,310 5,950 810 8,450 310
950 1,810 3,500 1,300 6,000 800 8,500 300
1,000 1,800 3,550 1,290 6,050 790 8,550 290
1,050 1,790 3,600 1,280 6,100 780 8,600 280
1,100 1,780 3,650 1,270 6,150 770 8,650 270
1,150 1,770 3,700 1,260 6,200 760 8,700 260
1,200 1,760 3,750 1,250 6,250 750 8,750 250
1,250 1,750 3,800 1,240 6,300 740 8,800 240
1,300 1,740 3,850 1,230 6,350 730 8,850 230
1,350 1,730 3,900 1,220 6,400 720 8,900 220
1,400 1,720 3,950 1,210 6,450 710 8,950 210
1,450 1,710 4,000 1,200 6,500 700 9,000 200
1,500 1,700 4,050 1,190 6,550 690 9,050 200
1,550 1,690 4,100 1,180 6,600 680 9,100 200
1,600 1,680 4,150 1,170 6,650 670 9,150 200
1,650 1,670 4,200 1,160 6,700 660 9,200 200
1,700 1,660 4,250 1,150 6,750 650 9,250 200
1,750 1,650 4,300 1,140 6,800 640 9,300 200
1,800 1,640 4,350 1,130 6,850 630 9,350 200
1,850 1,630 4,400 1,120 6,900 620 9,400 200
1,900 1,620 4,450 1,110 6,950 610 9,450 200
1,950 1,610 4,500 1,100 7,000 600 9,500 200
2,000 1,600 4,550 1,090 7,050 590 9,550 200
2,050 1,590 4,600 1,080 7,100 580 9,600 200
2,100 1,580 4,650 1,070 7,150 570 9,650 200
2,150 1,570 4,700 1,060 7,200 560 9,700 200
2,200 1,560 4,750 1,050 7,250 550 9,750 200
2,250 1,550 4,800 1,040 7,300 540 9,800 200
2,300 1,540 4,850 1,030 7,350 530 9,850 200
2,350 1,530 4,900 1,020 7,400 520 9,900 200
2,400 1,520 4,950 1,010 7,450 510 9,950 200
2,450 1,510 5,000 1,000 7,500 500 10,000 0
2,500 1,500
</TABLE>
- --------------
Excess AGI = Your AGI minus your THRESHOLD LEVEL:
If you are single, your Threshold Level is $25,000.
If you are married, your Threshold Level is $40,000.
If you are married and file a separate tax return, your Excess
AGI = your AGI.
60
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
----
Part 1: Minimum Distribution Withdrawals 2
Part 2: Accumulation Unit Values 2
Part 3: Annuity Unit Values 2
Part 4: Custodian and Independent Accountants 3
Part 5: Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund Yield
Information 3
Part 6: Long-Term Market Trends 4
Part 7: Financial Statements 7
HOW TO OBTAIN A INCOME MANAGER ROLLOVER IRA STATEMENT OF
ADDITIONAL INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Income Manager Rollover IRA SAI:
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
61
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
SUPPLEMENT TO
INCOME MANAGER (SERVICE MARK) ACCUMULATOR
PROSPECTUS DATED MAY 1, 1997
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- -------------------------------------------------------------------------------
This prospectus supplement describes the Combined Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit (Plan A) offered to Annuitant
issue ages 76 or older under the INCOME MANAGER Accumulator Prospectus.
Capitalized terms in this supplement have the same meaning as in the
prospectus.
The Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit (Plan A) discussed on page 18 of the prospectus under "baseBUILDER
Benefits" is available for Annuitant issue ages 76 or older at a charge of
0.45% of the Guaranteed Minimum Death Benefit in effect on a Processing Date.
The benefit is as discussed below:
The Guaranteed Minimum Death Benefit applicable to the combined benefit is as
follows:
4% to Age 85 Benefit - On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the portion of the initial contribution allocated to
the Investment Funds. Thereafter, the Guaranteed Minimum Death Benefit is
credited with interest at 4% (3% for amounts in the Alliance Money Market
and Alliance Intermediate Government Securities Funds, except as
indicated below) on each Contract Date anniversary through the
Annuitant's age 85 (or at the Annuitant's death, if earlier), and 0%
thereafter, and is adjusted for any subsequent contributions and
transfers into the Investment Funds and transfers and withdrawals from
such Funds. The Guaranteed Minimum Death Benefit interest rate applicable
to amounts in the Alliance Money Market Fund under the Special Dollar
Cost Averaging program will be 4%.
The Guaranteed Minimum Income Benefit discussed on page 20 of the prospectus
may be exercised only within 30 days following the 7th or later Contract Date
anniversary, but in no event later than the Annuitant's age 90.
The period certain will be 90 less the Annuitant's age at election.
The Guaranteed Minimum Income Benefit benefit base described on page 22 of the
prospectus is as follows:
The Guaranteed Minimum Income Benefit benefit base is equal to the
initial contribution allocated to the Investment Funds on the Contract
Date. Thereafter, the Guaranteed Minimum Income Benefit benefit base is
credited with interest at 4% (3% for amounts in the Alliance Money Market
and Alliance Intermediate Government Securities Funds, except as
indicated below) on each Contract Date anniversary through the
Annuitant's age 85, and 0% thereafter, and is adjusted for any subsequent
contributions and transfers into the Investment Funds and transfers and
withdrawals from such Funds. The
- -------------------------------------------------------------------------------
SUPPLEMENT DATED MAY 1, 1997
<PAGE>
Guaranteed Minimum Income Benefit benefit base interest rate applicable
to amounts in the Alliance Money Market Fund under the Special Dollar
Cost Averaging program will be 4%. The Guaranteed Minimum Income Benefit
benefit base will also be reduced by any withdrawal charge remaining on
the Transaction Date that you exercise your Guaranteed Minimum Income
Benefit.
- -------------------------------------------------------------------------------
SUPPLEMENT DATED MAY 1, 1997
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
MAY 1, 1997
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
PROFILE OF INCOME MANAGER (SERVICE MARK) ACCUMULATOR
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
This Profile is a summary of some of the more important points that you should
know and consider before purchasing a Certificate. The Certificate is more
fully described in the prospectus which accompanies this Profile.
Please read the prospectus carefully.
1. THE ANNUITY CERTIFICATE. The Accumulator Certificate is a combination
variable and fixed deferred annuity issued by Equitable Life. It is designed to
provide for the accumulation of retirement savings and for retirement income
through the investment of after-tax money during an accumulation phase. You may
invest in Investment Funds where your Certificate's value may vary up or down
depending upon investment performance. You may also invest in Guarantee Periods
(also called GIROs) that when held to maturity provide guaranteed interest
rates that we have set and a guarantee of principal. If you make any transfers
or withdrawals, the GIROs' investment value may increase or decrease until
maturity due to interest rate changes. Earnings accumulate under the
Certificate on a tax-deferred basis until amounts are distributed. Amounts
distributed under the Certificate may be subject to income tax.
The Investment Funds offer the potential for better returns than the interest
rates guaranteed under GIROs, but the Investment Funds involve risk and you can
lose money. You may make transfers among the Investment Funds and GIROs. The
value of GIROs prior to their maturity fluctuates and you can lose money on
premature transfers or withdrawals.
The Certificate provides a number of distribution methods during the
accumulation phase and for converting to annuity income. The amount accumulated
under your Certificate during the accumulation phase will affect the amount of
distribution or annuity benefits you receive.
2. ANNUITY PAYMENTS. When you are ready to start receiving income, annuity
income is available by applying your Certificate's value to the Income Manager
(Life Annuity with a Period Certain). You can also have your Certificate's
value applied to any of the following five ANNUITY BENEFITS: (1) Life Annuity -
payments for your life, (2) Life Annuity - Period Certain - payments for your
life, but with payments continuing to the beneficiary for the balance of the 5,
10, 15 or 20 years (as you select) if you die before the end of the selected
period; (3) Life Annuity - Refund Certain - payments for your life, with
payments continuing to the beneficiary after your death until any remaining
amount applied to this option runs out; and (4) Period Certain Annuity -
payments for a specified period of time, usually 5, 10, 15 or 20 years, with no
life contingencies. Options (2)
--------------------
Income Manager and baseBUILDER are service marks of The Equitable Life
Assurance Society of the United States.
1
<PAGE>
and (3) are also available as a Joint and Survivor Annuity - payments for your
life, and after your death, continuation of payments to the survivor for life.
Annuity benefits (other than the Refund Certain available only on a fixed
basis) are available as a fixed annuity, or as a variable annuity, where the
dollar amount of your payments will depend upon the investment performance of
the Investment Funds. Once you begin receiving annuity payments, you cannot
change your annuity benefit.
3. PURCHASE. You can purchase an Accumulator Certificate with $5,000 or more.
You may add additional amounts of $1,000 or more at any time (subject to
certain restrictions). Subject to certain age restrictions, you may purchase
the baseBUILDERSM guaranteed benefit in the form of a Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit (Plan A). If you do
not elect the combined benefit, the Guaranteed Minimum Death Benefit is
provided under the Certificate at a lower charge (Plan B). Both benefits are
discussed below. You choose the one that best suits your needs.
4. INVESTMENT OPTIONS. You may invest in any or all of the following Investment
Funds, which invest in shares of corresponding portfolios of The Hudson River
Trust (HR Trust) and EQ Advisors Trust (EQ Trust). The portfolios are described
in the prospectuses for HR Trust and EQ Trust.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Morgan Stanley Emerging MFS Emerging Growth
Value Markets Equity* Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company
Merrill Lynch Basic Value Equity _____________ Value
T. Rowe Price Equity Income *Available on or about September 2,
1997.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate
EQ/Putnam Balanced Government Securities
Merrill Lynch World Strategy Alliance Money Market
- ------------------------------------------------------------------------------------------------------------
</TABLE>
You may also invest in one or more GIROs currently maturing in years 1998
through 2007.
5. EXPENSES. The Certificate has expenses as follows: There is an annual charge
expressed as a percentage of the Guaranteed Minimum Death Benefit. For Plan A
the percentage is equal to 0.45%. For Plan B the percentage is equal to 0.20%.
As a percentage of assets in the Investment Funds, a daily charge is deducted
for mortality and expense risks at an annual rate of 0.90%; and a daily charge
is deducted for administration expenses at an annual rate of 0.25%.
2
<PAGE>
The charges for the portfolios of HR Trust range from 0.64% to 1.33% of the
average daily net assets of HR Trust portfolios, depending upon HR Trust
portfolios selected. The charges for the portfolios of EQ Trust range from
0.85% to 1.75% of the average daily net assets of EQ Trust portfolios,
depending upon the EQ Trust portfolios selected. The amounts for HR Trust are
based on restated values during 1996 (as well as an expense cap for the
Alliance Small Cap Growth portfolio) and the amounts for EQ Trust are based on
a current expense cap. The 12b-1 fees for the portfolios of HR Trust and EQ
Trust are 0.25% of the average daily net assets of HR Trust and EQ Trust,
respectively. Charges for state premium and other applicable taxes may also
apply at the time you elect to start receiving annuity payments.
A withdrawal charge is imposed as a percentage of each contribution withdrawn
in excess of a free corridor amount, or if the Certificate is surrendered. The
free corridor amount for withdrawals is 15% of the Certificate's value at the
beginning of the year. When applicable, the withdrawal charge is determined in
accordance with the table below, based on the year a contribution is withdrawn.
The year in which we receive your contribution is "Year 1."
Year of Contribution Withdrawal
1 2 3 4 5 6 7 8+
----------------------------------------------
Percentage of
Contribution 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
The following chart is designed to help you understand the charges in the
Certificate. The "Total Annual Charges" column shows the combined total of the
Certificate charges deducted as a percentage of assets in the Investment Funds
and the portfolio charges, as shown in the first two columns. The last two
columns show you two examples of the charges, in dollars, that you would pay
under a Certificate, and include the Guaranteed Minimum Death Benefit based
charge for the optional Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit. The examples assume that you invested $1,000
in a Certificate which earns 5% annually and that you withdraw your money: (1)
at the end of year 1, and (2) at the end of year 10. For year 1, the Total
Annual Charges are assessed as well as the withdrawal charge. For year 10, the
example shows the aggregate of all the annual charges assessed for the 10
years, but there is no withdrawal charge. No charges for state premium and
other applicable taxes are assumed in the examples.
<TABLE>
<CAPTION>
EXAMPLES
TOTAL ANNUAL TOTAL ANNUAL TOTAL Total Annual
CERTIFICATE PORTFOLIO ANNUAL Expenses at End of:
INVESTMENT FUND CHARGES CHARGES CHARGES (1) (2)
1 Year 10 Years
<S> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors 1.15% 0.80% 1.95% $89.74 $275.75
Alliance Growth
Investors 1.15 0.84 1.99 90.14 279.80
Alliance Growth &
Income 1.15 0.85 2.00 90.24 280.80
Alliance Common Stock 1.15 0.66 1.81 88.35 261.52
Alliance Global 1.15 0.98 2.13 91.53 293.80
Alliance International 1.15 1.33 2.48 95.01 328.00
Alliance Aggressive
Stock 1.15 0.83 1.98 90.04 278.79
3
<PAGE>
Table (continued)
EXAMPLES
TOTAL ANNUAL TOTAL ANNUAL TOTAL Total Annual
CERTIFICATE PORTFOLIO ANNUAL Expenses at End of:
INVESTMENT FUND CHARGES CHARGES CHARGES (1) (2)
1 Year 10 Years
HR TRUST (continued)
- --------
Alliance Small Cap
Growth 1.15 1.20 2.35 93.72 315.43
Alliance Money Market 1.15 0.64 1.79 88.15 259.45
Alliance Intermediate
Government 1.15 0.84 1.99 90.14 279.80
Securities
Alliance High Yield 1.15 0.91 2.06 90.84 286.83
EQ TRUST
- --------
EQ/Putnam Balanced 1.15% 0.90% 2.05% $90.74 $293.88
EQ/Putnam Growth &
Income Value 1.15 0.85 2.00 90.24 288.87
MFS Emerging Growth
Companies 1.15 0.85 2.00 90.24 288.87
MFS Research 1.15 0.85 2.00 90.24 288.87
Merrill Lynch Basic
Value Equity 1.15 0.85 2.00 90.24 288.87
Merrill Lynch World
Strategy 1.15 1.20 2.35 93.72 323.50
Morgan Stanley
Emerging Markets
Equity
(available on or about
September 2, 1997) 1.15 1.75 2.90 99.19 375.62
T. Rowe Price Equity
Income 1.15 0.85 2.00 90.24 288.87
T. Rowe Price
International Stock 1.15 1.20 2.35 93.72 323.50
Warburg Pincus Small
Company Value 1.15 1.00 2.15 91.73 303.84
</TABLE>
For Investment Funds investing in portfolios with less than 10 years of
operations, charges have been estimated. The charges reflect any expense waiver
or limitation. For more detailed information, see the Fee Table in the
prospectus.
6. TAXES. In most cases, your earnings are not taxed until distributions are
made from your Certificate. If you are younger than age 59 1/2 when you receive
any distributions, you may be charged an additional 10% Federal tax penalty on
the amount received.
4
<PAGE>
7. ACCESS TO YOUR MONEY. During the accumulation phase, you may receive
distributions under a Certificate through the following WITHDRAWAL OPTIONS: (1)
Lump Sum Withdrawals of at least $1,000 may be taken at any time, and (2)
Systematic Withdrawals, paid monthly, quarterly or annually, subject to certain
restrictions, including a maximum percentage of your Certificate's value. You
also have access to your Certificate's value by surrendering the Certificate.
All or a portion of a withdrawal may be subject to a withdrawal charge to the
extent that the withdrawal exceeds the free corridor amount. A free corridor
amount does not apply to a surrender. Withdrawals and surrenders may be subject
to income tax and a tax penalty. Withdrawals from GIROs prior to their maturity
may result in a market value adjustment.
8. PERFORMANCE. During the accumulation phase, your Certificate's value in the
Investment Funds may vary up or down depending upon the investment performance
of the Investment Funds you have selected. The following chart shows total
returns for certain Investment Funds for the time periods shown. The results
indicated reflect all of the charges, except the optional Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge, the
withdrawal charge, and any charge for state premium and other applicable taxes.
If included, these charges would reduce the performance numbers shown below.
Past performance is not a guarantee of future results.
The performance data for the Alliance Conservative Investors, Alliance Growth &
Income, Alliance International, and Alliance Intermediate Government Securities
Funds (under which portfolios of HR Trust with a 12b-l fee were not previously
available) and for the other Investment Funds prior to October 16, 1996, do not
reflect the 12b-1 fee. There is no performance data for the Alliance Small Cap
Growth Fund and the Investment Funds investing in EQ Trust portfolios, as such
Investment Funds were not available under the Certificate prior to May 1, 1997.
<TABLE>
<CAPTION>
CALENDAR YEAR
INVESTMENT FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------
HR TRUST
- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Conservative
Investors 3.99% 19.02% (5.20)% 9.54% 4.50% 18.51% 5.14% 2.79% -- --
Alliance Growth Investors 11.24 24.92 (4.27) 13.95 3.69 47.19 9.39 3.53 -- --
Alliance Growth & Income 18.70 22.65 (1.72) (0.55) -- -- -- -- -- --
Alliance Common Stock 22.76 30.93 (3.26) 23.39 2.03 36.30 (9.17) 24.16 21.03% 6.21%
Alliance Global 13.20 17.45 4.02 30.60 (1.65) 29.06 (7.15) 25.29 9.61 (13.62)
Alliance International 8.54 10.34 -- -- -- -- -- -- -- --
Alliance Aggressive Stock 20.71 30.13 (4.92) 15.41 (4.28) 84.73 6.92 41.86 (0.03) 6.06
Alliance Money Market 4.05 4.53 2.82 1.78 2.37 4.97 6.99 7.93 6.09 5.41
Alliance Intermediate
Government Securities 2.57 12.03 (5.47) 9.27 4.38 11.30 -- -- -- --
Alliance High Yield 21.39 18.54 (3.90) 21.74 11.02 23.03 (2.26) 3.93 8.48 3.49
</TABLE>
9. DEATH BENEFIT. If the annuitant dies before amounts are applied under an
annuity benefit, the named beneficiary will be paid a death benefit. The death
benefit (except in New York ) is equal to (1) your Certificate's value in the
Investment Funds, or if greater, the Guaranteed Minimum Death Benefit, and (2)
the amount of the death benefit provided with respect to GIROs.
5
<PAGE>
The Guaranteed Minimum Death Benefit is equal to a "6% to Age 80 Benefit" for
annuitant ages 20 through 79 at issue of the Certificate. For ages 80 through
83 at issue of the Certificate, the Guaranteed Minimum Death Benefit is a
return of the money you invested in the Investment Funds.
6% to Age 80 Benefit -- We add interest to the initial amount at 6% (3%
for amounts in the Alliance Money Market and Alliance Intermediate
Government Securities Funds) through the annuitant's age 80 (or at the
annuitant's death, if earlier). The 6% interest rate will still apply for
amounts in the Alliance Money Market Fund under the Special Dollar Cost
Averaging program discussed below.
The death benefit with respect to the GIROs is equal to the amounts in the
GIROs, or if greater, the amounts in the GIROs reflecting guaranteed interest,
but not reflecting any increase due to interest rate changes.
The death benefit applicable to Certificates issued in New York is equal to the
amounts in the Investment Funds and the GIROs, or if greater, the Guaranteed
Minimum Death Benefit.
For annuitant ages 20 through 79 at issue of the Certificate, the
Guaranteed Minimum Death Benefit is reset each year through the
annuitant's age 80 to your Certificate's value, if it is higher than the
prior year's Guaranteed Minimum Death Benefit. For ages 80 through 83 at
issue of the Certificate, the Guaranteed Minimum Death Benefit is a
return of the money you have invested in the Investment Funds and the
GIROs. The Guaranteed Minimum Death Benefit at the annuitant's death will
never be less than the amounts in the Investment Funds, plus the amounts
in the GIROs reflecting guaranteed interest, but not reflecting any
increase due to interest rate changes.
10. OTHER INFORMATION.
QUALIFIED PLANS. If the Certificates will be purchased by certain types of
plans qualified under Section 401(a), or 401(k) of the Internal Revenue Code,
please consult your tax adviser first. Any discussion of taxes in this profile
does not apply.
BASEBUILDER BENEFIT (PLAN A). The baseBUILDER (available for annuitant ages 20
through 75 at issue of the Certificates) is an optional benefit that combines
the Guaranteed Minimum Income Benefit and the Guaranteed Minimum Death Benefit.
The baseBUILDER benefit may be available for annuitant ages 76 and older, and
is currently not available in New York.
Income Benefit - The Guaranteed Minimum Income Benefit, as part of the
baseBUILDER, provides a minimum amount of guaranteed lifetime income for
your future. When you are ready to convert (at specified future times),
your Certificate's value to the Income Manager (Life Annuity with a
Period Certain) the amount of lifetime income that will be provided will
be the greater of (i) your Guaranteed Minimum Income Benefit or (ii) your
Certificate's current value applied at current annuity factors.
6
<PAGE>
Investment performance is not guaranteed. The Guaranteed Minimum Income
Benefit provides a safety net for your future.
Death Benefit - As part of the baseBUILDER a Guaranteed Minimum Death
Benefit is provided which is the 6% to Age 80 Benefit described in "Death
Benefit" above.
FREE LOOK. You can examine the Certificate for a period of 10 days after you
receive it, and return it to us for a refund. The free look period is longer in
some states.
Your refund will equal your Certificate's value, reflecting any investment gain
or loss, in the Investment Funds, and any increase or decrease in the value of
any amounts held in the GIROs, through the date we receive your Certificate.
Some states may require that we calculate the refund differently.
PRINCIPAL ASSURANCE. This option is designed to assure the return of your
original amount invested on a GIRO maturity date, by putting a portion of your
money in a particular GIRO, and the balance in the Investment Funds in any way
you choose. Assuming that you make no transfers or withdrawals of the portion
in the GIRO, such amount will grow to your original investment upon maturity.
DOLLAR COST AVERAGING. Special Dollar Cost Averaging - You can elect when you
apply for your Certificate to allocate your contribution to the Alliance Money
Market Fund and have it transferred from the Alliance Money Market Fund into
the other Investment Funds on a monthly basis over the first twelve months
during which time the mortality and expense risks and administration charges
will not be deducted from the Alliance Money Market Fund. General Dollar Cost
Averaging - You can elect at any time to put money into the Alliance Money
Market Fund and have a dollar amount or percentage transferred from the
Alliance Money Market Fund into the other Investment Funds on a periodic basis
over a longer period of time, and all applicable Certificate charges deducted
from the Alliance Money Market Fund will apply. Dollar cost averaging does not
assure a profit or protect against a loss should market prices decline.
REPORTS. We will provide you with an annual statement of your Certificate's
values as of the last day of each year, and three additional reports of your
Certificate's values each year. You also will be provided with written
confirmations of each financial transaction, and copies of annual and
semi-annual statements of HR Trust and EQ Trust.
You may call toll-free at 1-800-789-7771 for a recording of daily Investment
Fund values and guaranteed rates applicable to GIROs.
11. INQUIRIES. If you need more information, please contact your agent. You may
also contact us at:
The Equitable Life Assurance Society of the United States
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Telephone 1-800-789-7771 and Fax 1-201-583-2224
7
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
INCOME MANAGER (SERVICE MARK) ACCUMULATOR
PROSPECTUS DATED MAY 1, 1997
------------------------
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- -------------------------------------------------------------------------------
This prospectus describes certificates The Equitable Life Assurance Society
of the United States (EQUITABLE LIFE, WE, OUR and US) offers under a
combination variable and fixed deferred annuity contract (ACCUMULATOR) issued
on a group basis or as individual contracts. Enrollment under a group
contract will be evidenced by issuance of a certificate. Certificates and
individual contracts each will be referred to as "Certificates." Accumulator
Certificates are issued as non-qualified annuities for after-tax
contributions. A minimum initial contribution of $5,000 is required to put
the Certificates into effect.
The Accumulator is designed to provide for the accumulation of retirement
savings and for income. Contributions accumulate on a tax-deferred basis and
can be later distributed under a number of different methods which are
designed to be responsive to the owner's (CERTIFICATE OWNER, YOU and YOUR)
objectives.
The Accumulator offers investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 21
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in the
GUARANTEED PERIOD ACCOUNT.
We invest each Investment Fund in Class IB shares of a corresponding
portfolio (PORTFOLIO) of The Hudson River Trust (HR TRUST) or EQ Advisors
Trust (EQ TRUST), mutual funds whose shares are purchased by separate
accounts of insurance companies. The prospectuses for HR Trust and EQ Trust,
both of which accompany this prospectus, describe the investment objectives,
policies and risks of the Portfolios.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity ______________
T. Rowe Price Equity Income *Available on or about September 2, 1997.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts allocated to a Guarantee Period accumulate on a fixed basis and are
credited with interest at a rate we set (GUARANTEED RATE) for the entire
period. On each business day (BUSINESS DAY) we will determine the Guaranteed
Rates available for amounts newly allocated to Guarantee Periods. A market
value adjustment (positive or negative) will be made for withdrawals,
transfers, surrender and certain other transactions from a Guarantee Period
before its expiration date (EXPIRATION DATE). Each Guarantee Period has its
own Guaranteed Rates. The Guarantee Periods currently available have
Expiration Dates of February 15, in years 1998 through 2007.
You may choose from a variety of payout options, including Income Manager
payout annuity options and our other variable annuities and fixed annuities.
This prospectus provides information about the Accumulator that prospective
investors should know before investing. You should read it carefully and
retain it for future reference. The prospectus is not valid unless
accompanied by current prospectuses for HR Trust and EQ Trust, both of which
you should also read carefully.
Registration statements relating to Separate Account No. 45 (SEPARATE
ACCOUNT) and interests under the Guarantee Periods have been filed with the
Securities and Exchange Commission (SEC). The statement of additional
information (SAI), dated May 1, 1997, which is part of the registration
statement for the Separate Account, is available free of charge upon request
by writing to our Processing Office or calling 1-800-789-7771, our toll-free
number. The SAI has been incorporated by reference into this prospectus. The
Table of Contents for the SAI appears at the back of this prospectus.
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.
THE CERTIFICATES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE
NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED.
THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- -------------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States,
New York, New York 10104.
All rights reserved. Income Manager and baseBUILDER are service marks of The
Equitable Life Assurance Society of the United States.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996 is incorporated herein by reference.
All documents or reports filed by Equitable Life pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(EXCHANGE ACT) after the date hereof and prior to the termination of the
offering of the securities offered hereby shall be deemed to be incorporated
by reference in this prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated herein by reference shall be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified and superseded, to constitute a part of
this prospectus. Equitable Life files its Exchange Act documents and reports,
including its annual and quarterly reports on Form 10-K and Form 10-Q,
electronically pursuant to EDGAR under CIK No. 0000727920. The SEC maintains
a web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
Equitable Life will provide without charge to each person to whom this
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by
reference (other than exhibits not specifically incorporated by reference
into the text of such documents). Requests for such documents should be
directed to The Equitable Life Assurance Society of the United States, 1290
Avenue of the Americas, New York, New York 10104. Attention: Corporate
Secretary (telephone: (212) 554-1234).
2
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS TABLE OF CONTENTS
- -------------------------------------------------------------------------------
GENERAL TERMS PAGE 4
FEE TABLE PAGE 5
PART 1: EQUITABLE LIFE, THE SEPARATE
ACCOUNT AND THE
INVESTMENT FUNDS PAGE 9
Equitable Life 9
Separate Account No. 45 9
HR Trust 10
HR Trust's Manager and Adviser 10
EQ Trust 10
EQ Trust's Manager and Advisers 10
Investment Policies and Objectives
of HR Trust's Portfolios and EQ
Trust's Portfolios 11
PART 2: THE GUARANTEED PERIOD
ACCOUNT PAGE 13
Guarantee Periods 13
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior to
the Expiration Date 14
Investments 15
PART 3: PROVISIONS OF THE
CERTIFICATES AND SERVICES
WE PROVIDE PAGE 16
What is the Accumulator? 16
Availability of the Certificates 16
Contributions Under the Certificates 16
Methods of Payment 16
Allocation of Contributions 16
Free Look Period 17
Annuity Account Value 17
Transfers Among Investment Options 17
Dollar Cost Averaging 18
baseBUILDER Benefits 18
Death Benefit 19
How Death Benefits Payment is Made 19
When the Certificate Owner Dies
Before the Annuitant 20
Guaranteed Minimum Income Benefit 20
Withdrawal Options 21
How Withdrawal and Transfers Affect
Your Guaranteed Minimum Death
Benefit and Guaranteed Minimum
Income Benefit 22
Cash Value 23
Surrendering the Certificates to
Receive the Cash Value 23
When Payments are Made 23
Annuity Benefits and Payout Annuity
Options 23
Assignment 25
Services We Provide 25
Distribution of the Certificates 25
PART 4: DEDUCTIONS AND CHARGES PAGE 26
Charges Deducted from the Annuity
Account Value 26
Charges Deducted from the Investment
Funds 27
HR Trust Charges to Portfolios 27
EQ Trust Charges to Portfolios 27
Sponsored Arrangements 28
Other Distribution Arrangements 28
PART 5: VOTING RIGHTS PAGE 29
HR Trust and EQ Trust Voting Rights 29
Voting Rights of Others 29
Separate Account Voting Rights 29
Changes in Applicable Law 29
PART 6: TAX ASPECTS OF THE
CERTIFICATES PAGE 30
Tax Changes 30
Taxation of Non-Qualified Annuities 30
Charitable Remainder Trusts 31
Federal and State Income Tax
Withholding 31
Other Withholding 32
Special Rules for Certificates Issued
in Puerto Rico 32
Impact of Taxes to Equitable Life 32
Transfers Among Investment Options 32
PART 7: INDEPENDENT ACCOUNTANTS PAGE 33
PART 8: INVESTMENT PERFORMANCE PAGE 34
Standardized Performance Data 34
Rate of Return Data for Investment
Funds 36
Communicating Performance Data 39
Alliance Money Market Fund and
Alliance Intermediate Government
Securities Fund Yield Information 39
APPENDIX I: MARKET VALUE
ADJUSTMENT EXAMPLE PAGE 41
APPENDIX II: QUALIFIED PLAN
CERTIFICATES PAGE 42
APPENDIX III: DEATH BENEFIT FOR
CERTIFICATES ISSUED IN NEW YORK PAGE 43
APPENDIX IV: GUARANTEED MINIMUM
DEATH BENEFIT EXAMPLE PAGE 44
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS PAGE 45
3
<PAGE>
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GENERAL TERMS
- -------------------------------------------------------------------------------
ACCUMULATION UNIT--Contributions that are invested in an Investment Fund
purchase Accumulation Units in that Investment Fund.
ACCUMULATION UNIT VALUE--The dollar value of each Accumulation Unit in an
Investment Fund on a given date.
ANNUITANT--The individual who is the measuring life for determining benefits
under a Certificate.
ANNUITY ACCOUNT VALUE--The sum of the amounts in the Investment Options under
the Accumulator Certificate. See "Annuity Account Value" in Part 3.
ANNUITY COMMENCEMENT DATE--The date on which annuity benefit payments are to
commence.
BASEBUILDER (SERVICE MARK) --Optional protection benefit, consisting of the
Guaranteed Minimum Death Benefit and the Guaranteed Minimum Income Benefit.
BUSINESS DAY--Generally, any day on which the New York Stock Exchange is open
for trading. For the purpose of determining the Transaction Date, our
Business Day ends at 4:00 p.m. Eastern Time or the closing of the New York
Stock Exchange, if earlier.
CASH VALUE--The Annuity Account Value minus any applicable charges.
CERTIFICATE--The Certificate issued under the terms of a group annuity
contract and any individual contract, including any endorsements.
CERTIFICATE OWNER--The person who owns an Accumulator Certificate and has the
right to exercise all rights under the Certificate.
CODE--The Internal Revenue Code of 1986, as amended.
CONTRACT DATE--The effective date of the Certificates. This is usually the
Business Day we receive the initial contribution at our Processing Office.
CONTRACT YEAR--The 12-month period beginning on your Contract Date and each
anniversary of that date.
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants, Inc.
(EQ Financial) is the manager of EQ Trust and has appointed advisers for each
of the Portfolios.
EXPIRATION DATE--The date on which a Guarantee Period ends.
GUARANTEED MINIMUM DEATH BENEFIT--The minimum amount payable with respect to
the Investment Funds (in all states except New York), upon the death of the
Annuitant. The Guaranteed Minimum Death Benefit is different in New York.
GUARANTEED MINIMUM INCOME BENEFIT--The minimum amount of future guaranteed
lifetime income provided with respect to the Investment Funds.
GUARANTEE PERIOD--Any of the periods of time ending on an Expiration Date
that are available for investment under the Certificates. Guarantee Periods
may also be referred to as Guaranteed Interest Rate Options (GIROs).
GUARANTEED PERIOD ACCOUNT--The Account that contains the Guarantee Periods.
GUARANTEED RATE--The annual interest rate established for each allocation to
a Guarantee Period.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
INVESTMENT FUNDS--The funds of the Separate Account that are available under
the Certificates.
INVESTMENT OPTIONS--The choices for investment: the Investment Funds and each
available Guarantee Period.
MATURITY VALUE--The amount in a Guarantee Period on its Expiration Date.
PORTFOLIOS--The portfolios of HR Trust and EQ Trust that correspond to the
Investment Funds of the Separate Account.
PROCESSING DATE--The day when we deduct certain charges from the Annuity
Account Value. If the Processing Date is not a Business Day, it will be on
the next succeeding Business Day. The Processing Date will be once each year
on each anniversary of the Contract Date.
PROCESSING OFFICE--The address to which all contributions, written requests
(e.g., transfers, withdrawals, etc.) or other written communications must be
sent. See "Services We Provide" in Part 3.
SAI--The statement of additional information for the Separate Account under
the Certificates.
SEPARATE ACCOUNT--Equitable Life's Separate Account No. 45.
TRANSACTION DATE--The Business Day we receive a contribution or a transaction
request providing all the information we need at our Processing Office. If
your contribution or request reaches our Processing Office on a non-Business
Day, or after the close of the Business Day, the Transaction Date will be the
next following Business Day. Transaction requests must be made in a form
acceptable to us.
VALUATION PERIOD--Each Business Day together with any preceding non-business
days.
4
<PAGE>
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FEE TABLE
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The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them on the same basis with other similar products.
The table reflects both the charges of the Separate Account and the expenses
of HR Trust and EQ Trust. Charges for applicable taxes such as state or local
premium taxes may also apply. For a complete description of the charges under
the Certificate, see "Part 4: Deductions and Charges." For a complete
description of each Trust's charges and expenses, see the prospectuses for HR
Trust and EQ Trust.
As explained in Part 2, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. See "Part 4: Deductions and
Charges." A market value adjustment (either positive or negative) also may be
applicable as a result of a withdrawal, transfer or surrender of amounts from
a Guarantee Period. See "Part 2: The Guaranteed Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
<S><C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon CONTRACT
surrender or for certain withdrawals. The applicable withdrawal charge YEAR
percentage is determined by the Contract Year in which the withdrawal is ----
made or the Certificate is surrendered beginning with "Contract Year 1" 1.... 7.00%
with respect to each contribution withdrawn or surrendered. For each 2.... 6.00
contribution, the Contract Year in which we receive that contribution is 3.... 5.00
"Contract Year 1")(1) 4.... 4.00
5.... 3.00
6.... 2.00
7.... 1.00
8+... 0.00
</TABLE>
<TABLE>
<CAPTION>
GUARANTEED BENEFIT EXPENSE (DEDUCTED FROM ANNUITY ACCOUNT VALUE)(2)
- -------------------------------------------------------------------
<S> <C>
COMBINED GUARANTEED MINIMUM DEATH BENEFIT AND GUARANTEED MINIMUM INCOME BENEFIT (PLAN A)
(calculated as a percentage of the Guaranteed Minimum Death Benefit).................... 0.45%
GUARANTEED MINIMUM DEATH BENEFIT ONLY BENEFIT (PLAN B) (calculated as a percentage of
the Guaranteed Minimum Death Benefit)................................................... 0.20%
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- ------------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISKS.............................................................. 0.90%
ADMINISTRATION(3)........................................................................ 0.25%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES.................................................. 1.15%
=====
</TABLE>
- --------------
See footnotes on next page.
5
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
--------------------------------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL INTERNATIONAL
- -------- --------- --------- ------ ----- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65% 0.90%
12b-1 Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08% 0.18%
----- ----- ----- ----- ----- -----
TOTAL HR TRUST ANNUAL
EXPENSES(5) 0.80% 0.84% 0.85% 0.66% 0.98% 1.33%
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
AGGRESSIVE SMALL MONEY GOVT. HIGH
HR TRUST STOCK CAP GROWTH MARKET SECURITIES YIELD
- -------- ----- ---------- ------ ---------- -----
<S> <C>
Investment Advisory Fee 0.55% 0.90% 0.35% 0.50% 0.60%
12b-1 Fee(4) 0.25% 0.25%(7) 0.25% 0.25% 0.25%
Other Expenses 0.03% 0.10% 0.04% 0.09% 0.06%
----- ----- ----- ----- -----
TOTAL HR TRUST ANNUAL
EXPENSES(5) 0.83% 1.20%(7) 0.64% 0.84% 0.91%
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
MFS MERRILL
EQ/PUTNAM EMERGING LYNCH
EQ/PUTNAM GROWTH & GROWTH MFS BASIC VALUE
EQ TRUST BALANCED INCOME VALUE COMPANIES RESEARCH EQUITY
- -------- -------- ------------ --------- -------- ------
<S> <C>
Investment Advisory Fee 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.10% 0.05% 0.05% 0.05% 0.05%
----- ----- ----- ----- -----
TOTAL EQ TRUST ANNUAL
EXPENSES(6) 0.90% 0.85% 0.85% 0.85% 0.85%
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
MORGAN
MERRILL STANLEY T. ROWE WARBURG
LYNCH EMERGING T. ROWE PRICE PINCUS SMALL
WORLD MARKETS PRICE EQUITY INTERNATIONAL COMPANY
EQ TRUST STRATEGY EQUITY* INCOME STOCK VALUE
- -------- -------- ------- ------ ----- -----
<S> <C>
Investment Advisory Fee 0.70% 1.15% 0.55% 0.75% 0.65%
12b-1 Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.25% 0.35% 0.05% 0.20% 0.10%
----- ----- ----- ----- -----
TOTAL EQ TRUST ANNUAL
EXPENSES(6) 1.20% 1.75% 0.85% 1.20% 1.00%
===== ===== ===== ===== =====
</TABLE>
Notes:
(1) Deducted upon a withdrawal with respect to amounts in excess of the 15%
free corridor amount, and upon surrender of a Certificate. See
"Withdrawal Charge" in Part 4.
(2) This charge is deducted annually on each Processing Date. See "Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit
Charge (Plan A)" and "Guaranteed Minimum Death Benefit Only Benefit
Charge (Plan B)" in Part 4.
(3) We reserve the right to increase this charge to an annual rate of 0.35%,
the maximum permitted under the Certificates.
(4) The Class IB shares of HR Trust and EQ Trust are subject to fees imposed
under distribution plans (herein, the "Rule 12b-1 Plans") adopted by HR
Trust and EQ Trust pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended. The Rule 12b-1 Plans provide that HR Trust and
EQ Trust, on behalf of each Portfolio, may pay annually up to 0.25% of
the average daily net assets of a Portfolio attributable to its Class IB
shares in respect of activities primarily intended to result in the sale
of the Class IB shares. The 12b-1 fee will not be increased for the life
of the Certificates.
(5) The amounts shown for the Portfolios of HR Trust (other than Alliance
Small Cap Growth) have been restated to reflect advisory fees which went
into effect as of May 1, 1997. "Other Expenses" are based on average
daily net assets in each Portfolio during 1996. The amounts shown for
the Alliance Small Cap Growth Portfolio are estimated for the current
fiscal year as this Portfolio commenced operations on May 1, 1997. The
investment advisory fee for each Portfolio may vary from year to year
depending upon the average daily net assets of the respective Portfolio
of HR Trust. The maximum investment advisory fees, however, cannot be
increased without a vote of that Portfolio's shareholders. The other
direct operating expenses will also fluctuate from year to year
depending on actual expenses. See "HR Trust Charges to Portfolios" in
Part 4.
(6) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust commenced
operations on May 1, 1997. The maximum investment advisory fees cannot
be increased without a vote of that Portfolio's shareholders. The other
direct operating expenses will fluctuate from year to year depending on
actual expenses, but pursuant to agreement, cannot together with other
fees specified exceed the total annual expenses specified. See "EQ Trust
Charges to Portfolios" in Part 4.
(7) Equitable Distributors Inc. (EDI) has agreed to waive the 0.25% 12b-1
fee to the extent necessary to limit annual expenses for the Alliance
Small Cap Growth Portfolio to 1.20% of the average daily net assets of
that Portfolio as set forth above. This agreement may be modified by EDI
and HR Trust at any time, and there can be no assurance that the 12b-1
fee will not be restored to 0.25% in the future.
* Will be available on or about September 2, 1997.
6
<PAGE>
EXAMPLES
- --------
The examples below show the expenses that a hypothetical Certificate Owner
would pay under the Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit (Plan A) and under the Guaranteed Minimum Death
Benefit Only Benefit (Plan B) in the two situations noted below assuming a
$1,000 contribution invested in one of the Investment Funds listed, and a 5%
annual return on assets.(1)
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be
greater or less than those shown. Similarly, the annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance.
COMBINED GUARANTEED MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT (PLAN A) ELECTION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE
THE EXPENSES WOULD BE: END OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $89.74 $120.55 $154.64 $275.75 $24.51 $75.92 $130.68 $283.83
Alliance Growth
Investors 90.14 121.76 156.67 279.80 24.91 77.12 132.69 287.85
Alliance Growth &
Income 90.24 122.06 157.17 280.80 25.01 77.42 133.19 288.87
Alliance Common Stock 88.35 116.35 147.61 261.52 23.12 71.71 123.63 269.57
Alliance Global 91.53 125.95 163.66 293.80 26.30 81.30 139.67 301.85
Alliance International 95.01 136.36 180.97 328.00 29.78 91.73 157.01 336.07
Alliance Aggressive
Stock 90.04 121.46 156.17 278.79 24.81 76.82 132.19 286.85
Alliance Small Cap
Growth 93.72 132.50 -- -- 28.49 87.87 -- --
Alliance Money Market 88.15 115.75 146.59 259.45 22.92 71.11 122.61 267.51
Alliance Intermediate
Gov't Securities 90.14 121.76 156.67 279.80 24.91 77.12 132.69 287.85
Alliance High Yield 90.84 123.86 160.17 286.83 25.61 79.22 136.19 294.89
EQ TRUST
- --------
EQ/Putnam Balanced $90.74 $123.56 -- -- $25.51 $78.91 -- --
EQ/Putnam Growth &
Income Value 90.24 122.06 -- -- 25.01 77.42 -- --
MFS Emerging Growth
Companies 90.24 122.06 -- -- 25.01 77.42 -- --
MFS Research 90.24 122.06 -- -- 25.01 77.42 -- --
Merrill Lynch Basic
Value Equity 90.24 122.06 -- -- 25.01 77.42 -- --
Merrill Lynch World
Strategy 93.72 132.50 -- -- 28.49 87.87 -- --
Morgan Stanley
Emerging Markets
Equity 99.19 148.78 -- -- 33.96 104.14 -- --
T. Rowe Price Equity
Income 90.24 122.06 -- -- 25.01 77.42 -- --
T. Rowe Price
International Stock 93.72 132.50 -- -- 28.49 87.87 -- --
Warburg Pincus Small
Company Value 91.73 126.55 -- -- 26.50 81.90 -- --
</TABLE>
- --------------
See footnote on next page.
7
<PAGE>
GUARANTEED MINIMUM DEATH BENEFIT ONLY BENEFIT (PLAN B) ELECTION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE
THE EXPENSES WOULD BE: END OF EACH PERIOD SHOWN, THE EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $89.74 $115.25 $143.62 $248.28 $21.86 $67.64 $116.31 $251.89
Alliance Growth
Investors 90.14 116.46 145.64 252.38 22.26 68.84 118.33 255.98
Alliance Growth &
Income 90.24 116.76 146.16 253.43 22.36 69.14 118.83 257.01
Alliance Common Stock 88.35 111.05 136.55 233.84 20.47 63.42 109.21 237.42
Alliance Global 91.53 120.66 152.69 266.60 23.65 73.04 125.36 270.18
Alliance International 95.01 131.11 170.11 301.30 27.13 83.49 142.78 304.87
Alliance Aggressive
Stock 90.04 116.16 145.14 251.37 22.16 68.54 117.82 254.95
Alliance Small Cap
Growth 93.72 127.24 -- -- 25.84 79.62 -- --
Alliance Money Market 88.15 110.44 135.53 231.77 20.27 62.82 108.21 235.35
Alliance Intermediate
Gov't Securities 90.14 116.46 145.64 252.38 22.26 68.84 118.33 255.98
Alliance High Yield 90.84 118.56 149.17 259.51 22.96 70.95 121.86 263.11
EQ TRUST
- --------
EQ/Putnam Balanced $90.74 $118.26 -- -- $22.86 $70.65 -- --
EQ/Putnam Growth &
Income Value 90.24 116.76 -- -- 22.36 69.14 -- --
MFS Emerging Growth
Companies 90.24 116.76 -- -- 22.36 69.14 -- --
MFS Research 90.24 116.76 -- -- 22.36 69.14 -- --
Merrill Lynch Basic
Value Equity 90.24 116.76 -- -- 22.36 69.14 -- --
Merrill Lynch World
Strategy 93.72 127.24 -- -- 25.84 79.62 -- --
Morgan Stanley
Emerging Markets
Equity 99.19 143.56 -- -- 31.31 95.94 -- --
T. Rowe Price Equity
Income 90.24 116.76 -- -- 22.36 69.14 -- --
T. Rowe Price
International Stock 93.72 127.24 -- -- 25.84 79.62 -- --
Warburg Pincus Small
Company Value 91.73 121.26 -- -- 23.85 73.64 -- --
</TABLE>
- --------------
Note:
(1) The amount accumulated from the $1,000 contribution could not be paid in
the form of an annuity at the end of any of the periods shown in the
examples. If the amount applied to purchase an annuity is less than
$2,000, or the initial payment is less than $20 we may pay the amount to
the payee in a single sum instead of as payments under an annuity form.
See "Annuity Benefits and Payout Annuity Options" in Part 3. The
examples do not reflect charges for applicable taxes such as state or
local premium taxes that may also be deducted in certain jurisdictions.
8
<PAGE>
- -------------------------------------------------------------------------------
PART 1: EQUITABLE LIFE, THE SEPARATE ACCOUNT
AND THE INVESTMENT FUNDS
- -------------------------------------------------------------------------------
EQUITABLE LIFE
Equitable Life is a New York stock life insurance company that has been in
business since 1859. For more than 100 years we have been among the largest
life insurance companies in the United States. Our home office is located at
1290 Avenue of the Americas, New York, New York 10104. We are authorized to
sell life insurance and annuities in all fifty states, the District of
Columbia, Puerto Rico and the Virgin Islands. We maintain local offices
throughout the United States.
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding common stock of the Holding Company
(assuming conversion of convertible preferred stock held by AXA). Under its
investment arrangements with Equitable Life and the Holding Company, AXA is
able to exercise significant influence over the operations and capital
structure of the Holding Company and its subsidiaries, including Equitable
Life. AXA, a French company, is the holding company for an international
group of insurance and related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $239.8 billion of assets as of December 31, 1996.
SEPARATE ACCOUNT NO. 45
Separate Account No. 45 is organized as a unit investment trust, a type of
investment company, and is registered with the SEC under the Investment
Company Act of 1940, as amended (1940 Act). This registration does not
involve any supervision by the SEC of the management or investment policies
of the Separate Account. The Separate Account has several Investment Funds,
each of which invests in shares of a corresponding Portfolio of HR Trust and
EQ Trust. Because amounts allocated to the Investment Funds are invested in a
mutual fund, investment return and principal will fluctuate and the
Certificate Owner's Accumulation Units may be worth more or less than the
original cost when redeemed.
Under the New York Insurance Law, the portion of the Separate Account's
assets equal to the reserves and other liabilities relating to the
Certificates are not chargeable with liabilities arising out of any other
business we may conduct. Income, gains or losses, whether or not realized,
from assets of the Separate Account are credited to or charged against the
Separate Account without regard to our other income gains or losses. We are
the issuer of the Certificates, and the obligations set forth in the
Certificates (other than those of Annuitants or Certificate Owners) are our
obligations.
In addition to contributions made under the Accumulator Certificates, we may
allocate to the Separate Account monies received under other contracts,
certificates, or agreements. Owners of all such contracts, certificates or
agreements will participate in the Separate Account in proportion to the
amounts they have in the Investment Funds that relate to their contracts,
certificates or agreements. We may retain in the Separate Account assets that
are in excess of the reserves and other liabilities relating to the
Accumulator Certificates or to other contracts, certificates or agreements,
or we may transfer the excess to our General Account.
We reserve the right, subject to compliance with applicable law; (1) to add
Investment Funds (or sub-funds of Investment Funds) to, or to remove
Investment Funds (or sub-funds) from, the Separate Account, or to add other
separate accounts; (2) to combine any two or more Investment Funds or
sub-funds thereof; (3) to transfer the assets we determine to be the share of
the class of contracts to which the Certificates belong from any Investment
Fund to another Investment Fund; (4) to operate the Separate Account or any
Investment Fund as a management investment company under the 1940 Act, in
which case charges and expenses that otherwise would be assessed against an
underlying mutual fund would be assessed against the Separate Account; (5) to
deregister the Separate Account under the 1940 Act, provided that such action
conforms with the requirements of applicable law; (6) to restrict or
eliminate any voting rights as to the Separate Account; and (7) to cause one
or more Investment Funds to invest some or all of their assets in one or more
other trusts or investment companies. If any changes are made that result in
a material change in the underlying investment policy of an Investment Fund,
you will be notified as required by law.
9
<PAGE>
HR TRUST
HR Trust is an open-end diversified management investment company, more
commonly called a mutual fund. As a "series" type of mutual fund, it issues
several different series of stock, each of which relates to a different
Portfolio of HR Trust. HR Trust commenced operations in January 1976 with a
predecessor of its Alliance Common Stock Portfolio. HR Trust does not impose
a sales charge or "load" for buying and selling its shares. All dividend
distributions to HR Trust are reinvested in full and fractional shares of the
Portfolio to which they relate. Investment Funds that invest in Portfolios of
HR Trust purchase Class IB shares of a corresponding Portfolio of HR Trust.
More detailed information about HR Trust, its investment objectives,
policies, restrictions, risks, expenses, the Rule 12b-1 Plan relating to
Class IB shares, and all other aspects of its operations appears in its
prospectus which accompanies this prospectus or in its statement of
additional information.
HR TRUST'S MANAGER AND ADVISER
HR Trust is managed and advised by Alliance Capital Management L.P.
(Alliance), which is registered with the SEC as an investment adviser under
the 1940 Act. Alliance, a publicly-traded limited partnership, is indirectly
majority-owned by Equitable Life. On December 31, 1996, Alliance was managing
approximately $182.8 billion in assets. Alliance acts as an investment
adviser to various separate accounts and general accounts of Equitable Life
and other affiliated insurance companies. Alliance also provides management
and consulting services to mutual funds, endowment funds, insurance
companies, foreign entities, qualified and non-tax qualified corporate funds,
public and private pension and profit-sharing plans, foundations and
tax-exempt organizations.
Alliance's main office is located at 1345 Avenue of the Americas, New York,
New York 10105.
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type" of
mutual fund, EQ Trust issues different series of stock, each of which relates
to a different Portfolio of EQ Trust. EQ Trust commenced operations on May 1,
1997. EQ Trust does not impose a sales charge or "load" for buying and
selling its shares. All dividend distributions to EQ Trust are reinvested in
full and fractional shares of the Portfolio to which they relate. Investment
Funds that invest in Portfolios of EQ Trust purchase Class IB shares of a
corresponding Portfolio of EQ Trust. More detailed information about EQ
Trust, its investment objectives, policies and restrictions, risks, expenses,
the Rule 12b-1 Plan relating to the Class IB shares, and all other aspects of
its operations appears in its prospectus which accompanies this prospectus
and in its statement of additional information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has overall
responsibility for the general management of EQ Trust. EQ Financial is an
investment adviser registered under the 1940 Act, and a broker-dealer
registered under the Exchange Act. EQ Financial is a Delaware corporation and
an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, New York 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, Massachusetts Financial Services Company, Merrill Lynch Asset
Management, L.P., Morgan Stanley Asset Management Inc., T. Rowe Price
Associates, Inc. and Rowe Price-Fleming International, Inc., and Warburg,
Pincus Counsellors, Inc., which serve as advisers to EQ/Putnam, MFS, Merrill
Lynch, Morgan Stanley, T. Rowe Price, and Warburg Pincus Portfolios,
respectively, of EQ Trust.
10
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF HR TRUST'S PORTFOLIOS AND EQ TRUST'S
PORTFOLIOS
Each Portfolio has a different investment objective which it tries to achieve
by following separate investment policies. The policies and objectives of
each Portfolio will affect its return and its risks. There is no guarantee
that these objectives will be achieved. Set forth below is a summary of the
investment policies and objectives of each Portfolio. This summary is
qualified in its entirety by reference to the prospectuses for HR Trust and
EQ Trust, both of which accompany this prospectus. Please read the
prospectuses for each of the trusts carefully before investing.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT POLICY OBJECTIVE
- --------- ----------------- ---------
<S> <C> <C>
HR TRUST
Alliance Conservative Diversified mix of publicly traded equity and debt High total return without, in
Investors securities. the adviser's opinion, undue
risk to principal
Alliance Growth Investors Diversified mix of publicly traded equity and fixed High total return consistent
income securities, including at times common stocks with the adviser's
issued by intermediate and small-sized companies and determination of reasonable
at times lower quality fixed income securities risk
commonly known as "junk bonds."
Alliance Growth & Income Primarily income producing common stocks and High total return through a
securities convertible into common stocks. combination of current income
and capital appreciation
Alliance Common Stock Primarily common stock and other equity-type Long-term growth of capital
instruments. and increasing income
Alliance Global Primarily equity securities of non-United States as Long-term growth of capital
well as United States companies.
Alliance International Primarily equity securities selected principally to Long-term growth of capital
permit participation in non-United States companies
with prospects for growth.
Alliance Aggressive Stock Primarily common stocks and other equity-type Long-term growth of capital
securities issued by quality small and intermediate
sized companies with strong growth prospects and in
covered options on those securities.
Alliance Small Cap Growth Primarily U.S. common stocks and other equity-type Long-term growth of capital
securities issued by smaller companies that, in the
opinion of the adviser, have favorable growth
prospects.
Alliance Money Market Primarily high quality U.S. dollar denominated money High level of current income
market instruments. while preserving assets and
maintaining liquidity
Alliance Intermediate Primarily debt securities issued or guaranteed as to High current income
Government Securities principal and interest by the U.S. government or any consistent with relative
of its agencies or instrumentalities. Each investment stability of principal
will have a final maturity of not more than 10 years
or a duration not exceeding that of a 10-year Treasury
note.
11
<PAGE>
PORTFOLIO INVESTMENT POLICY OBJECTIVE
- --------- ----------------- ---------
Alliance High Yield Primarily a diversified mix of high yield, High return by maximizing
fixed-income securities which generally involve current income and, to the
greater volatility of price and risk of principal and extent consistent with that
income than higher quality fixed-income securities. objective, capital
Lower quality debt securities are commonly known as appreciation
"junk bonds."
EQ TRUST
EQ/Putnam Balanced A well-diversified portfolio of stocks and bonds that Balanced investment
will produce both capital growth and current income.
EQ/Putnam Growth & Primarily common stocks that offer potential for Capital growth and,
Income Value capital growth and may, consistent with the secondarily, current income
Portfolio's investment objective, invest in common
stocks that offer potential for current income.
MFS Emerging Growth Primarily (i.e., at least 80% of its assets under Long-term growth of capital
Companies normal circumstances) in common stocks of emerging
growth companies that the Portfolio adviser believes
are early in their life cycle but which have the
potential to become major enterprises.
MFS Research A substantial portion of assets invested in common Long-term growth of capital
stock or securities convertible into common stock of and future income
companies believed by the Portfolio adviser to possess
better than average prospects for long-term growth.
Merrill Lynch Basic Value Investment in securities, primarily equities, that the Capital appreciation and,
Equity Portfolio adviser believes are undervalued and secondarily, income
therefore represent basic investment value.
Merrill Lynch World Investment primarily in a portfolio of equity and High total investment return
Strategy fixed-income securities, including convertible
securities, of U.S. and foreign issuers.
Morgan Stanley Emerging Primarily equity securities of emerging market country Long-term capital
Markets Equity* issuers with a focus on those in which the Portfolio's appreciation
adviser believes the economies are developing strongly
and in which the markets are becoming more
sophisticated.
T. Rowe Price Equity Primarily dividend paying common stocks of established Substantial dividend income
Income companies. and also capital appreciation
T. Rowe Price International Primarily common stocks of established non-United Long-term growth of capital
Stock States companies.
Warburg Pincus Small Primarily in a portfolio of equity securities of small Long-term capital
Company Value capitalization companies (i.e., companies having appreciation
market capitalizations of $1 billion or less at the
time of initial purchase) that the Portfolio adviser
considers to be relatively undervalued.
</TABLE>
- --------------
* Will be available on or about September 2, 1997.
12
<PAGE>
- -------------------------------------------------------------------------------
PART 2: THE GUARANTEED PERIOD ACCOUNT
- -------------------------------------------------------------------------------
GUARANTEE PERIODS
Each amount allocated to a Guarantee Period and held to the Period's
Expiration Date accumulates interest at a Guaranteed Rate. The Guaranteed
Rate for each allocation is the annual interest rate applicable to new
allocations to that Guarantee Period, which was in effect on the Transaction
Date for the allocation. We may establish different Guaranteed Rates under
different classes of Certificates. We use the term GUARANTEED PERIOD AMOUNT
to refer to the amount allocated to and accumulated in each Guarantee Period.
The Guaranteed Period Amount is reduced or increased by any market value
adjustment as a result of withdrawals, transfers or charges (see below).
Your Guaranteed Period Account contains the Guarantee Periods to which you
have allocated Annuity Account Value. On the Expiration Date of a Guarantee
Period, its Guaranteed Period Amount and its value in the Guaranteed Period
Account are equal. We call the Guaranteed Period Amount on an Expiration Date
the Guarantee Period's Maturity Value. We report the Annuity Account Value in
your Guaranteed Period Account to reflect any market value adjustment that
would apply if all Guaranteed Period Amounts were withdrawn as of the
calculation date. The Annuity Account Value in the Guaranteed Period Account
on any Business Day, therefore, will be the sum of the present value of the
Maturity Value in each Guarantee Period, using the Guaranteed Rate in effect
for new allocations to each such Guarantee Period on such date.
Guarantee Periods and Expiration Dates
We currently offer Guarantee Periods ending on February 15th for each of the
maturity years 1998 through 2007. Not all Guarantee Periods will be available
for Annuitants ages 76 and above. See "Allocation of Contributions" in Part
3. Also, the Guarantee Periods may not be available for investment in all
states. As Guarantee Periods expire we expect to add maturity years so that
generally 10 are available at any time.
We will not accept allocations to a Guarantee Period if, on the Transaction
Date:
o Such Transaction Date and the Expiration Date for such Guarantee Period
fall within the same calendar year.
o The Guaranteed Rate is 3%.
o The Guarantee Period has an Expiration Date beyond the February 15th
immediately following the Annuity Commencement Date.
Guaranteed Rates and Price Per $100 of Maturity Value
Because the Maturity Value of a contribution allocated to a Guarantee Period
can be determined at the time it is made, you can determine the amount
required to be allocated to a Guarantee Period in order to produce a target
Maturity Value (assuming no transfers or withdrawals are made and no charges
are allocated to the Guarantee Period). The required amount is the present
value of that Maturity Value at the Guaranteed Rate on the Transaction Date
for the contribution, which may also be expressed as the price per $100 of
Maturity Value on such Transaction Date.
Guaranteed Rates for new allocations as of April 15, 1997 and the related
price per $100 of Maturity Value for each currently available Guarantee
Period were as follows:
<TABLE>
<CAPTION>
GUARANTEE
PERIODS WITH GUARANTEED
EXPIRATION DATE RATE AS OF PRICE
FEBRUARY 15TH OF APRIL 15, PER $100 OF
MATURITY YEAR 1997 MATURITY VALUE
------------- ---- --------------
<S> <C> <C>
1998 4.93% $96.05
1999 5.40 90.78
2000 5.64 85.58
2001 5.76 80.65
2002 5.86 75.91
2003 5.94 71.39
2004 6.03 66.99
2005 6.09 62.89
2006 6.17 58.89
2007 6.23 55.16
</TABLE>
Allocation Among Guarantee Periods
The same approach as described above may also be used to determine the amount
which you would need to allocate to each Guarantee Period in order to create
a series of constant Maturity Values for two or more years.
For example, if you wish to have $100 mature on February 15th of each of
years 1998 through 2002, then according to the above table the lump sum
contribution you would have to make as of April 15, 1997 would be $428.97
(i.e., the sum of the price per $100 of Maturity Value for each maturity year
from 1998 through 2002).
13
<PAGE>
The above example is provided to illustrate the use of present value
calculations. It does not take into account the potential for charges to be
deducted, withdrawals or transfers to be made from Guarantee Periods or the
market value adjustment that would apply to such transactions. Actual
calculations will be based on Guaranteed Rates on each actual Transaction
Date, which may differ.
Options at Expiration Date
We will notify you on or before December 31st prior to the Expiration Date of
each Guarantee Period in which you have any Guaranteed Period Amount. You may
elect one of the following options to be effective at the Expiration Date,
subject to the restrictions set forth on the prior page and under "Allocation
of Contributions" in Part 3:
(a) to transfer the Maturity Value into any Guarantee Period we are then
offering, or into any of our Investment Funds; or
(b) to withdraw the Maturity Value (subject to any withdrawal charges
which may apply).
If we have not received your election as of the Expiration Date, the Maturity
Value in the expired Guarantee Period will be transferred into the Guarantee
Period with the earliest Expiration Date.
MARKET VALUE ADJUSTMENT FOR
TRANSFERS, WITHDRAWALS OR SURRENDER
PRIOR TO THE EXPIRATION DATE
Any withdrawal (including transfers, surrender and deductions) from a
Guarantee Period prior to its Expiration Date will cause any remaining
Guaranteed Period Amount for that Guarantee Period to be increased or
decreased by a market value adjustment. The amount of the adjustment will
depend on two factors: (a) the difference between the Guaranteed Rate
applicable to the amount being withdrawn and the Guaranteed Rate on the
Transaction Date for new allocations to a Guarantee Period with the same
Expiration Date, and (b) the length of time remaining until the Expiration
Date. In general, if interest rates have risen between the time when an
amount was originally allocated to a Guarantee Period and the time it is
withdrawn, the market value adjustment will be negative, and vice versa; and
the longer the period of time remaining until the Expiration Date, the
greater the impact of the interest rate difference. Therefore, it is possible
that a significant rise in interest rates could result in a substantial
reduction in your Annuity Account Value in the Guaranteed Period Account
related to longer term Guarantee Periods.
The market value adjustment (positive or negative) resulting from a
withdrawal of all funds from a Guarantee Period will be determined for each
contribution allocated to that Guarantee Period as follows:
(1) We determine the present value of the Maturity Value on the Transaction
Date as follows:
(a) We determine the Guaranteed Period Amount that would be payable on
the Expiration Date, using the applicable Guaranteed Rate.
(b) We determine the period remaining in your Guarantee Period (based on
the Transaction Date) and convert it to fractional years based on a
365 day year. For example three years and 12 days becomes 3.0329.
(c) We determine the current Guaranteed Rate which applies on the
Transaction Date to new allocations to the same Guarantee Period.
(d) We determine the present value of the Guaranteed Period Amount
payable at the Expiration Date, using the period determined in (b)
and the rate determined in (c).
(2) We determine the Guaranteed Period Amount as of the current date.
(3) We subtract (2) from the result in (1)(d). The result is the market
value adjustment applicable to such Guarantee Period, which may be
positive or negative.
The market value adjustment (positive or negative) resulting from a
withdrawal (including any withdrawal charges) of a portion of the amount in a
Guarantee Period will be a percentage of the market value adjustment that
would be applicable upon a withdrawal of all funds from a Guarantee Period.
This percentage is determined by (i) dividing the amount of the withdrawal or
transfer from the Guarantee Period by (ii) the Annuity Account Value in such
Guarantee Period prior to the withdrawal or transfer. See Appendix I for an
example.
The Guaranteed Rate for new allocations to a Guarantee Period is the rate we
have in effect for this purpose even if new allocations to that Guarantee
Period would not be accepted at the time. This rate will not be less than 3%.
If we do not have a Guaranteed Rate in effect for a Guarantee Period to which
the "current Guaranteed Rate" in (1)(c) would apply, we will use the rate at
the next closest Expiration Date. If we are no longer offering new Guarantee
Periods, the "current Guaranteed Rate" will be determined in accordance with
our procedures then in effect. For purposes of calculating the market value
adjustment only, we reserve the right to add up to 0.25% to the current rate
in (1)(c) above.
14
<PAGE>
INVESTMENTS
Amounts allocated to Guarantee Periods will be held in a "nonunitized"
separate account established by Equitable Life under the laws of New York.
This separate account provides an additional measure of assurance that full
payment of amounts due under the Guarantee Periods will be made. Under the
New York Insurance Law, the portion of the separate account's assets equal to
the reserves and other contract liabilities relating to the Certificates are
not chargeable with liabilities arising out of any other business we may
conduct.
Investments purchased with amounts allocated to the Guaranteed Period Account
are the property of Equitable Life. Any favorable investment performance on
the assets held in the separate account accrues solely to Equitable Life's
benefit. Certificate Owners do not participate in the performance of the
assets held in this separate account. Equitable Life may, subject to
applicable state law, transfer all assets allocated to the separate account
to its general account. Regardless of whether assets supporting Guaranteed
Period Accounts are held in a separate account or our general account, all
benefits relating to the Annuity Account Value in the Guaranteed Period
Account are guaranteed by Equitable Life.
Equitable Life has no specific formula for establishing the Guaranteed Rates
for the Guarantee Periods. Equitable Life expects the rates to be influenced
by, but not necessarily correspond to, among other things, the yields on the
fixed income securities to be acquired with amounts that are allocated to the
Guarantee Periods at the time that the Guaranteed Rates are established. Our
current plans are to invest such amounts in fixed income obligations,
including corporate bonds, mortgage backed and asset backed securities and
government and agency issues having durations in the aggregate consistent
with those of the Guarantee Periods.
Although the foregoing generally describes Equitable Life's plans for
investing the assets supporting Equitable Life's obligations under the fixed
portion of the Certificates, Equitable Life is not obligated to invest those
assets according to any particular plan except as may be required by state
insurance laws, nor will the Guaranteed Rates Equitable Life establishes be
determined by the performance of the nonunitized separate account.
General Account
Our general account supports all of our policy and contract guarantees,
including those applicable to the Guaranteed Period Account, as well as our
general obligations.
The general account is subject to regulation and supervision by the Insurance
Department of the State of New York and to the insurance laws and regulations
of all jurisdictions where we are authorized to do business. Because of
applicable exemptions and exclusionary provisions, interests in the general
account have not been registered under the Securities Act of 1933, as amended
(1933 Act), nor is the general account an investment company under the 1940
Act. Accordingly, the general account is not subject to regulation under the
1933 Act or the 1940 Act. However, the market value adjustment interests
under the Certificates are registered under the 1933 Act.
We have been advised that the staff of the SEC has not made a review of the
disclosure that is included in this prospectus for your information that
relates to the general account (other than market value adjustment
interests). The disclosure, however, may be subject to certain generally
applicable provisions of the Federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
15
<PAGE>
- -------------------------------------------------------------------------------
PART 3: PROVISIONS OF THE CERTIFICATES AND SERVICES WE PROVIDE
- -------------------------------------------------------------------------------
WHAT IS THE ACCUMULATOR?
The Accumulator Certificate is a deferred annuity designed to provide for the
accumulation of retirement savings, and for income at a future date.
Investment Options available are Investment Funds providing variable returns
and Guarantee Periods providing guaranteed interest when held to maturity.
Accumulator Certificates are issued as non-qualified annuities for after-tax
contributions. The provisions of your Certificate may be restricted by
applicable laws or regulations. The Certificates may not be available in all
states.
Earnings generally accumulate on a tax-deferred basis until withdrawn or when
distributions become payable. Withdrawals made prior to age 59 1/2 may be
subject to tax penalty.
When issued with the appropriate endorsement, an Accumulator Certificate may
be purchased by a plan qualified under Section 401(a) of the Code. Such
purchases may not be available in all states. Plan fiduciaries considering
purchase of a Certificate should read the important information in Appendix
II.
AVAILABILITY OF THE CERTIFICATES
The Certificates are available for Annuitant issue ages 20 through 83.
CONTRIBUTIONS UNDER THE CERTIFICATES
Your initial contribution must be at least $5,000. Subsequent contributions
may be made in an amount of at least $1,000 at any time up until the
Annuitant attains age 84. We may refuse to accept any contributions if the
sum of all contributions under all accumulation Certificates with the same
Annuitant would then total more than $1,500,000. We reserve the right to
limit aggregate contributions made after the first Contract Year to 150% of
first year contributions. We may also refuse to accept any contribution if
the sum of all contributions under all Equitable Life annuity accumulation
certificates/contracts that you own would then total more than $2,500,000.
Contributions are credited as of the Transaction Date.
METHODS OF PAYMENT
Except as indicated below, all contributions must be made by check drawn on a
bank or credit union in the U.S., in U.S. dollars and made payable to
Equitable Life. All checks are accepted subject to collection. Contributions
must be sent to Equitable Life at our Processing Office address designated
for contributions. Your initial contribution must be accompanied by a
completed application which is acceptable to us. In the event the application
information or the application is otherwise not acceptable, we may retain
your contribution for a period not exceeding five Business Days while an
attempt is made to obtain the required information. If the required
information cannot be obtained within those five Business Days, the
Processing Office will inform the agent, on behalf of the applicant, of the
reasons for the delay and return the contribution immediately to the
applicant, unless the applicant specifically consents to our retaining the
contribution until the required information is received by the Processing
Office.
ALLOCATION OF CONTRIBUTIONS
You may choose Self-Directed, Principal Assurance or Dollar Cost Averaging
allocations.
A contribution allocated to an Investment Fund purchases Accumulation Units
in that Investment Fund based on the Accumulation Unit Value for that
Investment Fund computed on the Transaction Date. A contribution allocated to
the Guaranteed Period Account will have the Guaranteed Rate for the specified
Guarantee Period offered on the Transaction Date.
Self-Directed Allocation
You allocate your contributions to one or up to all of the available
Investment Options. Allocations among the Investment Options must be in whole
percentages. Allocation percentages can be changed at any time by writing to
our Processing Office, or by telephone. The change will be effective on the
Transaction Date and will remain in effect for future contributions unless
another change is requested.
At Annuitant ages 76 and above, allocations to Guarantee Periods must be
limited to those with maturities of five years or less and with maturity
dates no later than the February 15th immediately following the Annuity
Commencement Date.
Principal Assurance
This option (for Annuitant issue ages 20 through 75) assures that your
Maturity Value in a specified
16
<PAGE>
Guarantee Period will equal your initial contribution on the Guarantee
Period's Expiration Date, while at the same time allowing you to invest in
the Investment Funds. It may be elected only at issue of your Certificate and
assumes no withdrawals or transfers from the Guarantee Period. The maturity
year generally may not be later than 10 years nor earlier than seven years
from the Contract Date. In order to accomplish this strategy, we will
allocate a portion of your initial contribution to the selected Guarantee
Period. See "Guaranteed Rates and Price Per $100 of Maturity Value" in Part
2. The balance of your initial contribution and all subsequent contributions
must be allocated under "Self-Directed Allocation" as described above.
FREE LOOK PERIOD
You have the right to examine the Accumulator Certificate for a period of 10
days after you receive it, and to return it to us for a refund. You cancel it
by sending it to our Processing Office. The free look is extended if your
state requires a refund period of longer than 10 days.
Your refund will equal the Annuity Account Value reflecting any investment
gain or loss, and any positive or negative market value adjustment, through
the date we receive your Certificate at our Processing Office. Some states
may require that we calculate the refund differently. If you cancel your
Certificate during the free look period, we may require that you wait six
months before you may apply for a Certificate with us again.
We follow these same procedures if you change your mind before you receive
your Certificate, but after a contribution has been made. See "Part 6: Tax
Aspects of the Certificates" for possible consequences of cancelling your
Certificate during the free look period.
ANNUITY ACCOUNT VALUE
Your Annuity Account Value is the sum of the amounts in the Investment
Options.
Annuity Account Value in Investment Funds
The Annuity Account Value in an Investment Fund on any Business Day is equal
to the number of Accumulation Units in that Investment Fund times the
Accumulation Unit Value for the Investment Fund for that date. The number of
Accumulation Units in an Investment Fund at any time is equal to the sum of
Accumulation Units purchased by contributions and transfers less the sum of
Accumulation Units redeemed for withdrawals, transfers or deductions for
charges.
The number of Accumulation Units purchased or sold in any Investment Fund
equals the dollar amount of the transaction divided by the Accumulation Unit
Value for that Investment Fund for the applicable Transaction Date.
The number of Accumulation Units will not vary because of any later change in
the Accumulation Unit Value. The Accumulation Unit Value varies with the
investment performance of the corresponding Portfolios of each respective
trust, which in turn reflects the investment income and realized and
unrealized capital gains and losses of the Portfolios, as well as each
trust's fees and expenses. The Accumulation Unit Value is also stated after
deduction of the Separate Account asset charges relating to the Certificates.
A description of the computation of the Accumulation Unit Value is found in
the SAI.
Annuity Account Value in Guaranteed Period
Account
The Annuity Account Value in the Guaranteed Period Account on any Business
Day will be the sum of the present value of the Maturity Value in each
Guarantee Period, using the Guaranteed Rate in effect for new allocations to
such Guarantee Period on such date. (This is equivalent to the Guaranteed
Period Amount increased or decreased by the full market value adjustment.)
The Annuity Account Value, therefore, may be higher or lower than the
contributions (less withdrawals) accumulated at the Guaranteed Rate. At the
Expiration Date the Annuity Account Value in the Guaranteed Period Account
will equal the Maturity Value. See "Part 2: The Guaranteed Period Account."
TRANSFERS AMONG INVESTMENT OPTIONS
At any time prior to the Annuity Commencement Date, you may transfer all or
portions of your Annuity Account Value among the Investment Options, subject
to the following restrictions.
o Transfers out of a Guarantee Period other than at the Expiration Date
will result in a market value adjustment. See "Part 2: The Guaranteed
Period Account."
o At Annuitant ages 76 and above, transfers to Guarantee Periods must
be limited to those with maturities of five years or less and with
maturity dates no later than the February 15th immediately following
the Annuity Commencement Date.
o Transfers may not be made to a Guarantee Period with an Expiration
Date in the current calendar year, or if the Guaranteed Rate is 3%.
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<PAGE>
Transfer requests must be made directly to our Processing Office. Your
request for a transfer should specify your Certificate number, the amounts or
percentages to be transferred and the Investment Options to and from which
the amounts are to be transferred. Your transfer request may be in writing or
by telephone.
For telephone transfer requests, procedures have been established by
Equitable Life that are considered to be reasonable and are designed to
confirm that instructions communicated by telephone are genuine. Such
procedures include requiring certain personal identification information
prior to acting on telephone instructions and providing written confirmation.
In light of the procedures established, Equitable Life will not be liable for
following telephone instructions that it reasonably believes to be genuine.
We may restrict, in our sole discretion, the use of an agent acting under a
power of attorney, such as a market timer, on behalf of more than one
Certificate Owner to effect transfers. Any agreements to use market timing
services to effect transfers are subject to our rules then in effect and must
be on a form satisfactory to us.
A transfer request will be effective on the Transaction Date and the transfer
to or from Investment Funds will be made at the Accumulation Unit Value next
computed after the Transaction Date. All transfers will be confirmed in
writing.
DOLLAR COST AVERAGING
We offer two Dollar Cost Averaging programs as described below. The main
objective of dollar cost averaging is to attempt to shield your investment
from short term price fluctuations. Since approximately the same dollar
amounts are transferred from the Alliance Money Market Fund to other
Investment Funds periodically, more Accumulation Units are purchased in an
Investment Fund if the value per Accumulation Unit is low and fewer
Accumulation Units are purchased if the value per Accumulation Unit is high.
Therefore, a lower average value per Accumulation Unit may be achieved over
the long term. This plan of investing allows you to take advantage of market
fluctuations but does not assure a profit or protect against a loss in
declining markets.
Special Dollar Cost Averaging
For Certificate Owners who at issue of the Certificate want to dollar cost
average their entire initial contribution from the Alliance Money Market Fund
into the other Investment Funds monthly over a period of twelve months, we
offer a Special Dollar Cost Averaging program under which the mortality and
expense risks and administration charges normally deducted from the Alliance
Money Market Fund will not be deducted. See "Charges Deducted from the
Investment Funds" in Part 4.
General Dollar Cost Averaging
If you have at least $5,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market Fund
to other Investment Funds on a monthly, quarterly or annual basis. This
program may be elected at any time.
The minimum amount that may be transferred on each Transaction Date is $250.
The maximum amount which may be transferred is equal to the Annuity Account
Value in the Alliance Money Market Fund at the time the option is elected,
divided by the number of transfers scheduled to be made each Contract Year.
Dollar Cost Averaging may not be elected while the Systematic Withdrawal
option (described under "Withdrawal Options" below) is in effect.
The transfer date will be the same calendar day of the month as the Contract
Date. If, on any transfer date, the Annuity Account Value in the Alliance
Money Market Fund is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the dollar cost
averaging option will end. You may change the transfer amount once each
Contract Year, or cancel this option by sending us satisfactory notice to our
Processing Office at least seven calendar days before the next transfer date.
BASEBUILDER BENEFITS
The baseBUILDER option provides guaranteed benefits in the form of a Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit. The
combined benefit (Plan A) for which there is a charge is available for
Annuitant issue ages 20 through 75. You elect Plan A in the application. Once
elected, the benefit may not be changed. See "Combined Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit Charge" in Part 4. If you
do not elect the combined benefit, the Guaranteed Minimum Death Benefit is
still provided under the Certificate at a lower charge. The combined benefit
(Plan A) is not currently available in New York.
If the Annuitant is age 76 or older and you are interested in the Combined
Guaranteed Minimum
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Death Benefit and Guaranteed Minimum Income Benefit, ask your agent for a
copy of the prospectus supplement describing this benefit.
DEATH BENEFIT
When the Annuitant Dies
Generally, upon receipt of proof satisfactory to us of the Annuitant's death
prior to the Annuity Commencement Date, we will pay the death benefit to the
beneficiary named in your Certificate. You designate the beneficiary at the
time you apply for the Certificate. While the Certificate is in effect, you
may change your beneficiary by writing to our Processing Office. The change
will be effective on the date the written submission was signed. The death
benefit payable will be determined as of the date we receive such proof of
death and any required instructions as to the method of payment.
The death benefit applicable to Certificates issued in all states except New
York is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater,
the Guaranteed Minimum Death Benefit defined below; and
(2) the death benefit provided with respect to the Guaranteed Period
Account, which is equal to the Annuity Account Value in the
Guaranteed Period Account or, if greater, the sum of the Guaranteed
Period Amounts in each Guarantee Period. See "Part 2: The
Guaranteed Period Account."
GUARANTEED MINIMUM DEATH BENEFIT
Your Guaranteed Minimum Death Benefit is the minimum amount payable with
respect to the Investment Funds upon the death of the Annuitant.
Applicable for Annuitant issue ages 20 through 79
6% to Age 80 Benefit--On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the portion of the initial contribution allocated to the
Investment Funds. Thereafter, the Guaranteed Minimum Death Benefit is
credited with interest at 6% (3% for amounts in the Alliance Money Market and
Alliance Intermediate Government Securities Funds, except as indicated below)
on each Contract Date anniversary through the Annuitant's age 80 (or at the
Annuitant's death, if earlier), and 0% thereafter, and is adjusted for any
subsequent contributions and transfers into the Investment Funds and
transfers and withdrawals from such Funds. The Guaranteed Minimum Death
Benefit interest applicable to amounts in the Alliance Money Market Fund
under the Special Dollar Cost Averaging program (described above) will be 6%.
Applicable for Annuitant issue ages 80 through 83
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
portion of the initial contribution allocated to the Investment Funds.
Thereafter, the Guaranteed Minimum Death Benefit is equal to such portion of
the initial contribution plus (a) any subsequent contributions and transfers
into the Investment Funds, less (b) any transfers and withdrawals from such
Funds.
Withdrawals will reduce your Guaranteed Minimum Death Benefit, see "How
Withdrawals and Transfer Affect Your Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit" below.
For the death benefit applicable to Certificates issued in New York, see
Appendix III.
See Appendix IV for an example of the calculation of the Guaranteed Minimum
Death Benefit.
HOW DEATH BENEFIT PAYMENT IS MADE
We will pay the death benefit to the beneficiary in the form of the annuity
benefit you have chosen under your Certificate. If no annuity benefit has
been chosen at the time of the Annuitant's death, the beneficiary will
receive the death benefit in a lump sum. However, subject to any exceptions
in the Certificate, Equitable Life's rules then in effect and any other
applicable requirements under the Code, the beneficiary may elect to apply
the death benefit to one or more annuity benefits offered by Equitable Life.
See "Annuity Benefits and Payout Annuity Options" below. Note that if you are
both the Certificate Owner and the Annuitant, only a life annuity or an
annuity that does not extend beyond the life expectancy of the beneficiary
may be elected.
Successor Annuitant
If you are both the Certificate Owner and the Annuitant and you elect your
spouse to be both the sole primary beneficiary and the successor Annuitant/
Certificate Owner, then no death benefit is payable until your surviving
spouse's death.
On the Processing Date following your death, if the successor
Annuitant/Certificate Owner election was elected at issue of your Certificate
and is in effect at your death, the Guaranteed Minimum Death Benefit will be
reset at the greater of the then current Guaranteed Minimum Death Benefit and
the then current Annuity Account Value in the Investment Funds. In
determining whether the Guaranteed Minimum Death Benefit will continue to
grow, we will use the age (as of the Processing Date) of the successor
Annuitant/Certificate Owner.
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WHEN THE CERTIFICATE OWNER DIES
BEFORE THE ANNUITANT
When you are not the Annuitant and you die before the Annuity Commencement
Date, the beneficiary named to receive the death benefit upon the Annuitant's
death will automatically succeed as Certificate Owner (unless you name a
different person as a successor Owner in a written form acceptable to us and
send it to our Processing Office). The Certificate provides that the original
Certificate Owner's entire interest in the Certificate be completely
distributed to the named beneficiary by the fifth anniversary of such Owner's
death (unless an annuity benefit is elected and payments begin within one
year after the Certificate Owner's death and are made over the beneficiary's
life or over a period not to exceed the beneficiary's life expectancy). If an
annuity benefit has not been elected, as described above, on the fifth
anniversary of your death, we will pay any Annuity Account Value remaining on
such date, less any applicable withdrawal charge. If the successor
Certificate Owner is your surviving spouse, no distributions are required as
long as both the surviving spouse and the Annuitant are living.
GUARANTEED MINIMUM INCOME BENEFIT
The Guaranteed Minimum Income Benefit provides a minimum amount of guaranteed
lifetime income with respect to the Investment Funds when you apply your
Annuity Account Value in the Investment Funds under your Accumulator
Certificate to an Income Manager(SM) (Life Annuity with a Period Certain)
payout annuity certificate. The Income Manager provides payments during a
period certain with payments continuing for life thereafter. This means that
payments will be made for the rest of the Annuitant's life. In addition, if
the Annuitant dies before a specified period of time (period certain) has
ended, payments will continue to the beneficiary for the balance of the
period certain.
On the Transaction Date that you exercise your Guaranteed Minimum Income
Benefit, the annual lifetime income that will be provided under the Income
Manager (Life Annuity with a Period Certain) will be the greater of (i) your
Guaranteed Minimum Income Benefit, and (ii) the income provided by
application of your Annuity Account Value in the Investment Funds at our then
current annuity factors. The Guaranteed Minimum Income Benefit does not
provide an Annuity Account Value or guarantee performance of your Investment
Funds. Because it is based on conservative actuarial factors, the level of
lifetime income that it guarantees may often be less than the level that
would be provided by application of your Annuity Account Value at current
annuity factors. It should therefore be regarded as a safety net.
If you have any Annuity Account Value in the Guaranteed Period Account under
your Accumulator Certificate as of the Transaction Date that you exercise
your Guaranteed Minimum Income Benefit, such Annuity Account Value will also
be applied (at current annuity factors) toward the purchase of payments under
the Income Manager (Life Annuity with a Period Certain). Such Annuity Account
Value will increase the payments provided by the Guaranteed Minimum Income
Benefit. A market value adjustment may apply.
Illustrated below are Guaranteed Minimum Income Benefit amounts per $100,000
of initial contribution, for a male Annuitant age 60 (at issue) on Contract
Date anniversaries as indicated below, assuming allocation only to the
Investment Funds (excluding the Alliance Money Market and Alliance
Intermediate Government Securities Funds), no subsequent contributions,
transfers or withdrawals.
<TABLE>
<CAPTION>
GUARANTEED MINIMUM
INCOME BENEFIT ANNUAL
CONTRACT DATE INCOME PAYABLE
ANNIVERSARY AT FOR LIFE WITH
ELECTION 10 YEAR CERTAIN
-------- ---------------
<S> <C>
7 $8,992
10 12,160
15 18,358
</TABLE>
Withdrawals and transfers will reduce your Guaranteed Minimum Income Benefit,
see "How Withdrawals and Transfers Affect Your Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit" below.
The Guaranteed Minimum Income Benefit may be exercised only within 30 days
following the seventh or later Contract Date anniversary under your
Accumulator Certificate. However, it may not be exercised earlier than the
Annuitant's age 60, nor later than the Annuitant's age 83; except that for
Annuitant's issue ages 20 through 44, it may be exercised following the 15th
or later Contract Date anniversary.
When you exercise your Guaranteed Minimum Income Benefit, you will receive an
Income Manager (Life Annuity with a Period Certain) payout annuity
certificate in exchange for your Accumulator Certificate with at least the
minimum annual income specified and a period certain based on the Annuitant's
age at the time the benefit is exercised as follows:
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<TABLE>
<CAPTION>
LEVEL PAYMENTS*
-----------------------------------------
ANNUITANT'S AGE
AT ELECTION PERIOD CERTAIN YEARS
----------- --------------------
<S> <C>
60 through 80 10
81 9
82 8
83 7
</TABLE>
- --------------
* Other forms and period certains may also be available.
Payments will start one payment mode from the Contract Date of the Income
Manager certificate.
Each year on your Contract Date anniversary, if you are eligible to exercise
your Guaranteed Minimum Income Benefit, we will send you an eligibility
notice illustrating how much income could be provided on the Contract Date
anniversary. You may then notify us within 30 days following the Contract
Date anniversary if you want to exercise your Guaranteed Minimum Income
Benefit by submitting the proper form and returning your Accumulator
Certificate. The amount of income you actually receive will be determined on
the Transaction Date that we receive your properly completed exercise notice.
You may also apply your Cash Value at any time to an Income Manager (Life
Annuity with a Period Certain) payout annuity, and you may always apply your
Annuity Account Value to any of our other life annuity benefits. The annuity
benefits are discussed below. These benefits differ from the Income Manager
payout annuities and may provide higher or lower income levels, but do not
have all the features of Income Manager. You may request an illustration from
your agent.
The Income Manager (Life Annuity with a Period Certain) is offered through
our prospectus for the Income Manager payout annuities. A copy of the most
current version may be obtained from your agent. You should read it carefully
before you decide to exercise your Guaranteed Minimum Income Benefit.
Successor Annuitant/Certificate Owner
If the successor Annuitant/Certificate Owner election (discussed above) was
elected at issue of the Certificate and is in effect at your death, the
Guaranteed Minimum Income Benefit will continue to be available on Contract
Date anniversaries seven and later based on the Contract Date of the
Accumulator Certificate, provided the Guaranteed Minimum Income Benefit is
exercised as specified above based on the age of the successor
Annuitant/Certificate Owner.
WITHDRAWAL OPTIONS
The Accumulator is an annuity contract, even though you may elect to receive
your benefits in a non-annuity form. You may take withdrawals from your
Certificate before the Annuity Commencement Date and while the Annuitant is
alive. Two withdrawal options are available: Lump Sum Withdrawals and
Systematic Withdrawals. Withdrawals in excess of the 15% free corridor amount
may result in withdrawal charges. See "Part 4: Deductions and Charges."
Withdrawals may also be taxable and subject to tax penalty. See "Part 6: Tax
Aspects of the Certificates."
Amounts withdrawn from the Guaranteed Period Account, other than at the
Expiration Date, will result in a market value adjustment. See "Market Value
Adjustment for Transfers, Withdrawals or Surrender Prior to the Expiration
Date" in Part 2.
As a deterrent to early withdrawal (generally prior to age 59 1/2) the Code
provides certain penalties. We may also be required to withhold income taxes
from the amount distributed. These rules are outlined in "Part 6: Tax Aspects
of the Certificates."
LUMP SUM WITHDRAWALS
You may take Lump Sum Withdrawals at any time subject to a minimum withdrawal
amount of $1,000. A request to withdraw more than 90% of the Cash Value as of
the Transaction Date will result in the termination of the Certificate and
will be treated as a surrender of the Certificate for its Cash Value. See
"Surrendering the Certificates to Receive the Cash Value," below.
<PAGE>
To make a Lump Sum Withdrawal, you must submit a request satisfactory to us
which specifies the Investment Options from which the Lump Sum Withdrawal
will be taken. If we have received the information we require, the requested
withdrawal will become effective on the Transaction Date and proceeds will
usually be mailed within seven calendar days thereafter, but we may delay
payment as described in "When Payments Are Made" below. If we receive only
partially completed information, our Processing Office will contact you for
specific instructions before your request can be processed.
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals provide level percentage or level amount payouts. You
may choose to receive Systematic Withdrawals on a monthly, quarterly or
annual basis. You select a dollar amount or percentage of the Annuity Account
Value to be withdrawn, subject to a maximum of 1.2% monthly, 3.6% quarterly
and 15.0% annually, but in no event may any payment be less than $250. If at
the time a System-
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atic Withdrawal is to be made, the withdrawal amount would be less than $250,
no payment will be made and your Systematic Withdrawal election will
terminate.
You select the date of the month when the withdrawals will be made, but you
may not choose a date later than the 28th day of the month. If no date is
selected, withdrawals will be made on the same calendar day of the month as
the Contract Date. The commencement of payments under the Systematic
Withdrawal option may not be elected to start sooner than 28 days after issue
of the Certificate.
You may elect Systematic Withdrawals at any time by completing the proper
form and sending it to our Processing Office. You may change the payment
frequency of your Systematic Withdrawals once each Contract Year or cancel
this withdrawal option at any time by sending notice in a form satisfactory
to us. The notice must be received at our Processing Office at least seven
calendar days prior to the next scheduled withdrawal date. You may also
change the amount or percentage of your Systematic Withdrawals once in each
Contract Year. However, you may not change the amount or percentage in any
Contract Year where you have previously taken another withdrawal under the
Lump Sum Withdrawals option described above.
Unless you specify otherwise, Systematic Withdrawals will be withdrawn on a
pro rata basis from your Annuity Account Value in the Investment Funds. If
there is insufficient value or no value in the Investment Funds, any
additional amount of the withdrawal required or the total amount of the
withdrawal, as applicable, will be withdrawn from the Guarantee Periods in
order of the earliest Expiration Date(s) first.
HOW WITHDRAWALS AND TRANSFERS AFFECT YOUR GUARANTEED MINIMUM DEATH BENEFIT
AND GUARANTEED MINIMUM INCOME BENEFIT
Except as described in the next sentence, each withdrawal and transfer will
cause a reduction in your current Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit benefit base (described below) on a pro
rata basis. Your current Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit benefit base will be reduced on a dollar-for-dollar
basis as long as the sum of your withdrawals and transfers from the
Investment Funds in any Contract Year is 6% or less of the beginning of
Contract Year Guaranteed Minimum Death Benefit. Once a withdrawal or transfer
is made that causes cumulative withdrawals and transfers from the Investment
Funds in a Contract Year to exceed 6% of the beginning of Contract Year
Guaranteed Minimum Death Benefit, that withdrawal or transfer and any
subsequent withdrawals and transfers in that Contract Year will cause a pro
rata reduction to occur.
Reduction on a dollar-for-dollar basis means your current Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit benefit base will be
reduced by the dollar amount of the withdrawal. Reduction on a pro rata basis
means that we calculate the percentage of the Annuity Account Value as of the
Transaction Date that is being withdrawn and we reduce your current
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit
benefit base by that same percentage. For example, if your Annuity Account
Value is $10,000 and you withdraw $4,000 you have withdrawn 40%
($4,000/$10,000) of your Annuity Account Value. If your Guaranteed Minimum
Death Benefit was $20,000 prior to the withdrawal, it would be reduced by
$8,000 ($20,000 x .40) and your new Guaranteed Minimum Death Benefit after
the withdrawal would be $12,000 ($20,000 -$8,000).
The timing of your withdrawals and whether they exceed the 6% threshold
described above can have a significant impact on your Guaranteed Minimum
Death Benefit or Guaranteed Minimum Income Benefit.
GUARANTEED MINIMUM INCOME BENEFIT BENEFIT BASE
The Guaranteed Minimum Income Benefit benefit base is equal to the portion of
the initial contribution allocated to the Investment Funds on the Contract
Date. Thereafter, the Guaranteed Minimum Income Benefit benefit base is
credited with interest at 6% (3% for amounts in the Alliance Money Market and
Alliance Intermediate Government Securities Funds, except as indicated below)
on each Contract Date anniversary through the Annuitant's age 80, and 0%
thereafter, and is adjusted for any subsequent contributions and transfers
into the Investment Funds and transfers and withdrawals from such Funds. The
Guaranteed Minimum Income Benefit benefit base interest applicable to amounts
in the Alliance Money Market Fund under the Special Dollar Cost Averaging
program (described above) will be 6%. The Guaranteed Minimum Income Benefit
benefit base will also be reduced by any withdrawal charge remaining on the
Transaction Date that you exercise your Guaranteed Minimum Income Benefit.
Your Guaranteed Minimum Income Benefit benefit base is applied to guaranteed
minimum annuity factors to determine the Guaranteed Minimum Income Benefit.
The guaranteed minimum annuity factors are based on (i) interest at 2.5% if
the
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<PAGE>
Guaranteed Minimum Income Benefit is exercised within 30 days following a
Contract Date anniversary in years 7 through 9 and at 3% if exercised within
30 days following the 10th or later Contract Date anniversary, and (ii)
mortality tables that assume increasing longevity. These interest and
mortality factors are generally more conservative than the basis underlying
current annuity factors, which means that they would produce less periodic
income for an equal amount applied.
Your Guaranteed Minimum Income Benefit benefit base does not create an
Annuity Account Value or a Cash Value and is used solely for purposes of
calculating your Guaranteed Minimum Income Benefit.
CASH VALUE
The Cash Value under the Certificate fluctuates daily with the investment
performance of the Investment Funds you have selected and reflects any upward
or downward market value adjustment. See "Part 2: The Guaranteed Period
Account." We do not guarantee any minimum Cash Value except for amounts in a
Guarantee Period held to the Expiration Date. On any date before the Annuity
Commencement Date while the Certificate is in effect, the Cash Value is equal
to the Annuity Account Value less any withdrawal charge. The free corridor
amount will not apply when calculating the withdrawal charge applicable upon
a surrender. See "Part 4: Deductions and Charges."
SURRENDERING THE CERTIFICATES TO RECEIVE THE CASH VALUE
You may surrender a Certificate to receive the Cash Value at any time while
the Annuitant is living and before the Annuity Commencement Date. For a
surrender to be effective, we must receive your written request and the
Certificate at our Processing Office. The Cash Value will be determined on
the Transaction Date. All benefits under the Certificate will be terminated
as of that date.
You may receive the Cash Value in a single sum payment or apply it under one
or more of the annuity benefits described below. We will usually pay the Cash
Value within seven calendar days, but we may delay payment as described in
"When Payments are Made" below.
For the tax consequences of surrenders, see "Part 6: Tax Aspects of the
Certificates."
WHEN PAYMENTS ARE MADE
Under applicable law, application of proceeds from the Investment Funds to a
variable annuity, payment of a death benefit from the Investment Funds,
payment of any portion of the Annuity Account Value (less any applicable
withdrawal charge) from the Investment Funds, and, upon surrender, payment of
the Cash Value from the Investment Funds will be made within seven calendar
days after the Transaction Date. Payments or application of proceeds from the
Investment Funds can be deferred for any period during which (1) the New York
Stock Exchange is closed or trading on it is restricted, (2) sales of
securities or determination of the fair value of an Investment Fund's assets
is not reasonably practicable because of an emergency, or (3) the SEC, by
order, permits us to defer payment in order to protect persons with interest
in the Investment Funds.
We can defer payment of any portion of the Annuity Account Value in the
Guaranteed Period Account (other than for death benefits) for up to six
months while you are living. We may also defer payments for any amount
attributable to a contribution made in the form of a check for a reasonable
amount of time (not to exceed 15 days) to permit the check to clear.
ANNUITY BENEFITS AND PAYOUT ANNUITY OPTIONS
The Accumulator Certificates offer annuity benefits and Income Manager payout
annuity options, described below, for providing retirement income.
ANNUITY BENEFITS
Annuity benefits under the Accumulator provide periodic payments over a
specified period of time which may be fixed or may be based on the
Annuitant's life. Annuity forms of payment are calculated as of the Annuity
Commencement Date, which is on file with our Processing Office. You can
change the Annuity Commencement Date by writing to our Processing Office any
time before the Annuity Commencement Date. However, you may not choose a date
later than the 28th day of any month. Also, based on the issue age of the
Annuitant, the Annuity Commencement Date may not be later than the Processing
Date which follows the Annuitant's 90th birthday (may be different in some
states).
Before the Annuity Commencement Date, we will send a letter advising that
annuity benefits are available. Unless you otherwise elect, we will pay fixed
annuity benefits on the "normal form" indicated for your Certificate as of
the Annuity Commencement Date. The amount applied to provide the annuity
benefit will be (1) the Annuity Account Value for any life annuity form or
(2) the Cash Value for any period certain only annuity form except that if
the period certain is more than five years, the amount applied will be no
less than 95% of the Annuity Account Value.
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Amounts in the Guarantee Periods that are applied to an annuity benefit prior
to an Expiration Date will result in a market value adjustment. See "Market
Value Adjustment for Transfers, Withdrawals or Surrender Prior to the
Expiration Date" in Part 2.
Annuity Forms
o Life Annuity: An annuity which guarantees payments for the rest of the
Annuitant's life. Payments end with the last monthly payment before the
Annuitant's death. Because there is no death benefit associated with
this annuity form, it provides the highest monthly payment of any of the
life income annuity options, so long as the Annuitant is living.
o Life Annuity-Period Certain: This annuity form also guarantees payments
for the rest of the Annuitant's life. In addition, if the Annuitant dies
before a specified period of time (the "certain period") has ended,
payments will continue to the beneficiary for the balance of the certain
period. Certain periods may be 5, 10, 15 or 20 years. A life annuity
with a certain period of 10 years is the normal form of annuity under
the Certificates.
o Life Annuity-Refund Certain: This annuity form guarantees payments to
you for the rest of your life. In addition, if you die before the amount
applied to purchase this annuity option has been recovered, payments
will continue to your beneficiary until that amount has been recovered.
This option is available only as a fixed annuity.
o Period Certain Annuity: This annuity form guarantees payments for a
specific period of time, usually 5, 10, 15 or 20 years, and does not
involve life contingencies.
o Joint and Survivor Life Annuity: This annuity form guarantees life
income to you and, after your death, continuation of income to the
survivor.
The life annuity-period certain and the life annuity-refund certain are
available on either a single life or joint and survivor life basis.
The annuity forms outlined above are available in both fixed and variable
form, unless otherwise indicated. Fixed annuity payments are guaranteed by us
and will be based either on the tables of guaranteed annuity payments in your
Certificate or on our then current annuity rates, whichever is more favorable
for the Annuitant. Variable income annuities may be funded through the
Investment Funds through the purchase of annuity units. The amount of each
variable annuity payment may fluctuate, depending upon the performance of the
Investment Funds. That is because the annuity unit value rises and falls
depending on whether the actual rate of net investment return (after
deduction of charges) is higher or lower than the assumed base rate. See
"Annuity Unit Values" in the SAI. Variable income annuities may also be
available by separate prospectus through Investment Funds of other separate
accounts we offer.
For all Annuitants, the normal form of annuity provides for fixed payments.
We may offer other forms not outlined here. Your agent can provide details.
For each annuity benefit, we will issue a separate written agreement putting
the benefit into effect. Before we pay any annuity benefit, we require the
return of the Certificate.
The amount of the annuity payments will depend on the amount applied to
purchase the annuity, the type of annuity chosen and, in the case of a life
annuity form, the Annuitant's age (or the Annuitant's and joint Annuitant's
ages) and in certain instances, the sex of the Annuitant(s). Once an annuity
form is chosen and payments have commenced, no change can be made.
If, at the time you elect an annuity form, the amount to be applied is less
than $2,000 or the initial payment under the form elected is less than $20
monthly, we reserve the right to pay the Annuity Account Value in a single
sum rather than as payments under the annuity form chosen.
INCOME MANAGER PAYOUT ANNUITY OPTIONS
Under Accumulator Certificates, you may apply your Annuity Account Value to
an Income Manager (Life Annuity with a Period Certain) payout annuity
certificate. These certificates provide guaranteed level or increasing
payments for the Annuitant's life or for the Annuitant's life and the life of
a joint Annuitant, and are available provided the Certificate Owner and
Annuitant meet the issue age and payment requirements.
If you apply a part of the Annuity Account Value under an Income Manager
payout annuity certificate, it will be considered a withdrawal and may be
subject to withdrawal charges. See "Withdrawal Options" above. If 100% of the
Annuity Account Value is applied from an Accumulator Certificate at a time
when the dollar amount of the withdrawal charge is greater than 2% of
remaining contributions (after withdrawals), such withdrawal charge will not
be deducted. However, a new withdrawal charge schedule will apply under the
new certificate. For purposes of the new certificate withdrawal charge
schedule, the year in which your Annuity Account Value is applied under the
new certificate will be "Contract Year 1." If 100% of the Annuity Account
Value is applied from the Accumulator
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<PAGE>
when the dollar amount of the withdrawal charge is 2% or less, such
withdrawal charge will not be deducted and there will be no withdrawal charge
schedule under the new certificate. You should consider the timing of your
purchase as it relates to the potential for withdrawal charges under the new
certificate. No subsequent contributions will be permitted under the Income
Manager payout annuity certificate.
You may also apply your Annuity Account Value to purchase the Income Manager
(Period Certain) payout annuity once withdrawal charges are no longer in
effect. This version of the Income Manager provides for guaranteed payments
for a specified period. No withdrawal charges will apply under this Income
Manager (Life Annuity with a Period Certain) certificate.
The Income Manager payout annuities are described in our prospectus for the
Income Manager. Copies of the most current version are available from your
agent. To purchase an Income Manager payout Annuity, we also require the
return of your Accumulator Certificate. An Income Manager payout annuity
certificate will be issued to put one of the payout annuity options into
effect. Depending upon your circumstances, this may be accomplished on a
tax-free basis. Consult your tax adviser.
ASSIGNMENT
The Certificates may be assigned at any time before the Annuity Commencement
Date and for any purpose other than as collateral or security for a loan.
Equitable Life will not be bound by an assignment unless it is in writing and
we have received it at our Processing Office. In some cases, an assignment
may have adverse tax consequences. See "Part 6: Tax Aspects of the
Certificates."
SERVICES WE PROVIDE
o REGULAR REPORTS
o Statement of your Certificate values as of
the last day of the calendar year;
o Three additional reports of your Certificate
values each year;
o Annual and semi-annual statements of each
trust; and
o Written confirmation of financial transactions.
o TOLL-FREE TELEPHONE SERVICES
o Call 1-800-789-7771 for a recording of daily
Accumulation Unit Values and Guaranteed Rates
applicable to the Guarantee Periods. Also call
during our regular business hours to speak to
one of our customer service representatives.
o PROCESSING OFFICE
o FOR CONTRIBUTIONS SENT BY REGULAR MAIL:
Equitable Life
Income Management Group
Post Office Box 13014
Newark, NJ 07188-0014
o FOR CONTRIBUTIONS SENT BY EXPRESS MAIL:
Equitable Life
c/o First Chicago National Processing Center
300 Harmon Meadow Boulevard, 3rd Floor
Attn: Box 13014
Secaucus, NJ 07094
o FOR ALL OTHER COMMUNICATIONS (E.G., RE-
QUESTS FOR TRANSFERS, WITHDRAWALS) SENT BY
REGULAR MAIL:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
o FOR ALL OTHER COMMUNICATIONS (E.G., RE-
QUESTS FOR TRANSFERS, WITHDRAWALS) SENT BY
REGULAR MAIL:
Equitable Life
Income Management Group
200 Plaza Drive, 4th Floor
Secaucus, NJ 07096
DISTRIBUTION OF THE CERTIFICATES
As the distributor of the Certificates, Equitable Distributors, Inc. (EDI),
an indirect wholly owned subsidiary of Equitable Life, has responsibility for
sales and marketing functions for the Certificates. EDI also serves as the
principal underwriter of the Separate Account under the 1940 Act. EDI is
registered with the SEC as a broker-dealer under the Exchange Act and is a
member of the National Association of Securities Dealers, Inc. EDI's
principal business address is 1290 Avenue of the Americas, New York, New York
10104. EDI was paid a fee of $1,204,370 for 1996 and $126,914 for 1995 for
its services under its "Distribution Agreement" with Equitable Life and the
Separate Account.
The Certificates will be sold by registered representatives of EDI and its
affiliates, who are also our licensed insurance agents. Broker-dealer sales
compensation for EDI and its affiliates will generally not exceed six percent
of total contributions made under a Certificate. EDI may also receive
compensation and reimbursement for its marketing services under the terms of
its distribution agreement with Equitable Life. Broker-dealers receiving
sales compensation will generally pay a portion thereof to their registered
representatives as commission related to sales of the Certificates. The
offering of the Certificates is intended to be continuous.
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- -------------------------------------------------------------------------------
PART 4: DEDUCTIONS AND CHARGES
- -------------------------------------------------------------------------------
CHARGES DEDUCTED FROM THE
ANNUITY ACCOUNT VALUE
We allocate the entire amount of each contribution to the Investment Options
you select, subject to certain restrictions. We then periodically deduct
certain amounts from your Annuity Account Value. Unless otherwise indicated,
the charges described below and under "Charges Deducted from the Investment
Funds" below will not be increased by us for the life of the Certificates. We
may reduce certain charges under group or sponsored arrangements. See "Group
or Sponsored Arrangements" below. Charges are deducted proportionately from
all the Investment Funds in which your Annuity Account Value is invested on a
pro rata basis, except as noted below.
Withdrawal Charge
A withdrawal charge will be imposed as a percentage of each contribution made
to the extent that a withdrawal exceeds the free corridor amount, or if the
Certificate is surrendered to receive its Cash Value. We determine the
withdrawal charge separately for each contribution in accordance with the
table below.
<TABLE>
<CAPTION>
CONTRACT YEAR
1 2 3 4 5 6 7 8+
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of
Contribution 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
</TABLE>
The applicable withdrawal charge percentage is determined by the Contract
Year in which the withdrawal is made or the Certificate is surrendered,
beginning with "Contract Year 1" with respect to each contribution withdrawn
or surrendered. For each contribution, the Contract Year in which we receive
that contribution is "Contract Year 1."
The withdrawal charge is deducted from the Investment Options from which each
such withdrawal is made in proportion to the amount being withdrawn from each
Investment Option.
Free Corridor Amount
The free corridor amount is 15% of the Annuity Account Value at the
beginning of the Contract Year minus any amount previously withdrawn
during that Contract Year.
Any withdrawal requested that exceeds the free corridor amount will be
subject to the withdrawal charge. The 15% free corridor amount is not
applicable to a surrender.
For purposes of calculating the withdrawal charge, (1) we treat contributions
as being withdrawn on a first-in first-out basis, and (2) amounts withdrawn
up to the free corridor amount are not considered a withdrawal of any
contributions. Although we treat contributions as withdrawn before earnings
for purposes of calculating the withdrawal charge, the Federal income tax law
treats earnings as withdrawn first. See "Part 6: Tax Aspects of the
Certificates."
The withdrawal charge is to help cover sales expenses.
For Certificates issued to a charitable remainder trust (CRT), the free
corridor amount will be changed to be the greater of (1) the current Annuity
Account Value, less contributions that have not been withdrawn (earnings in
the Certificate) and (2) the free corridor amount defined above. If you are
considering an annuity for use in a CRT, see "Charitable Remainder Trusts" in
Part 6 concerning recent IRS announcements on the use of annuities in CRTs.
Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit Charge (Plan A)
We deduct a charge annually on each Processing Date for providing the
Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit (Plan A). The charge is equal to a percentage of the Guaranteed
Minimum Death Benefit in effect on the Processing Date. The percentage is
equal to 0.45%.
Guaranteed Minimum Death Benefit Only Benefit Charge (Plan B)
We deduct a charge annually on each Processing Date for providing the
Guaranteed Minimum Death Benefit Only Benefit (Plan B). The charge is equal
to a percentage of the Guaranteed Minimum Death Benefit in effect on the
Processing Date. The percentage is equal to 0.20%.
Charges for State Premium and Other Applicable Taxes
We deduct a charge for applicable taxes, such as state or local premium
taxes, that might be imposed in your state. Generally we deduct this charge
from
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<PAGE>
the amount applied to provide an annuity benefit. In certain states, however,
we may deduct the charge for taxes from contributions. The current tax charge
that might be imposed varies by state and ranges from 0% to 3.5% (the rate is
1% in Puerto Rico and 5% in the Virgin Islands).
CHARGES DEDUCTED FROM THE
INVESTMENT FUNDS
Mortality and Expense Risks Charge
We will deduct a daily charge from the assets in each Investment Fund to
compensate us for mortality and expense risks. The daily charge is at the
rate of 0.002477%, which is equivalent to an annual rate of 0.90%, on the
assets in each Investment Fund.
The mortality risk assumed is the risk that Annuitants as a group will live
for a longer time than our actuarial tables predict. As a result, we would be
paying more in annuity income than we planned. We also assume a risk that the
mortality assumptions reflected in our guaranteed annuity payment tables,
shown in each Certificate, will differ from actual mortality experience.
Lastly, we assume a mortality risk to the extent that at the time of death,
the Guaranteed Minimum Death Benefit exceeds the Cash Value of the
Certificate. The expense risk assumed is the risk that it will cost us more
to issue and administer the Certificates than we expect.
Administration Charge
We will deduct a daily charge from the assets in each Investment Fund, to
compensate us for a portion of the administration expenses under the
Certificates. The daily charge is at a rate of 0.000692% (equivalent to an
annual rate of 0.25%) on the assets in each Investment Fund. We reserve the
right to increase the charge to an annual rate of 0.35% the maximum permitted
under the Certificates.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, the 12b-1
fee, direct operating expenses of HR Trust (such as trustees' fees, expenses
of independent auditors and legal counsel, bank and custodian charges and
liability insurance), and certain investment-related expenses of HR Trust
(such as brokerage commissions and other expenses related to the purchase and
sale of securities), are reflected in each Portfolio's daily share price. The
maximum investment advisory fees paid annually by the Portfolios cannot be
changed without a vote by shareholders. They are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
--------------------------------------------------
FIRST NEXT NEXT NEXT
$750 $750 $1 $2.5
MILLION MILLION BILLION BILLION THEREAFTER
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Alliance
Conservative
Investors..... 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance
Growth
Investors .... 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance
Growth &
Income ....... 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance
Common Stock 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance
Global........ 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance
International 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance
Aggressive
Stock ........ 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Small
Cap Growth.... 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Money
Market ....... 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance
Intermediate
Gov't
Securities .. 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance High
Yield ........ 0.600% 0.575% 0.550% 0.530% 0.520%
</TABLE>
- --------------
* On assets in excess of $10 billion, the management feee for the
Alliance Common Stock Portfolio is reduced to 0.335% of average daily
net assets.
Investment advisory fees are established under HR Trust's investment advisory
agreements between HR Trust and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that the HR Trust, on behalf of each Portfolio
may pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. This fee will not be
increased for the life of the Certificates. EDI is currently waiving a
portion of the 12b-1 fee with respect to the Alliance Small Cap Growth
Portfolio. Fees and expenses are described more fully in the HR Trust
prospectus.
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the 12b-1
fee, other direct operating expenses of EQ Trust (such as trustees' fees,
expenses of independent auditors and legal counsel, administrative service
fees, custodian fees, and liability insurance), and certain
investment-related expenses of EQ Trust (such as brokerage commissions and
other expenses related to the purchase and sale of securities), are reflected
in each Portfolio's daily share price. The investment management
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<PAGE>
fees paid annually by the Portfolios cannot be changed without a vote by
shareholders. They are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
------------------------
<S> <C>
EQ/Putnam Balanced..................... 0.55%
EQ/Putnam Growth and Income Value ..... 0.55%
MFS Emerging Growth Companies.......... 0.55%
MFS Research........................... 0.55%
Merrill Lynch Basic Value Equity ..... 0.55%
Merrill Lynch World Strategy .......... 0.70%
Morgan Stanley Emerging Markets
Equity................................ 1.15%
T. Rowe Price Equity Income............ 0.55%
T. Rowe Price International Stock ..... 0.75%
Warburg Pincus Small Company Value .... 0.65%
</TABLE>
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ
Financial. EQ Financial has entered into expense limitation agreements with
EQ Trust, with respect to each Portfolio, pursuant to which EQ Financial has
agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolios' average daily net assets) to
0.85% each for the EQ/Putnam Growth & Income Value, MFS Research, Merrill
Lynch Basic Value Equity, T. Rowe Price Equity, and MFS Emerging Growth
Companies Portfolios; 0.90% for the EQ/Putnam Balanced Portfolio; 1.00% for
Warburg Pincus Small Company Value Portfolio; 1.20% each for T. Rowe Price
International Stock and Merrill Lynch World Strategy Portfolios; and 1.75%
for Morgan Stanley Emerging Markets Equity Portfolio. See the prospectus for
EQ Trust for more information.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. This fee will not be
increased for the life of the Certificates. Fees and expenses are described
more fully in the EQ Trust prospectus.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the withdrawal
charge or change the minimum initial contribution requirements. We may also
change the guaranteed minimum death benefit and the guaranteed minimum income
benefit. We may offer Investment Funds investing in Class IA shares of HR
Trust and EQ Trust, which are not subject to 12b-1 fees. Group arrangements
include those in which a trustee or an employer, for example, purchases
contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows us to sell
Certificates to its employees or retirees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these
factors into account when reducing charges. To qualify for reduced charges, a
group or sponsored arrangement must meet certain requirements, including our
requirements for size and number of years in existence. Group or sponsored
arrangements that have been set up solely to buy Certificates or that have
been in existence less than six months will not qualify for reduced charges.
We may also establish different Guaranteed Rates for the Guarantee Periods
under different classes of Certificates for group or sponsored arrangements.
We will make these and any similar reductions according to our rules in
effect when a Certificate is approved for issue. We may change these rules
from time to time. Any variation in the withdrawal charge will reflect
differences in costs or services and will not be unfairly discriminatory.
Group and sponsored arrangements may be governed by the Code, the Employee
Retirement Income Security Act of 1974 (ERISA), or both. We make no
representations as to the impact of those and other applicable laws on such
programs. WE RECOMMEND THAT EMPLOYERS, TRUSTEES, AND OTHERS PURCHASING OR
MAKING CERTIFICATES AVAILABLE FOR PURCHASE UNDER SUCH PROGRAMS SEEK THE
ADVICE OF THEIR OWN LEGAL AND BENEFITS ADVISERS.
OTHER DISTRIBUTION ARRANGEMENTS
Charges may be reduced or eliminated when sales are made in a manner that
results in savings of sales and administrative expenses, such as sales
through persons who are compensated by clients for recommending investments
and receive no commission or reduced commissions in connection with the sale
of the Certificates. In no event will a reduction or elimination of charges
be permitted where it would be unfairly discriminatory.
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<PAGE>
- -------------------------------------------------------------------------------
PART 5: VOTING RIGHTS
- -------------------------------------------------------------------------------
HR TRUST AND EQ TRUST VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of HR Trust and EQ Trust.
Since we own the assets of the Separate Account, we are the legal owner of
the shares and, as such, have the right to vote on certain matters. Among
other things, we may vote:
o to elect each trust's Board of Trustees,
o to ratify the selection of independent auditors for each trust, and
o on any other matters described in each trust's current prospectus or
requiring a vote by shareholders under the 1940 Act.
Because HR Trust is a Massachusetts business trust and EQ Trust is a Delaware
business trust, annual meetings are not required. Whenever a shareholder vote
is taken, we will give Certificate Owners the opportunity to instruct us how
to vote the number of shares attributable to their Certificates. If we do not
receive instructions in time from all Certificate Owners, we will vote the
shares of a Portfolio for which no instructions have been received in the
same proportion as we vote shares of that Portfolio for which we have
received instructions. We will also vote any shares that we are entitled to
vote directly because of amounts we have in an Investment Fund in the same
proportions that Certificate Owners vote.
Each share of each trust is entitled to one vote. Fractional shares will be
counted. Voting generally is on a Portfolio-by-Portfolio basis except that
shares will be voted on an aggregate basis when universal matters, such as
election of Trustees and ratification of independent auditors, are voted
upon. However, if the Trustees determine that shareholders in a Portfolio are
not affected by a particular matter, then such shareholders generally would
not be entitled to vote on that matter.
VOTING RIGHTS OF OTHERS
Currently, we control each trust. EQ Trust shares currently are sold only to
our separate accounts. HR Trust shares are held by other separate accounts of
ours and by separate accounts of insurance companies affiliated and
unaffiliated with us. Shares held by these separate accounts will probably be
voted according to the instructions of the owners of insurance policies and
contracts issued by those insurance companies. While this will dilute the
effect of the voting instructions of the Accumulator Certificate Owners, we
currently do not foresee any disadvantages arising out of this. HR Trust's
Board of Trustees intends to monitor events in order to identify any material
irreconcilable conflicts that possibly may arise and to determine what
action, if any, should be taken in response. If we believe that HR Trust's
response to any of those events insufficiently protects our Certificate
Owners, we will see to it that appropriate action is taken to protect our
Certificate Owners.
SEPARATE ACCOUNT VOTING RIGHTS
If actions relating to the Separate Account require Certificate Owner
approval, Certificate Owners will be entitled to one vote for each
Accumulation Unit they have in the Investment Funds. Each Certificate Owner
who has elected a variable annuity payout may cast the number of votes equal
to the dollar amount of reserves we are holding for that annuity in an
Investment Fund divided by the Accumulation Unit Value for that Investment
Fund. We will cast votes attributable to any amounts we have in the
Investment Funds in the same proportion as votes cast by Certificate Owners.
CHANGES IN APPLICABLE LAW
The voting rights we describe in this prospectus are created under applicable
Federal securities laws. To the extent that those laws or the regulations
promulgated under those laws eliminate the necessity to submit matters for
approval by persons having voting rights in separate accounts of insurance
companies, we reserve the right to proceed in accordance with those laws or
regulations.
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PART 6: TAX ASPECTS OF THE CERTIFICATES
- -------------------------------------------------------------------------------
This prospectus generally covers our understanding of the current Federal
income tax rules that apply to a non-qualified annuity purchased with only
after-tax dollars. This part does not apply to Qualified Plan Certificates
discussed in Appendix II.
This prospectus does not provide detailed tax information and does not
address issues such as state income and other taxes or Federal gift and
estate taxes. Please consult a tax adviser when considering the tax aspects
of the Accumulator Certificates.
TAX CHANGES
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities. In addition, the Treasury Department may amend
existing regulations, issue new regulations, or adopt new interpretations of
existing laws. State tax laws or, if you are not a United States resident,
foreign tax laws, may affect the tax consequences to you or the beneficiary.
These laws may change from time to time without notice and, as a result, the
tax consequences may be altered. There is no way of predicting whether, when
or in what form any such change would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
TAXATION OF NON-QUALIFIED ANNUITIES
Equitable Life has designed the Accumulator Certificate to qualify as an
"annuity" for purposes of Federal income tax law. Gains in the Annuity
Account Value of the Certificate generally will not be taxable to an
individual until a distribution occurs, either by a withdrawal of part or all
of its value or as a series of periodic payments. However, there are some
exceptions to this rule: (1) if a Certificate fails the investment
diversification requirements; (2) if an individual transfers a Certificate as
a gift to someone other than a spouse (or divorced spouse), any gain in its
Annuity Account Value will be taxed at the time of transfer; (3) the
assignment or pledge of any portion of the value of a Certificate will be
treated as a distribution of that portion of the Certificate; and (4) when an
insurance company (or its affiliate) issues more than one non-qualified
deferred annuity certificate or contract during any calendar year to the same
taxpayer, the certificates or contracts are required to be aggregated in
computing the taxable amount of any distribution.
Corporations, partnerships, trusts and other non-natural persons generally
cannot defer the taxation of current income credited to the Certificate
unless an exception under the Code applies.
Withdrawals
Prior to the Annuity Commencement Date, any withdrawals which do not
terminate your total interest in the Certificate are taxable to you as
ordinary income to the extent there has been a gain in the Annuity Account
Value and is subject to income tax withholding. See "Federal and State Income
Tax Withholding" below. The balance of the distribution is treated as a
return of the "investment" or "basis" in the Certificate and is not taxable.
Generally, the investment or basis in the Certificate equals the
contributions made, less any amounts previously withdrawn which were not
taxable. Special rules may apply if contributions made to another annuity
certificate or contract prior to August 14, 1982 are transferred to a
Certificate in a tax-free exchange. To take advantage of these rules, you
must notify us prior to such an exchange.
If you surrender or cancel the Certificate, the distribution is taxable to
the extent it exceeds the investment in the Certificate.
Annuity Payments
Once annuity payments begin, a portion of each payment is considered to be a
tax-free recovery of investment based on the ratio of the investment to the
expected return under the Certificate. The remainder of each payment will be
taxable. In the case of a variable annuity, special rules apply if the
payments received in a year are less than the amount permitted to be
recovered tax-free. In the case of a life annuity, after the total investment
has been recovered, future payments are fully taxable. If payments cease as a
result of death, a deduction for any unrecovered investment will be allowed.
Early Distribution Penalty Tax
In addition to income tax, a penalty tax of 10% applies to the taxable
portion of a distribution unless the distribution is (1) made on or after the
date the taxpayer attains age 59 1/2, (2) made on or after the taxpayer's
death, (3) attributable to the disabil-
30
<PAGE>
ity of the taxpayer, (4) part of a series of substantially equal installments
as an annuity for the life (or life expectancy) of the taxpayer or the joint
lives (or joint life expectancies) of the taxpayer and a beneficiary, or (5)
with respect to income allocable to amounts contributed to an annuity
certificate or contract prior to August 14, 1982 which are transferred to the
Certificate in a tax-free exchange.
Payments as a Result of Death
If, as a result of the Annuitant's death, the beneficiary is entitled to
receive the death benefit described in Part 3, the beneficiary is generally
subject to the same tax treatment as would apply to you, had you surrendered
the Certificate (discussed above).
If the beneficiary elects to take the death benefit in the form of a life
income or installment option, the election should be made within 60 days
after the day on which a lump sum death benefit first becomes payable and
before any benefit is actually paid. The tax computation will reflect your
investment in the Certificate.
The Certificate provides a minimum guaranteed death benefit that in certain
circumstances may be greater than either the contributions made or the
Annuity Account Value. This provision provides investment protection against
an untimely termination of a Certificate on the death of an Annuitant at a
time when the Certificate's Annuity Account Value might otherwise have
provided a lower benefit. Although we do not believe that the provision of
this benefit should have any adverse tax effect, it is possible that the IRS
could take a contrary position and could assert that some portion of the
charges for the minimum guaranteed death benefit should be treated for
Federal income tax purposes as a partial withdrawal from the Certificate. If
this were so, such a deemed withdrawal could be taxable, and for Certificate
Owners under age 59 1/2, also subject to tax penalty.
Special distribution requirements apply upon the death of the owner of a
non-qualified annuity. That is, in the case of a contract where the owner and
annuitant are different, even though the annuity contract could continue
because the annuitant has not died, Federal tax law requires that the person
who succeeds as owner of the contract take distribution of the contract
within a specified period of time.
CHARITABLE REMAINDERS TRUSTS
On April 17, 1997, the IRS issued proposed regulations concerning CRTs. The
preamble to the proposed regulation indicates that the IRS is studying
whether the use of deferred annuities or other assets offering similar tax
benefits causes a CRT to fail to qualify as a CRT under the tax law. The IRS
also issued a Revenue Procedure which indicates that effective such date it
will no longer issue rulings that a trust qualifies as a CRT in situations
where the timing of trust income can be controlled to take advantage of the
difference between trust income and taxable income for the benefit of the
unitrust recipient.
FEDERAL AND STATE INCOME TAX WITHHOLDING
Equitable Life is required to withhold Federal income tax on the taxable
portion of annuity payments, unless the recipient elects not to be subject to
income tax withholding. The rate of withholding will depend on the type of
distribution and, in certain cases, the amount of the distribution. Special
withholding rules apply to foreign recipients and United States citizens
residing outside the United States. If a recipient does not have sufficient
income tax withheld or does not make sufficient estimated income tax
payments, however, the recipient may incur penalties under the estimated
income tax rules. Recipients should consult their tax advisers to determine
whether they should elect out of withholding. Requests not to withhold
Federal income tax must be made in writing prior to receiving benefits under
the Certificate. Our Processing Office will provide forms for this purpose.
No election out of withholding is valid unless the recipient provides us with
the correct taxpayer identification number and a United States residence
address.
Certain states have indicated that income tax withholding will apply to
payments from the Certificates made to residents. In some states, a recipient
may elect out of state withholding. Generally, an election out of Federal
withholding will also be considered an election out of state withholding. If
you need more information concerning a particular state or any required
forms, call our Processing Office at the toll-free number and consult your
tax adviser.
Periodic payments are generally subject to wage-bracket type withholding (as
if such payments were payments of wages by an employer to an employee) unless
the recipient elects no withholding. If a recipient does not elect out of
withholding or does not specify the number of withholding exemptions,
withholding will generally be made as if the recipient is married and
claiming three withholding exemptions. There is an annual threshold of
taxable income from periodic annuity payments which is exempt from
withholding based on this assumption. For 1997, a recipient of periodic
payments (e.g., monthly or annual payments) which total less than a $14,400
taxable amount will generally be exempt
31
<PAGE>
from Federal income tax withholding, unless the recipient specifies a
different choice of withholding exemption. A withholding election may be
revoked at any time and remains effective until revoked. If a recipient fails
to provide a correct taxpayer identification number, withholding is made as
if the recipient is single with no exemptions.
A recipient of a non-periodic distribution (total or partial) will generally
be subject to withholding at a flat 10% rate. A recipient who provides a
United States residence address and a correct taxpayer identification number
will generally be permitted to elect not to have tax withheld.
All recipients receiving periodic and non-periodic payments will be further
notified of the withholding requirements and of their right to make
withholding elections.
OTHER WITHHOLDING
As a general rule, if death benefits are payable to a person two or more
generations younger than you, a Federal generation skipping tax may be
payable with respect to the benefit at rates similar to the maximum estate
tax rate in effect at the time. The generation skipping tax provisions
generally apply to transfers which would also be subject to the gift and
estate tax rules. Individuals are generally allowed an aggregate generation
skipping tax exemption of $1 million. Because these rules are complex, you
should consult with your tax adviser for specific information, especially
where benefits are passing to younger generations, as opposed to a spouse or
child.
If we believe a benefit may be subject to generation skipping tax we may be
required to withhold for such tax unless we receive acceptable written
confirmation that no such tax is payable.
SPECIAL RULES FOR CERTIFICATES ISSUED IN PUERTO RICO
Under current law Equitable Life treats income from Accumulator Certificates
as U.S.-source. A Puerto Rico resident is subject to U.S. taxation on such
U.S.-source income. Only Puerto Rico-source income of Puerto Rico residents
is excludable from U.S. taxation. Income from Accumulator Certificates is
also subject to Puerto Rico tax. The computation of the taxable portion of
amounts distributed from a Certificate may differ in the two jurisdictions.
Therefore, an individual might have to file both U.S. and Puerto Rico tax
returns, showing different amounts of income for each. Puerto Rico generally
provides a credit against Puerto Rico tax for U.S. tax paid. Depending on an
individual's personal situation and the timing of the different tax
liabilities, an individual may not be able to take full advantage of this
credit.
Please consult your tax adviser to determine the applicability of these rules
to your own tax situation.
IMPACT OF TAXES TO EQUITABLE LIFE
The Certificates provide that Equitable Life may charge the Separate Account
for taxes. Equitable Life can set up reserves for such taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers among the Investment Funds or between the Guaranteed Period Account
and one or more Investment Funds are not taxable.
32
<PAGE>
- -------------------------------------------------------------------------------
PART 7: INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 included in Equitable
Life's Annual Report on Form 10-K, incorporated by reference in the
prospectus, have been examined by Price Waterhouse LLP, independent
accountants, whose reports thereon are incorporated herein by reference. Such
consolidated financial statements and consolidated financial statement
schedules have been incorporated herein by reference in reliance upon the
reports of Price Waterhouse LLP given upon their authority as experts in
accounting and auditing.
33
<PAGE>
- -------------------------------------------------------------------------------
PART 8: INVESTMENT PERFORMANCE
- -------------------------------------------------------------------------------
This Part presents performance data for each of the Investment Funds included
in the tables below. The performance data are calculated by two methods. The
first method presented in the tables under "Standardized Performance Data,"
reflects all applicable fees and charges, including the Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge, but not
the charge for tax such as premium taxes.
The second method, presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does
not reflect the withdrawal charge, the Combined Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit Charge, or the charge for tax
such as premium taxes. These additional charges would effectively reduce the
rates of return credited to a particular Certificate.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IB
shares of HR Trust Portfolios (other than the Alliance Small Cap Growth
Portfolio which commenced operations on May 1, 1997) are based on the actual
investment results of the Portfolios and have been adjusted for the fees and
charges applicable under the Certificates. However, the investment results
for the Alliance Growth & Income, Alliance International, Alliance
Conservative Investors and Alliance Intermediate Government Securities
Portfolios (under which Class IB shares were not available prior to the date
of this prospectus) and for the other Portfolios prior to October 1996, when
Class IB shares were not available under such Portfolios, do not reflect
12b-1 fees, which would effectively reduce such investment performance.
The performance data for the Alliance Money Market and Alliance Common Stock
Investment Funds that invest in corresponding HR Trust Portfolios, for
periods prior to March 22, 1985, reflect the investment results of two
open-end management separate accounts (the "predecessor separate accounts")
which were reorganized in unit investment trust form. The "Since Inception"
figures for these Investment Funds are based on the date of inception of the
predecessor separate accounts. These performance data have been adjusted to
reflect the maximum investment advisory fee payable for the corresponding
Portfolio of HR Trust, as well as an assumed charge of 0.06% for direct
operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares
of Portfolios of EQ Trust have only recently been established and no
Certificates funded by those Investment Funds have been issued as of the date
of this Prospectus. EQ Trust commenced operations on May 1, 1997. Therefore,
no actual historical performance data for any of these Portfolios are
available. In this connection, see the discussion immediately following the
tables below.
See "Part 2: The Guaranteed Period Account" for information on the Guaranteed
Period Account.
STANDARDIZED PERFORMANCE DATA
The standardized performance data in the following tables illustrate the
average annual total return of the Investment Funds over the periods shown,
assuming a single initial contribution of $1,000 and the surrender of the
Certificate at the end of each period. These tables (which reflect the first
calcu lation method described above) are prepared in a manner prescribed by
the SEC for use when we advertise the performance of the Separate Account. An
Investment Fund's average annual total return is the annual rate of growth of
the Investment Fund that would be necessary to achieve the ending value of a
contribution kept in the Investment Fund for the period specified.
Each calculation assumes that the $1,000 contribution was allocated to only
one Investment Fund, no transfers or subsequent contributions were made and
no amounts were allocated to any other Investment Option under the
Certificate.
In order to calculate annualized rates of return, we divide the Cash Value of
a Certificate which is surrendered on December 31, 1996 by the $1,000
contribution made at the beginning of each period illustrated. The result of
that calculation is the total growth rate for the period. Then we annualize
that growth rate to obtain the average annual percentage increase (decrease)
during the period shown. When we "annualize," we assume that a single rate of
return applied each year during the period will produce the ending value,
taking into account the effect of compounding.
34
<PAGE>
STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
----------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
---- ---- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative Investors (3.01)% 3.61% 5.20% -- 6.60%
Alliance Growth Investors 4.24 8.24 8.65 -- 12.44
Alliance Growth & Income 11.70 11.01 -- -- 8.04
Alliance Common Stock 15.76 14.24 13.64 14.14% 13.57
Alliance Global 6.20 9.72 11.42 -- 9.26
Alliance International 1.54 -- -- -- 13.25
Alliance Aggressive Stock 13.71 12.66 9.70 16.91 18.36
Alliance Money Market (2.95) 1.89 2.15 4.23 5.43
Alliance Intermediate Govt.
Securities (4.43) 0.85 3.47 -- 4.85
Alliance High Yield 14.39 9.69 12.59 -- 9.69
</TABLE>
- --------------
See footnotes below.
The table below illustrates the growth of an assumed investment of $1,000,
with fees and charges deducted on the standardized basis described above for
the first method of calculation.
STANDARDIZED PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
----------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
---- ---- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative Investors $ 970 $1,112 $1,288 -- $ 1,668
Alliance Growth Investors 1,042 1,268 1,514 -- 2,555
Alliance Growth & Income 1,117 1,368 -- -- 1,362
Alliance Common Stock 1,158 1,491 1,895 $3,752 14,485
Alliance Global 1,062 1,321 1,717 -- 2,424
Alliance International 1,015 -- -- -- 1,132
Alliance Aggressive Stock 1,137 1,430 1,589 4,770 6,388
Alliance Money Market 971 1,058 1,112 1,514 2,332
Alliance Intermediate Govt.
Securities 956 1,026 1,186 -- 1,328
Alliance High Yield 1,144 1,320 1,809 -- 2,522
</TABLE>
- --------------
* The tables reflect the withdrawal charge and charges under a Certificate
with the 0.45% Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit Charge.
** The "Since Inception" dates for the Portfolios of HR Trust are as
follows: Alliance Conservative Investors (October 2, 1989); Alliance
Growth Investors (October 2, 1989); Alliance Growth & Income (October 1,
1993); Alliance Common Stock (January 13, 1976); Alliance Global (August
27, 1987); Alliance International (April 3, 1995); Alliance Aggressive
Stock (January 27, 1986); Alliance Money Market (July 13, 1981); Alliance
Intermediate Government Securities (April 1, 1991); and Alliance High
Yield (January 2, 1987).
Additional investment performance information appears in the attached HR
Trust and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations on
May 1, 1997. Therefore, no actual historical performance data are available.
However, historical performance of a composite of six other advisory accounts
managed by Alliance is described in the attached HR Trust prospectus.
According to that prospectus, these accounts have substantially the same
investment objectives and policies, and are managed in accordance with
essentially the same investment strategies and techniques, as those of the
Alliance Small Cap Growth
35
<PAGE>
Portfolio. It should be noted that these accounts are not subject to certain
of the requirements and restrictions to which the Alliance Small Cap Growth
Portfolio is subject and that they are managed for tax exempt clients of
Alliance. The investment performance information included in the HR Trust
prospectus for all Portfolios other than the Alliance Small Cap Growth
Portfolio is based on actual historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR
Trust and the EQ Trust prospectuses, are provided by those prospectuses to
illustrate the past performance of each respective Portfolio adviser in
managing substantially similar investment vehicles as measured against
specified market indices and do not represent the past or future performance
of any Portfolio. None of the performance data contained in the HR Trust and
EQ Trust prospectuses reflects fees and charges imposed under your
Certificate, which fees and charges would reduce such performance figures.
Therefore, the performance data for each of the Portfolios described in the
EQ Trust prospectus and for the Alliance Small Cap Growth Portfolio in the HR
Trust prospectus may be of limited use and are not intended to be a
substitute for actual performance of the corresponding Portfolios, nor are
such results an estimate or guarantee of future performance for these
Portfolios.
RATE OF RETURN DATA FOR INVESTMENT FUNDS
The following tables (which reflect the second calculation method described
above) provide you with information on rates of return on an annualized,
cumulative and year-by-year basis.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends. Cumulative rates of
return reflect performance over a stated period of time. Annualized rates of
return represent the annual rate of growth that would have produced the same
cumulative return, if performance had been constant over the entire period.
BENCHMARKS
Market indices are not subject to any charges for investment advisory fees,
brokerage commission or other operating expenses typically associated with a
managed portfolio. Nor do they reflect other charges such as the mortality
and expense risks charge and the administration charge, or any withdrawal
charge under the Certificates. Comparisons with these benchmarks, therefore,
are of limited use. We include them because they are widely known and may
help you to understand the universe of securities from which each Portfolio
is likely to select its holdings. Benchmark data reflect the reinvestment of
dividend income.
PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS:
ALLIANCE CONSERVATIVE INVESTORS: October 2, 1989; 70% Lehman Treasury Bond
Composite Index and 30% Standard & Poor's 500 Index.
ALLIANCE GROWTH INVESTORS: October 2, 1989; 30% Lehman Government/Corporate
Bond Index and 70% Standard & Poor's 500 Index.
ALLIANCE GROWTH & INCOME: October 1, 1993; 75% Standard & Poor's 500 Index
and 25% Value Line Convertible Index.
ALLIANCE COMMON STOCK: January 13, 1976; Standard & Poor's 500 Index.
ALLIANCE GLOBAL: August 27, 1987; Morgan Stanley Capital International World
Index.
ALLIANCE INTERNATIONAL: April 3, 1995; Morgan Stanley Capital International
Europe, Australia, Far East Index.
ALLIANCE AGGRESSIVE STOCK: January 27, 1986; 50% Standard & Poor's Mid-Cap
Total Return Index and 50% Russell 2000 Small Stock Index.
ALLIANCE MONEY MARKET: July 13, 1981; Salomon Brothers Three-Month T-Bill
Index.
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES: April 1, 1991; Lehman
Intermediate Government Bond Index.
ALLIANCE HIGH YIELD: January 2, 1987; Merrill Lynch Master High Yield.
The Lipper Variable Insurance Products Performance Analysis Survey (Lipper)
records the performance of a large group of variable annuity products,
including managed separate accounts of insurance companies. According to
Lipper Analytical Services, Inc., the data are presented net of investment
management fees, direct operating expenses and asset-based charges applicable
under annuity contracts. Lipper data provide a more accurate picture than
market benchmarks of the Accumulator performance relative to other variable
annuity products.
36
<PAGE>
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
-------- --------- ---------
<S> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 5.47% 6.08%
Lipper Income 8.95 8.91 9.55
Benchmark 8.78 10.14 9.64
ALLIANCE GROWTH INVESTORS 11.24 9.98 9.47
Lipper Flexible Portfolio 12.51 9.26 9.30
Benchmark 16.94 15.84 13.02
ALLIANCE GROWTH & INCOME 18.70 12.69 --
Lipper Growth & Income 19.96 15.39 --
Benchmark 21.28 17.93 --
ALLIANCE COMMON STOCK 22.76 15.85 14.38
Lipper Growth 18.78 14.80 12.39
Benchmark 22.96 19.66 15.20
ALLIANCE GLOBAL 13.20 11.42 12.18
Lipper Global 17.89 8.49 10.29
Benchmark 13.48 12.91 10.82
ALLIANCE INTERNATIONAL 8.54 -- --
Lipper International 13.36 -- --
Benchmark 6.05 -- --
ALLIANCE AGGRESSIVE STOCK 20.71 14.31 10.53
Lipper Small Company
Growth 16.55 12.70 17.53
Benchmark 17.85 14.14 14.80
ALLIANCE MONEY MARKET 4.05 3.80 3.11
Lipper Money Market 3.82 3.60 2.93
Benchmark 5.25 5.07 4.37
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES 2.57 2.80 4.38
Lipper Gen. U.S.
Government 1.57 3.99 5.21
Benchmark 4.06 5.37 6.23
ALLIANCE HIGH YIELD 21.39 11.41 13.32
Lipper High Yield 12.46 7.93 11.47
Benchmark 11.06 9.59 12.76
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SINCE
10 YEARS 15 YEARS 20 YEARS INCEPTION
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS -- -- -- 7.77%
Lipper Income -- -- -- 9.55
Benchmark -- -- -- 10.42
ALLIANCE GROWTH INVESTORS -- -- -- 14.22
Lipper Flexible Portfolio -- -- -- 9.99
Benchmark -- -- -- 12.73
ALLIANCE GROWTH & INCOME -- -- -- 11.47
Lipper Growth & Income -- -- -- 14.78
Benchmark -- -- -- 17.24
ALLIANCE COMMON STOCK 14.48% 15.16% 14.16% 13.90
Lipper Growth 13.08 14.04 13.60 13.42
Benchmark 15.28 16.79 14.55 14.63
ALLIANCE GLOBAL -- -- -- 10.42
Lipper Global -- -- -- 3.65
Benchmark -- -- -- 7.44
ALLIANCE INTERNATIONAL -- -- -- 10.90
Lipper International -- -- -- 14.33
Benchmark -- -- -- 8.74
ALLIANCE AGGRESSIVE STOCK 17.23 -- -- 18.79
Lipper Small Company
Growth 16.29 -- -- 16.47
Benchmark 14.29 -- -- 13.98
ALLIANCE MONEY MARKET 4.68 5.87 -- 6.07
Lipper Money Market 4.52 5.72 -- 5.89
Benchmark 5.67 6.72 -- 6.97
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES -- -- -- 5.75
Lipper Gen. U.S.
Government -- -- -- 6.76
Benchmark -- -- -- 7.43
ALLIANCE HIGH YIELD -- -- -- 10.13
Lipper High Yield -- -- -- 9.13
Benchmark -- -- -- 11.24
</TABLE>
37
<PAGE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS
------ ------- -------
<S> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 17.34% 34.32%
Lipper Income 8.95 29.47 58.37
Benchmark 8.78 33.60 58.40
ALLIANCE GROWTH INVESTORS 11.24 33.03 57.18
Lipper Flexible Portfolio 12.51 30.84 56.65
Benchmark 16.94 55.46 84.42
ALLIANCE GROWTH & INCOME 18.70 43.09 --
Lipper Growth & Income 19.96 53.82 --
Benchmark 21.28 63.99 --
ALLIANCE COMMON STOCK 22.76 55.49 95.76
Lipper Growth 18.78 51.65 80.51
Benchmark 22.96 71.34 102.85
ALLIANCE GLOBAL 13.20 38.31 77.66
Lipper Global 17.89 28.45 63.87
Benchmark 13.48 43.95 67.12
ALLIANCE INTERNATIONAL 8.54 -- --
Lipper International 13.36 -- --
Benchmark 6.05 -- --
ALLIANCE AGGRESSIVE STOCK 20.71 49.35 64.99
Lipper Small Company
Growth 16.55 43.42 142.70
Benchmark 17.85 48.69 99.38
ALLIANCE MONEY MARKET 4.05 11.83 16.52
Lipper Money Market 3.82 11.18 15.58
Benchmark 5.25 15.99 23.86
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57 8.63 23.89
Lipper Gen. U.S.
Government 1.57 12.45 28.92
Benchmark 4.06 16.98 35.30
ALLIANCE HIGH YIELD 21.39 38.28 86.89
Lipper High Yield 12.46 25.77 72.39
Benchmark 11.06 31.63 82.29
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SINCE
10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS -- -- -- 72.02%
Lipper Income -- -- -- 94.21
Benchmark -- -- -- 105.23
ALLIANCE GROWTH INVESTORS -- -- -- 162.01
Lipper Flexible Portfolio -- -- -- 100.79
Benchmark -- -- -- 138.49
ALLIANCE GROWTH & INCOME -- -- -- 42.30
Lipper Growth & Income -- -- -- 56.73
Benchmark -- -- -- 67.75
ALLIANCE COMMON STOCK 286.77% 731.08% 1,313.81% 1,429.67
Lipper Growth 243.70 627.03 1,185.21 1,298.19
Benchmark 314.34 925.25 1,416.26 1,655.74
ALLIANCE GLOBAL -- -- -- 152.53
Lipper Global -- -- -- 39.73
Benchmark -- -- -- 95.62
ALLIANCE INTERNATIONAL -- -- -- 19.76
Lipper International -- -- -- 26.53
Benchmark -- -- -- 15.78
ALLIANCE AGGRESSIVE STOCK 390.16 -- -- 556.01
Lipper Small Company
Growth 352.31 -- -- 428.32
Benchmark 280.32 -- -- 318.19
ALLIANCE MONEY MARKET 57.94 135.33 -- 148.77
Lipper Money Market 55.73 130.46 -- 141.99
Benchmark 73.61 165.31 -- 184.26
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- 37.89
Lipper Gen. U.S.
Government -- -- -- 45.71
Benchmark -- -- -- 51.07
ALLIANCE HIGH YIELD -- -- -- 162.22
Lipper High Yield -- -- -- 142.30
Benchmark -- -- -- 190.43
</TABLE>
38
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.79%
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.53
ALLIANCE GROWTH
& INCOME -- -- -- -- -- --
ALLIANCE COMMON
STOCK** (3.09)% 31.90% 16.02% 6.21% 21.03% 24.16
ALLIANCE GLOBAL -- -- -- (13.62) 9.61 25.29
ALLIANCE
INTERNATIONAL -- -- -- -- -- --
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.83 6.06 (0.03) 41.86
ALLIANCE MONEY
MARKET** 9.59 7.22 5.39 5.41 6.09 7.93
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- --
ALLIANCE HIGH
YIELD -- -- -- 3.49 8.48 3.93
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS 5.14% 18.51% 4.50% 9.54% (5.20)% 19.02% 3.99%
ALLIANCE GROWTH
INVESTORS 9.39 47.19 3.69 13.95 (4.27) 24.92 11.24
ALLIANCE GROWTH
& INCOME -- -- -- (0.55) (1.72) 22.65 18.70
ALLIANCE COMMON
STOCK** (9.17) 36.30 2.03 23.29 (3.26) 30.93 22.76
ALLIANCE GLOBAL (7.15) 29.06 (1.65) 30.60 4.02 17.45 13.20
ALLIANCE
INTERNATIONAL -- -- -- -- -- 10.34 8.54
ALLIANCE
AGGRESSIVE
STOCK 6.92 84.73 (4.28) 15.41 (4.92) 30.13 20.71
ALLIANCE MONEY
MARKET** 6.99 4.97 2.37 1.78 2.82 4.53 4.05
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- 11.30 4.38 9.27 (5.47) 12.03 5.27
ALLIANCE HIGH
YIELD (2.26) 23.03 11.02 21.74 (3.90) 18.54 21.39
<FN>
- --------------
* Returns do not reflect the withdrawal charge, the Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge and
any charge for tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were: 1976 1977 1978 1979 1980 1981 1982 1983
---- ---- ---- ---- ---- ---- ---- ----
ALLIANCE COMMON STOCK 8.20% (10.28)% 6.99% 28.35% 48.39% (6.94)% 16.22% 24.67%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.71 11.72 7.70
</FN>
</TABLE>
COMMUNICATING PERFORMANCE DATA
In reports or other communications or in advertising material, we may
describe general economic and market conditions affecting the Separate
Account and, each respective trust and may present the performance of the
Investment Funds or compare it with (1) that of other insurance company
separate accounts or mutual funds included in the rankings prepared by Lipper
Analytical Services, Inc., Morningstar, Inc., VARDS or similar investment
services that monitor the performance of insurance company separate accounts
or mutual funds, (2) other appropriate indices of investment securities and
averages for peer universes of funds which are shown under "Benchmarks" and
"Portfolio Inception Dates and Comparative Benchmarks" in this Part 8 or (3)
data developed by us derived from such indices or averages. The Morningstar
Variable Annuity/Life Report consists of nearly 700 variable life and annuity
funds, all of which report their data net of investment management fees,
direct operating expenses and separate account charges. VARDS is a monthly
reporting service that monitors approximately 760 variable life and variable
annuity funds on performance and account information. Advertisements or other
communications furnished to present or prospective Certificate Owners may
also include evaluations of an Investment Fund or Portfolio by financial
publications that are nationally recognized such as Barron's, Morningstar's
Variable Annuity Sourcebook, Business Week, Chicago Tribune, Forbes, Fortune,
Institutional Investor, Investment Adviser, Investment Dealer's Digest,
Investment Management Weekly, Los Angeles Times, Money, Money Management
Letter, Kiplinger's Personal Finance, Financial Planning, National
Underwriter, Pension & Investments, USA Today, Investor's Daily, The New York
Times, and The Wall Street Journal.
ALLIANCE MONEY MARKET FUND AND
ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND YIELD INFORMATION
The current yield and effective yield of the Alliance Money Market Fund and
Alliance Intermediate Government Securities Fund may appear in reports and
promotional material to current or prospective Certificate Owners.
Alliance Money Market Fund
Current yield for the Alliance Money Market Fund will be based on net changes
in a hypothetical investment over a given seven-day period, exclusive of
capital changes, and then "annualized" (assuming that the same seven-day
result would occur each week for 52 weeks). "Effective yield" is calculated
in
39
<PAGE>
a manner similar to that used to calculate current yield, but when
annualized, any income earned by the investment is assumed to be reinvested.
The "effective yield" will be slightly higher than the "current yield"
because any earnings are compounded weekly. Alliance Money Market Fund yields
and effective yields assume the deduction of all Certificate charges and
expenses other than the withdrawal charge, Combined Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit Charge and any charge for tax
such as premium tax. The yields and effective yields for the Alliance Money
Market Fund when used for the Special Dollar Cost Averaging program assume no
Certificate charges are deducted. See "Part 4: Alliance Money Market Fund and
Alliance Intermediate Government Securities Fund Yield Information" in the
SAI.
Alliance Intermediate Government Securities Fund
Current yield for the Alliance Intermediate Government Securities Fund will
be based on net changes in a hypothetical investment over a given 30-day
period, exclusive of capital changes, and then "annualized" (assuming that
the same 30-day result would occur each month for 12 months). "Effective
yield" is calculated in a manner similar to that used to calculate current
yield, but when annualized, any income earned by the investment is assumed to
be reinvested. The "effective yield" will be slightly higher than the
"current yield" because any earnings are compounded monthly.
Alliance Intermediate Government Securities Fund yields and effective yields
assume the deduction of all Certificate charges and expenses other than the
withdrawal charge, Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit Charge and any charge for tax such as premium tax. See
"Part 4: Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund Yield Information" in the SAI.
40
<PAGE>
APPENDIX I: MARKET VALUE ADJUSTMENT EXAMPLE
- -----------------------------------------------------------------------------
The example below shows how the market value adjustment would be determined
and how it would be applied to a withdrawal, assuming that $100,000 were
allocated on February 15, 1998 to a Guarantee Period with an Expiration Date
of February 15, 2007 at a Guaranteed Rate of 7.00% resulting in a Maturity
Value at the Expiration Date of $183,846, and further assuming that a
withdrawal of $50,000 were made on February 15, 2002.
<TABLE>
<CAPTION>
ASSUMED
GUARANTEED RATE ON
FEBRUARY 15, 2002
---------------------
5.00% 9.00%
---------- ----------
<S> <C> <C>
As of February 15, 2002 (Before Withdrawal)
- -------------------------------------------
(1) Present Value of Maturity Value, also
Annuity Account Value................... $144,048 $119,487
(2) Guaranteed Period Amount................ 131,080 131,080
(3) Market Value Adjustment: (1)-(2) ....... 12,968 (11,593)
February 15, 2002 (After Withdrawal)
- ------------------------------------
(4) Portion of (3) Associated
with Withdrawal: (3) x [$50,000 / (1)] . $ 4,501 $ (4,851)
(5) Reduction in Guaranteed
Period Amount: [$50,000-(4)]............ 45,499 54,851
(6) Guaranteed Period Amount: (2)-(5) ...... 85,581 76,229
(7) Maturity Value.......................... 120,032 106,915
(8) Present Value of (7), also
Annuity Account Value................... 94,048 69,487
</TABLE>
You should note that under this example if a withdrawal is made when rates
have increased (from 7.00% to 9.00% in the example), a portion of a negative
market value adjustment is realized. On the other hand, if a withdrawal is
made when rates have decreased (from 7.00% to 5.00% in the example), a
portion of a positive market value adjustment is realized.
41
<PAGE>
APPENDIX II: QUALIFIED PLAN CERTIFICATES
- -----------------------------------------------------------------------------
CONTRIBUTIONS
When issued with the appropriate endorsement, Accumulator Certificates may be
used as an investment vehicle for a defined contribution plan maintained by
an employer and which is a tax qualified plan within the meaning of Section
401(a) for the Code.
When issued in connection with such a qualified plan, we will only accept
employer contributions from a trust under a plan qualified under Section
401(a) of the Code. If the plan contains a cash or deferred arrangement
within the meaning of Section 401(k) of the Code, contributions may include
employee pre-tax and employer matching or other employer contributions, but
not employee after-tax contributions to the plan.
CERTIFICATE OWNER, ANNUITANT AND BENEFICIARY
The Certificate Owner must be the trustee of a trust for a qualified plan
maintained by the employer. The Annuitant must be the participant/employee
and the beneficiary under the Certificate must be the Certificate Owner.
PURCHASE CONSIDERATIONS
Any trustee considering a purchase of the Accumulator should discuss with its
tax adviser whether this is an appropriate investment vehicle for the
employer's plan. The form of Certificate and this prospectus should be
reviewed in full, and the following factors, among others, should be noted.
This Certificate accepts transfer contributions only and not regular, ongoing
payroll contributions. For 401(k) plans, no employee after-tax contributions
are accepted. Further, Equitable will not perform or provide any plan record
keeping services with respect to this Certificate. The plan's administrator
will be solely responsible for performing or providing for all such services.
There is no loan feature offered under the Certificates, so if the plan
provides for loans and a participant takes a loan from the plan, other plan
assets must be used as the source of the loan and any loan repayments must be
credited to other investment vehicles and/or accounts available under the
plan.
Finally, because the method of purchasing the Certificates and the features
of the Certificates may appeal more to plan participants who are older and
tend to be highly paid, and because certain features of the Certificates are
available only to plan participants who meet certain minimum and/or maximum
age requirements, plan trustees should discuss with their advisers whether
the purchase of the Certificates would cause the plan to engage in prohibited
discrimination in contributions, benefits or otherwise.
42
<PAGE>
APPENDIX III: DEATH BENEFIT FOR CERTIFICATES ISSUED IN NEW YORK
- -----------------------------------------------------------------------------
The death benefit applicable to Certificates issued in New York is equal to
the Annuity Account Value or, if greater, the Guaranteed Minimum Death
Benefit.
GUARANTEED MINIMUM DEATH BENEFIT
Applicable for Annuitant issue ages 20 through 79
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
initial contribution. Thereafter, the Guaranteed Minimum Death Benefit is
reset through the Annuitant's age 80, to the Annuity Account Value on a
Contract Date anniversary if higher than the then current Guaranteed Minimum
Death Benefit, and is adjusted for any subsequent contributions and
withdrawals. In no event will the Guaranteed Minimum Death Benefit at the
Annuitant's death be less than the Annuity Account Value in the Investment
Funds, plus the sum of the Guaranteed Period Amounts in each Guarantee
Period. See "Guarantee Periods" in Part 2.
Applicable for Annuitant issue ages 80 through 83
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
initial contribution. Thereafter, the initial contribution is adjusted for
any subsequent contributions, and any withdrawals. In no event will the
Guaranteed Minimum Death Benefit at the Annuitant's death be less than the
Annuity Account Value in the Investment Funds, plus the sum of the Guaranteed
Period Amounts in each Guarantee Period. See "Guarantee Periods" in Part 2.
Withdrawals will cause a reduction in your current Guaranteed Minimum Death
Benefit on a pro rata basis. Reduction on a pro rata basis means that we
calculate the percentage of the Annuity Account Value as of the Transaction
Date that is being withdrawn and we reduce your current Guaranteed Minimum
Death Benefit by that same percentage. For an example of the calculation, see
"How Withdrawals and Transfers Affect Your Guaranteed Minimum Death Benefit
and Guaranteed Minimum Income Benefit" in Part 3.
43
<PAGE>
APPENDIX IV: GUARANTEED MINIMUM DEATH BENEFIT EXAMPLE
- -----------------------------------------------------------------------------
Under the Certificates the death benefit for Certificates issued in all
states except New York is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater,
the Guaranteed Minimum Death Benefit (see "Guaranteed Minimum Death
Benefit" in Part 3); and
(2) the death benefit provided with respect to the Guaranteed Period
Account (see "Death Benefit" in Part 3).
See Appendix III for the description of the death benefit applicable to
Certificates issued in New York.
The following is an example illustrating the calculation of the Guaranteed
Minimum Death Benefit. Assuming $100,000 is allocated to the Investment Funds
(with no allocation to the Alliance Money Market and Alliance Intermediate
Government Securities Funds), no subsequent contributions, no transfers and
no withdrawals, the Guaranteed Minimum Death Benefit for an Annuitant age 45
would be calculated as follows:
<TABLE>
<CAPTION>
END OF NON-NEW YORK NEW YORK
CONTRACT ANNUITY GUARANTEED MINIMUM GUARANTEED MINIMUM
YEAR ACCOUNT VALUE DEATH BENEFIT(1) DEATH BENEFIT
---- ------------- ---------------- -------------
<S> <C> <C> <C>
1 $105,000 $106,000 $105,000(2)
2 $115,500 $112,360 115,500(2)
3 $132,825 $119,102 132,825(2)
4 $106,260 $126,248 132,825(3)
5 $116,886 $133,823 132,825(3)
6 $140,263 $141,852 140,263(2)
7 $140,263 $150,363 140,263(3)
</TABLE>
The Annuity Account Values for Contract Years 1 through 8 are determined
based on hypothetical rates of return of 5.00%, 10.00%, 15.00%, (20.00)%,
10.00%, 20.00% and 0.00%, respectively.
6% TO AGE 80 BENEFIT
(1) For Contract Years 1 through 7, the Guaranteed Minimum Death Benefit
equals the initial contribution increased by 6%.
NEW YORK
(2) At the end of Contract Years 1, 2, and 3 and again at the end of
Contract Year 6, the Guaranteed Minimum Death Benefit is equal to the
current Annuity Account Value.
(3) At the end of Contract Years 4, 5, and 7, the Guaranteed Minimum Death
Benefit is equal to the Guaranteed Minimum Death Benefit at the end of
the prior year since it is equal to or higher than the current Annuity
Account Value.
44
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
----
Part 1: Accumulation Unit Values 2
Part 2: Annuity Unit Values 2
Part 3: Custodian and Independent Accountants 3
Part 4: Alliance Money Market Fund and Alliance Intermediate 3
Government Securities Fund Yield Information
Part 5: Long-Term Market Trends 4
Part 6: Key Factors in Retirement Planning 6
Part 7: Financial Statements 11
HOW TO OBTAIN AN INCOME MANAGER ACCUMULATOR STATEMENT OF
ADDITIONAL INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Income Manager Accumulator SAI:
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
45
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
SUPPLEMENT DATED MAY 1, 1997 TO INCOME MANAGER (SERVICE MARK) ROLLOVER IRA
AND CHOICE INCOME PLAN PROSPECTUS, DATED OCTOBER 17, 1996
- -----------------------------------------------------------------------------
This supplement dated May 1, 1997, updates certain information in the
Rollover IRA and Choice Income Plan prospectus of The Equitable Life
Assurance Society of the United States (EQUITABLE LIFE), dated October 17,
1996. You should read this supplement in conjunction with the prospectus. You
should keep the supplement and the prospectus for future reference. We have
filed with the Securities and Exchange Commission (SEC) our statement of
additional information (SAI) dated May 1, 1997. If you have previously
received, but do not presently have, a copy of the prospectus, you may obtain
an additional copy of the prospectus, as well as a copy of the SAI, from us,
free of charge, if you write to Equitable Life, Income Management Group, P.O.
Box 1547, Secaucus, NJ 07096-1547, call (800) 789-7771 or if you only need a
copy of the SAI, you may mail in the SAI request form located at the end of
the supplement. The SAI has been incorporated by reference into this
supplement.
In the supplement, each section of the prospectus in which a change has been
made is identified and the number of each prospectus page on which a change
occurs is also noted. Special terms used in the prospectus have the same
meaning in the supplement unless otherwise noted.
ON THE COVER PAGE OF THE PROSPECTUS THE THIRD (INCLUDING THE CHART OF
INVESTMENT OPTIONS) AND FOURTH PARAGRAPHS ARE REPLACED BY THE FOLLOWING
PARAGRAPHS:
The Rollover IRA offers investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 21
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in
the GUARANTEED PERIOD ACCOUNT.
We invest each Investment Fund in Class IA shares of a corresponding
portfolio (PORTFOLIO) of The Hudson River Trust (HR TRUST) or Class IB
shares of a corresponding Portfolio of EQ Advisors Trust (EQ TRUST), mutual
funds whose shares are purchased by separate accounts of insurance
companies. The prospectuses for HR Trust and EQ Trust, both of which
accompany this supplement, describe the investment objectives, policies and
risks of the Portfolios.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity ______________
T. Rowe Price Equity Income *Available on or about September 2, 1997.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE FOLLOWING SENTENCE IS ADDED AT THE END OF THE FIFTH PARAGRAPH:
The Guarantee Periods currently available have Expiration Dates of
February 15 in years 1998 through 2007 under the Rollover IRA and 1998
through 2012 under the Choice Income Plan.
THROUGHOUT THE PROSPECTUS ANY REFERENCE TO THE INVESTMENT FUNDS AND GUARANTEE
PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET FORTH ABOVE.
- -----------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States,
New York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
THROUGHOUT THE PROSPECTUS (EXCEPT WHERE OTHERWISE NOTED) THE REFERENCE TO
"TRUST" IS REPLACED BY "HR TRUST AND EQ TRUST."
ON PAGE 2, UNDER THE HEADING "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" REPLACE THE ENTIRE SECTION WITH THE FOLLOWING SECTION:
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996 is incorporated herein by reference.
All documents or reports filed by Equitable Life pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (EXCHANGE ACT) after the date hereof and prior to the termination
of the offering of the securities offered hereby shall be deemed to be
incorporated by reference in the prospectus and the supplement and to be a
part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of the
prospectus and the supplement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified and superseded, to constitute a part of the
prospectus and the supplement. Equitable Life files its Exchange Act
documents and reports, including its annual and quarterly reports on Form
10-K and Form 10-Q, electronically pursuant to EDGAR under CIK No.
0000727920. The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the SEC. The address of the site is
http://www.sec.gov.
Equitable Life will provide without charge to each person to whom a
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by
reference (other than exhibits not specifically incorporated by reference
into the text of such documents). Requests for such documents should be
directed to The Equitable Life Assurance Society of the United States, 1290
Avenue of the Americas, New York, New York 10104. Attention: Corporate
Secretary (telephone: (212) 554-1234).
ON PAGE 4, UNDER THE HEADING "GENERAL TERMS"
ADD THE FOLLOWING DEFINITIONS:
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants,
Inc. (EQ Financial) is the manager of EQ Trust and has appointed advisers
for each of the Portfolios.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
DELETE THE DEFINITION FOR "TRUST."
2
<PAGE>
ON PAGES 6, 7 AND 8 REPLACE THE "FEE TABLE" SECTION WITH THE FOLLOWING
SECTION:
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them with other similar products. The table reflects
both the charges of the Separate Account and the expenses of HR Trust and EQ
Trust. Charges for applicable taxes such as state or local premium taxes may
also apply. For a complete description of each trust's charges and expenses,
see the prospectuses for HR Trust and EQ Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. However, if there is insufficient
value in the Investment Funds, all or a portion of the distribution fee and
the annual contract fee, if any, may be deducted from your Annuity Account
Value in the Guaranteed Period Account rather than from the Investment Funds.
See "Part 7: Deductions and Charges." A market value adjustment (either
positive or negative) also may be applicable as a result of a withdrawal,
transfer or surrender of amounts from a Guarantee Period. See "Part 4: The
Guaranteed Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
<S> <C> <C> <C>
DISTRIBUTION FEE (SALES LOAD) AS A PERCENTAGE OF EACH CONTRIBUTION
RECEIVED DURING THE FIRST CONTRACT YEAR (deducted annually on
each of the first seven Processing Dates)(1) ........................... 0.20%
CONTRACT
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon YEAR
surrender or for certain withdrawals. The applicable withdrawal charge 1 ....... 7.00%
percentage is determined by the Contract Year in which the withdrawal is made 2 ....... 6.00
or the Certificate is surrendered beginning with "Contract Year 1" with 3 ....... 5.00
respect to each contribution withdrawn or surrendered. For each contribution, 4 ....... 4.00
the Contract Year in which we receive that contribution is "Contract Year 5 ....... 3.00
1")(2) 6 ....... 2.00
7 ....... 1.00
8+ ...... 0.00
</TABLE>
<TABLE>
<CAPTION>
COMBINED GMDB
GMDB/GMIB ONLY
BENEFIT BENEFIT
GMDB/GMIB CHARGES (PERCENTAGE DEDUCTED ANNUALLY ON EACH PROCESSING DATE (PLAN A) (PLAN B)
----------- ---------
<S> <C> <C>
as a percentage of the guaranteed minimum death benefit then in effect)(3) .. 0.45% 0.20%
ANNUAL CONTRACT FEE (DEDUCTED FROM ANNUITY ACCOUNT VALUE ON EACH PROCESSING
DATE)(4)
--------
If the initial contribution is less than $25,000 ............................ $30
If the initial contribution is $25,000 or more .............................. $0
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH
INVESTMENT FUND)
----------------
Mortality and Expense Risk Charge ............................................ 0.90%
Asset Based Administrative Charge ............................................ 0.25%
-----
Total Separate Account Annual Expenses ...................................... 1.15%
=====
</TABLE>
- ------------
See footnotes on next page.
3
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
-----------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL
-------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08%
-------------- ----------- ---------- ---------- ----------
TOTAL HR TRUST ANNUAL
EXPENSES(5) 0.55% 0.59% 0.60% 0.41% 0.73%
============== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
ALLIANCE AGGRESSIVE SMALL CAP MONEY GOVT. HIGH
HR TRUST INTERNATIONAL STOCK GROWTH MARKET SECURITIES YIELD
--------------- ------------ ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.90% 0.55% 0.90% 0.35% 0.50% 0.60%
Other Expenses 0.18% 0.03% 0.10% 0.04% 0.09% 0.06%
--------------- ------------ ----------- ---------- -------------- ----------
TOTAL HR TRUST ANNUAL
EXPENSES(5) 1.08% 0.58% 1.00% 0.39% 0.59% 0.66%
=============== ============ =========== ========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
EQ/PUTNAM MFS MERRILL
GROWTH & EMERGING LYNCH
EQ/PUTNAM INCOME GROWTH MFS BASIC VALUE
EQ TRUST BALANCED VALUE COMPANIES RESEARCH EQUITY
----------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fee(6) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.10% 0.05% 0.05% 0.05% 0.05%
----------- ----------- ----------- ---------- -------------
TOTAL EQ TRUST ANNUAL
EXPENSES(7) 0.90% 0.85% 0.85% 0.85% 0.85%
=========== =========== =========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
MORGAN T. ROWE WARBURG
MERRILL STANLEY T. ROWE PRICE PINCUS
LYNCH EMERGING PRICE INTERNA- SMALL
WORLD MARKETS EQUITY TIONAL COMPANY
EQ TRUST STRATEGY EQUITY* INCOME STOCK VALUE
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.70% 1.15% 0.55% 0.75% 0.65%
12b-1 Fee(6) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.25% 0.35% 0.05% 0.20% 0.10%
---------- ---------- --------- ---------- ---------
TOTAL EQ TRUST ANNUAL
EXPENSES(7) 1.20% 1.75% 0.85% 1.20% 1.00%
========== ========== ========= ========== =========
</TABLE>
- ------------
Notes:
(1) The amount deducted is based on contributions that have not been
withdrawn. The distribution fee will not apply while the IRA Assured
Payment Option or IRA APO Plus is in effect. See "Part 7: Deductions
and Charges," "Distribution Fee."
(2) Deducted upon a withdrawal with respect to amounts in excess of the
15% (10% under the IRA Assured Payment Option and IRA APO Plus) free
corridor amount, and upon a surrender. See "Part 7: Deductions and
Charges," "Withdrawal Charge." We reserve the right to impose an
administrative charge of the lesser of $25 and 2.0% of the amount
withdrawn for each Lump Sum Withdrawal after the fifth in a Contract
Year. See "Withdrawal Processing Charge" also in Part 7.
(3) The guaranteed minimum death benefit (GMDB) is described under
"Death Benefit," "GMDB" and the guaranteed minimum income benefit
(GMIB) is described under "GMIB" both of which are in Part 5. The
0.45% charge covers a 6% to Age 80 Benefit or, if a combined 6% to
Age 70 Benefit is elected, the charge is 0.30%. See "Part 7:
Deductions and Charges," "Charges for Combined GMDB/GMIB Benefit
(Plan A)" and "Charges for GMDB Only Benefit (Plan B)."
(4) This charge is incurred at the beginning of the Contract Year and
deducted on the Processing Date. See "Part 7: Deductions and
Charges," "Annual Contract Fee."
(5) The amounts shown for the Portfolios of HR Trust (other than
Alliance Small Cap Growth) have been restated to reflect advisory
fees which went into effect as of May 1, 1997. "Other Expenses" are
based on the average daily net assets in each Portfolio during 1996.
The amounts shown for the Alliance Small Cap Growth Portfolio are
estimated for the current fiscal year as this Portfolio commenced
operations on May 1, 1997. The investment advisory fee for each
Portfolio may vary from year to year depending upon the average
daily net assets of the respective Portfolio of HR Trust. The
maximum investment advisory fees, however, cannot be increased
without a vote of that Portfolio's shareholders. The other direct
operating expenses will also fluctuate from year to year depending
on actual expenses. See "HR Trust Charges to Portfolios" in Part 7.
(6) The Class IB shares of EQ Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by EQ
Trust pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. The Rule 12b-1 Plan provides that EQ Trust, on
behalf of each Portfolio, may pay annually up to 0.25% of the
average daily net assets of a Portfolio attributable to its Class IB
shares in respect of activities primarily intended to result in the
sale of the Class IB shares. This fee will not be increased for the
life of the Certificates.
(7) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust
commenced operations on May 1, 1997. The maximum investment advisory
fees cannot be increased without a vote of that Portfolio's
shareholders. The other direct operating expenses will fluctuate
from year to year depending on actual expenses, but pursuant to
agreement, cannot together with other fees specified exceed the
total annual expenses specified. See "EQ Trust Charges to
Portfolios" in Part 7.
* Available on or about September 2, 1997.
4
<PAGE>
EXAMPLES
The examples below show the expenses that a hypothetical Certificate Owner
would pay under the Combined GMDB/GMIB Benefit (Plan A) with a 6% to Age 80
Benefit and under the GMDB Only Benefit (Plan B) in the two situations noted
below assuming a $1,000 contribution invested in one of the Investment Funds
listed, and a 5% annual return on assets.(1) The annual contract fee was
computed based on an initial contribution of $10,000.
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be
greater or less than those shown. Similarly, the annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance.
COMBINED GMDB/GMIB BENEFIT (PLAN A) ELECTION
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $ 90.26 $125.78 $164.15 $290.05
Alliance Growth Investors 90.65 126.98 166.16 294.09
Alliance Growth & Income 90.75 127.28 166.66 295.10
Alliance Common Stock 88.86 121.57 157.10 275.76
Alliance Global 92.05 131.17 173.15 308.12
Alliance International 95.53 141.59 190.48 342.39
Alliance Aggressive Stock 90.55 126.68 165.66 293.08
Alliance Small Cap Growth 94.73 139.22 -- --
Alliance Money Market 88.67 120.98 156.09 273.71
Alliance Intermediate
Government Securities 90.65 126.98 166.16 294.09
Alliance High Yield 91.35 129.08 169.66 301.13
EQ TRUST
- --------
EQ/Putnam Balanced $ 93.74 $136.25 -- --
EQ/Putnam Growth & Income
Value 93.24 134.75 -- --
MFS Emerging Growth
Companies 93.24 134.75 -- --
MFS Research 93.24 134.75 -- --
Merrill Lynch Basic Value
Equity 93.24 134.75 -- --
Merrill Lynch World
Strategy 96.72 145.15 -- --
Morgan Stanley Emerging
Markets Equity 102.19 161.34 -- --
T. Rowe Price Equity
Income 93.24 134.75 -- --
T. Rowe Price
International Stock 96.72 145.15 -- --
Warburg Pincus Small
Company Value 94.73 139.22 -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
IF YOU DO NOT SURRENDER YOUR CERTIFICATE
AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $27.03 $ 83.14 $142.17 $298.10
Alliance Growth Investors 27.42 84.33 144.17 302.14
Alliance Growth & Income 27.52 84.63 144.67 303.14
Alliance Common Stock 25.63 78.93 135.12 283.82
Alliance Global 28.82 88.53 151.17 316.17
Alliance International 32.30 98.96 168.51 350.45
Alliance Aggressive Stock 27.32 84.03 143.67 301.14
Alliance Small Cap Growth 31.50 96.57 -- --
Alliance Money Market 25.44 78.34 134.11 281.77
Alliance Intermediate
Government Securities 27.42 84.33 144.17 302.14
Alliance High Yield 28.12 86.43 147.67 309.17
EQ TRUST
- --------
EQ/Putnam Balanced $30.51 $ 93.60 -- --
EQ/Putnam Growth & Income
Value 30.01 92.10 -- --
MFS Emerging Growth
Companies 30.01 92.10 -- --
MFS Research 30.01 92.10 -- --
Merrill Lynch Basic Value
Equity 30.01 92.10 -- --
Merrill Lynch World
Strategy 33.49 102.51 -- --
Morgan Stanley Emerging
Markets Equity 38.96 118.70 -- --
T. Rowe Price Equity
Income 30.01 92.10 -- --
T. Rowe Price
International Stock 33.49 102.51 -- --
Warburg Pincus Small
Company Value 31.50 96.57 -- --
</TABLE>
- ------------
See footnote on next page.
5
<PAGE>
GMDB ONLY BENEFIT (PLAN B) ELECTION
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $ 90.26 $120.46 $153.06 $262.23
Alliance Growth Investors 90.65 121.66 155.07 266.33
Alliance Growth & Income 90.75 121.96 155.58 267.36
Alliance Common Stock 88.86 116.24 145.96 247.74
Alliance Global 92.05 125.87 162.12 280.56
Alliance International 95.53 136.32 179.54 315.32
Alliance Aggressive Stock 90.55 121.35 154.55 265.29
Alliance Small Cap Growth 94.73 133.93 -- --
Alliance Money Market 88.67 115.65 144.95 245.67
Alliance Intermediate
Government Securities 90.65 121.66 155.07 266.33
Alliance High Yield 91.35 123.77 158.60 273.47
EQ TRUST
- --------
EQ/Putnam Balanced $ 93.74 $130.95 -- --
EQ/Putnam Growth & Income
Value 93.24 129.45 -- --
MFS Emerging Growth
Companies 93.24 129.45 -- --
MFS Research 93.24 129.45 -- --
Merrill Lynch Basic Value
Equity 93.24 129.45 -- --
Merrill Lynch World
Strategy 96.72 139.88 -- --
Morgan Stanley Emerging
Markets Equity 102.19 156.12 -- --
T. Rowe Price Equity
Income 93.24 129.45 -- --
T. Rowe Price
International Stock 96.72 139.88 -- --
Warburg Pincus Small
Company Value 94.73 133.93 -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
IF YOU DO NOT SURRENDER YOUR CERTIFICATE
AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $24.38 $ 74.85 $127.74 $265.82
Alliance Growth Investors 24.77 76.04 129.75 269.91
Alliance Growth & Income 24.87 76.34 130.25 270.93
Alliance Common Stock 22.98 70.63 120.64 251.32
Alliance Global 26.17 80.25 136.79 284.15
Alliance International 29.65 90.70 154.21 318.91
Alliance Aggressive Stock 24.67 75.74 129.24 268.88
Alliance Small Cap Growth 28.85 88.31 -- --
Alliance Money Market 22.79 70.02 119.62 249.24
Alliance Intermediate
Government Securities 24.77 76.04 129.75 269.91
Alliance High Yield 25.47 78.15 133.28 277.06
EQ TRUST
- --------
EQ/Putnam Balanced $27.86 $ 85.34 -- --
EQ/Putnam Growth & Income
Value 27.36 83.84 -- --
MFS Emerging Growth
Companies 27.36 83.84 -- --
MFS Research 27.36 83.84 -- --
Merrill Lynch Basic Value
Equity 27.36 83.84 -- --
Merrill Lynch World
Strategy 30.84 94.26 -- --
Morgan Stanley Emerging
Markets Equity 36.31 110.50 -- --
T. Rowe Price Equity
Income 27.36 83.84 -- --
T. Rowe Price
International Stock 30.84 94.26 -- --
Warburg Pincus Small
Company Value 28.85 88.31 -- --
</TABLE>
- ------------
Note:
(1) The amount accumulated from the $1,000 contribution could not be
paid in the form of an annuity at the end of any of the periods
shown in the examples. If the amount applied to purchase an annuity
is less than $2,000, or the initial payment is less than $20 we may
pay the amount to the payee in a single sum instead of as payments
under an annuity form. See "Income Annuity Options" in Part 6. The
examples do not reflect charges for applicable taxes such as state
or local premium taxes that may also be deducted in certain
jurisdictions.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on May 1, 1995.
The following table shows the Accumulation Unit Values, as of May 1, 1995
and the last Business Day for the periods shown. There are no Accumulation
Unit Values for Alliance Small Cap Growth, and Alliance High Yield Funds,
and the Investment Funds investing in Class IB shares of EQ Trust
Portfolios as such Funds were not available prior to the date of this
supplement.
<TABLE>
<CAPTION>
LAST BUSINESS DAY OF
----------------------------------------------------------
MAY 1, 1995 DECEMBER 1995 DECEMBER 1996 MARCH 1997
------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Alliance Conservative
Investors $ 14.647383 $ 16.549050 $ 17.209382 $ 17.009080
Alliance Growth
Investors 20.073331 23.593613 26.260729 $ 25.712963
Alliance Growth &
Income 10.376155 11.989601 14.231408 14.317214
Alliance Common
Stock 102.335691 124.519251 152.955877 147.037726
Alliance Global 19.478146 22.293921 25.253539 24.366634
Alliance International 10.125278 11.033925 11.976127 11.827319
Alliance Aggressive
Stock 44.025496 54.591448 65.938687 64.279288
Alliance Money Market 23.150932 23.830754 24.810781 25.046934
Alliance Intermediate
Govt. Securities 12.498213 13.424767 13.770322 13.741339
</TABLE>
ON PAGE 9, UNDER THE HEADING "TRANSFERS"
THE FIRST SENTENCE OF THE PARAGRAPH IS REVISED AS FOLLOWS:
You may make an unlimited number of transfers among the Investment Options.
DELETE THE SECOND SENTENCE.
ON PAGE 10, UNDER THE HEADING "IRA ASSURED PAYMENT OPTION," DELETE THE THIRD
PARAGRAPH.
ON PAGE 12, UNDER THE HEADING "EQUITABLE LIFE"
REPLACE THE FOURTH SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Our home office is located at 1290 Avenue of the Americas, New York, New
York 10104.
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding shares of common stock of the
Holding Company (assuming conversion of convertible preferred stock held by
AXA). Under its investment arrangements with Equitable Life and the Holding
Company, AXA is able to exercise significant influence over the operations
and capital structure of the Holding Company and its subsidiaries,
including Equitable Life. AXA, a French company, is the holding company for
an international group of insurance and related financial service
companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $239.8 billion of assets as of December 31, 1996.
ON PAGES 12 AND 13, REPLACE THE HEADING "THE TRUST" WITH "HR TRUST" AND ADD
THE FOLLOWING SENTENCE AFTER THE FIFTH SENTENCE OF THE FIRST PARAGRAPH:
Investment Funds that invest in Portfolios of HR Trust purchase Class IA
shares of a corresponding Portfolio of HR Trust.
7
<PAGE>
ON PAGE 13, UNDER THE HEADING "THE TRUST'S INVESTMENT ADVISER" AND IN THE
FIRST SENTENCE OF THE PARAGRAPH UNDER THE HEADING REPLACE "THE TRUST" WITH
"HR TRUST."
IN THE FIRST PARAGRAPH OF THIS SECTION REPLACE THE THIRD SENTENCE WITH THE
FOLLOWING SENTENCE:
On December 31, 1996, Alliance was managing approximately $182.8 billion in
assets.
DELETE THE SECOND PARAGRAPH.
ON PAGE 13, INSERT THE FOLLOWING SECTIONS AFTER THE LAST PARAGRAPH:
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type"
of mutual fund, EQ Trust issues different series of stock, each of which
relates to a different Portfolio of EQ Trust. EQ Trust commenced operations
on May 1, 1997. EQ Trust does not impose a sales charge or "load" for
buying and selling it shares. All dividend distributions to EQ Trust are
reinvested in full and fractional shares of the Portfolio to which they
relate. Investment Funds that invest in Portfolios of EQ Trust purchase
Class IB shares of a corresponding Portfolio of EQ Trust. More detailed
information about EQ Trust, its investment objectives, policies and
restrictions, risks, expenses, the Rule 12b-1 Plan relating to the Class IB
shares, and all other aspects of its operations appears in its prospectus
which accompanies this supplement and in its statement of additional
information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has
overall responsibility for the general management of EQ Trust. EQ Financial
is an investment adviser registered under the 1940 Act, and a broker-dealer
registered under the Exchange Act. EQ Financial is a Delaware corporation
and an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, NY 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, Massachusetts Financial Services Company, Merrill Lynch Asset
Management, L.P, Morgan Stanley Asset Management, Inc., T. Rowe Price
Associates, Inc. and T. Rowe Price-Fleming International, Inc., and
Warburg, Pincus Counsellors, Inc., which serve as advisers to EQ/Putnam,
MFS, Merrill Lynch, Morgan Stanley, T. Rowe Price, and Warburg Pincus
Portfolios, respectively, of EQ Trust.
ON PAGE 14, UNDER THE HEADING "INVESTMENT POLICIES AND OBJECTIVES OF THE
TRUST'S PORTFOLIOS"
ADD THE FOLLOWING SENTENCES TO THE END OF THE FIRST PARAGRAPH:
Set forth below is a summary of the investment policies and objectives of
each Portfolio. This summary is qualified in its entirely by reference to
the prospectuses for HR Trust and EQ Trust, both of which accompany this
supplement. Please read the prospectuses for each of the trusts carefully
before investing.
DELETE THE DESCRIPTIONS OF "CONSERVATIVE INVESTORS," "GROWTH INVESTORS,"
"AGGRESSIVE STOCK," AND "INTERMEDIATE GOVERNMENT SECURITIES" AND INSERT THE
FOLLOWING DESCRIPTIONS:
<TABLE>
<CAPTION>
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded equity and debt High total return without,
Investors securities. in the adviser's opinion,
undue risk to principal
Alliance Growth Diversified mix of publicly traded equity and fixed High total return
Investors income securities, including at times common stocks consistent with the
issued by intermediate and small-sized companies and at adviser's determination of
times lower quality fixed income securities commonly reasonable risk
known as "junk bonds."
8
<PAGE>
Alliance Aggressive Primarily common stocks and other equity-type securities Long-term growth of
Stock issued by quality small and intermediate sized companies capital
with strong growth prospects and in covered options on
those securities.
Alliance Small Cap Primarily U.S. common stocks and other equity-type Long-term growth of
Growth securities issued by smaller companies that, in the capital
opinion of the adviser, have favorable growth prospects.
Alliance Intermediate Primarily debt securities issued or guaranteed as to High current income
Government Securities principal and interest by the U.S. government or any of consistent with relative
its agencies or instrumentalities. Each investment will stability of principal
have a final maturity of not more than 10 years or a
duration not exceeding that of a 10-year Treasury note.
Alliance High Yield Primarily a diversified mix of high yield, fixed-income High return by maximizing
securities which generally involve greater volatility of current income and, to the
price and risk of principal and income than higher extent consistent with
quality fixed-income securities. Lower quality debt that objective, capital
securities are commonly known as "junk bonds." appreciation
</TABLE>
INSERT THE FOLLOWING DESCRIPTIONS AFTER THE DESCRIPTION OF "INTERMEDIATE
GOVERNMENT SECURITIES:"
<TABLE>
<CAPTION>
<S> <C> <C>
EQ/Putnam Balanced A well-diversified portfolio of stocks and bonds that Balanced investment
will produce both capital growth and current income.
EQ/Putnam Growth & Primarily common stocks that offer potential for Capital growth and,
Income Value capital growth and may, consistent with the secondarily, current
Portfolio's investment objective, invest in common income
stocks that offer potential for current income.
MFS Emerging Growth Primarily (i.e., at least 80% of its assets under Long-term growth of
Companies normal circumstances) in common stocks of emerging capital
growth companies that the Portfolio adviser believes
are early in their life cycle but which have the
potential to become major enterprises.
MFS Research A substantial portion of assets invested in common Long-term growth of
stock or securities convertible into common stock of capital and future
companies believed by the Portfolio adviser to possess income
better than average prospects for long-term growth.
Merrill Lynch Basic Investment in securities, primarily equities, that the Capital appreciation
Value Equity Portfolio adviser believes are undervalued and and, secondarily, income
therefore represent basic investment value.
Merrill Lynch World Investment primarily in a portfolio of equity and High total investment
Strategy fixed-income securities, including convertible return
securities of U.S. and foreign issuers.
Morgan Stanley Emerging Primarily equity securities of emerging market country Long-term capital
Markets Equity* issuers with a focus on those in which the Portfolio's appreciation
adviser believes the economies are developing strongly
and in which the markets are becoming more
sophisticated.
</TABLE>
- ------------
* Available on or about September 2, 1997.
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
T. Rowe Price Primarily dividend paying common stocks of established Substantial dividend
Equity Income companies. income and also
capital appreciation
T. Rowe Price Primarily common stocks of established non-United Long-term growth of
International States companies. capital
Stock
Warburg Pincus Primarily in a portfolio of equity securities of small Long-term capital
Small Company capitalization companies (i.e., companies having market appreciation
Value capitalizations of $1 billion or less at the time of
initial purchase) that the Portfolio adviser considers
to be relatively undervlaued.
</TABLE>
ON PAGE 15, REPLACE THE FIRST AND SECOND PARAGRAPHS WITH THE FOLLOWING
PARAGRAPHS:
This Part presents performance data for each of the Investment Funds
included in the tables below. The performance data were calculated by two
methods. The first method presented in the tables under "SEC Standardized
Performance Data," reflects all applicable fees and charges, including the
Combined GMDB/GMIB Benefit charge, but not the charges for any applicable
taxes such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does
not reflect the distribution fee, the withdrawal charge, the Combined
GMDB/GMIB Benefit charge, the annual contract fee or the charge for tax
such as premium taxes. These additional charges would effectively reduce
the rates of return credited to a particular Certificate.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IA
shares of HR Trust Portfolios (other than the Alliance Small Cap Growth
Portfolio which commenced operations on May 1, 1997) are based on the
actual investment results of the Portfolios, and have been adjusted for the
fees and charges applicable under the Certificates.
The performance data for the Alliance Money Market and Alliance Common
Stock Funds that invest in corresponding HR Trust Portfolios, for periods
prior to March 22, 1985, reflect the investment results of two open-end
management separate accounts (the "predecessor separate accounts") which
were reorganized in unit investment trust form. The "Since Inception"
figures for these Investment Funds are based on the date of inception of
the predecessor separate accounts. These performance data have been
adjusted to reflect the maximum investment advisory fee payable for the
corresponding Portfolio of HR Trust, as well as an assumed charge of 0.06%
for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares
of Portfolios of EQ Trust have only recently been established and no
Certificates funded by those Investment Funds have been issued as of the
date of this supplement. EQ Trust commenced operations on May 1, 1997.
Therefore, no actual historical performance data for any of these
Portfolios are available. In this connection, see the discussion
immediately following the tables below.
ON PAGE 15 REPLACE THE HEADING "PERFORMANCE DATA FOR A CERTIFICATE" WITH
"STANDARDIZED PERFORMANCE DATA."
IN THE FIRST SENTENCE OF THE THIRD PARAGRAPH UNDER THIS HEADING CHANGE THE
DATE FROM "DECEMBER 31, 1995" TO "DECEMBER 31, 1996."
10
<PAGE>
ON PAGES 15 AND 16, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
----------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
---- ---- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors (3.31)% 3.16% 4.76% -- 6.20%
Alliance Growth Investors 4.00 7.81 8.23 -- 12.10
Alliance Growth & Income 11.40 10.57 -- -- 7.57
Alliance Common Stock 15.54 13.83 13.23 13.84% 13.38
Alliance Global 5.98 9.32 11.03 -- 8.87
Alliance International 1.24 -- -- -- 6.02
Alliance Aggressive Stock 13.49 12.24 9.26 16.64 18.14
Alliance Money Market (3.19) 1.47 1.70 3.86 5.14
Alliance Intermediate Govt.
Securities (4.73) 0.39 3.02 -- 4.43
Alliance High Yield 14.16 9.26 12.21 -- 9.33
</TABLE>
- ------------
See footnotes below.
The table below illustrates the growth of an assumed investment of $1,000,
with fees and charges deducted on the standardized basis as described above
for the first method of calculation.
STANDARDIZED PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
---- ---- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors $ 967 $1,098 $1,262 -- $ 1,618
Alliance Growth Investors 1,040 1,253 1,485 -- 2,494
Alliance Growth & Income 1,114 1,352 -- -- 1,339
Alliance Common Stock 1,155 1,475 1,862 $3,657 13,975
Alliance Global 1,060 1,307 1,687 -- 2,340
Alliance International 1,012 -- -- -- 1,124
Alliance Aggressive Stock 1,135 1,414 1,557 4,660 6,257
Alliance Money Market 968 1,045 1,088 1,461 2,230
Alliance Intermediate Govt.
Securities 953 1,012 1,161 -- 1,297
Alliance High Yield 1,142 1,304 1,779 -- 2,441
</TABLE>
- ------------
* The tables reflect charges under a Certificate with the 0.45% GMDB/GMIB
charge.
** The "Since Inception" dates for the Portfolios of HR Trust are as
follows: Alliance Conservative Investors (October 2, 1989); Alliance
Growth Investors (October 2, 1989); Alliance Growth & Income (October 1,
1993); Alliance Common Stock (January 13, 1976); Alliance Global (August
27, 1987); Alliance International (April 3, 1995); Alliance Aggressive
Stock (January 27, 1986); Alliance Money Market (July 13, 1981); Alliance
Intermediate Government Securities (April 1, 1991); and Alliance High
Yield (January 2, 1987).
11
<PAGE>
ON PAGE 16, INSERT THE FOLLOWING PARAGRAPH BEFORE THE "RATE OF RETURN DATA
FOR INVESTMENT FUNDS" SECTION:
Additional investment performance information appears in the attached HR
Trust and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations
on May 1, 1997. Therefore, no actual historical performance data are
available. However, historical performance of a composite of six other
advisory accounts managed by Alliance is described in the attached HR
Trust prospectus. According to that prospectus, these accounts have
substantially the same investment objectives and policies, and are
managed in accordance with essentially the same investment strategies and
techniques, as those of the Alliance Small Cap Growth Portfolio. It
should be noted that these accounts are not subject to certain of the
requirements and restrictions to which the Alliance Small Cap Growth
Portfolio is subject and that they are managed for tax exempt clients of
Alliance. The investment performance information included in the HR Trust
prospectus for all Portfolios other than the Alliance Small Cap Growth
Portfolio is based on actual historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR
Trust and the EQ Trust prospectuses, are provided by those prospectuses
to illustrate the past performance of each respective Portfolio adviser
in managing substantially similar investment vehicles as measured against
specified market indices and do not represent the past or future
performance of any Portfolio. None of the performance data contained in
the HR Trust and EQ Trust prospectuses reflects fees and charges imposed
under your Certificate, which fees and charges would reduce such
performance figures. Therefore, the performance data for each of the
Portfolios described in the EQ Trust prospectus and for the Alliance
Small Cap Growth Portfolio in the HR Trust prospectus may be of limited
use and are not intended to be a substitute for actual performance of the
corresponding Portfolios, nor are such results an estimate or guarantee
of future performance for these Portfolios.
ON PAGE 17, INSERT THE FOLLOWING BEFORE THE LAST PARAGRAPH UNDER THE HEADING
"PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS":
ALLIANCE HIGH YIELD: January 2, 1987; Merrill Lynch High Yield Master
Index.
12
<PAGE>
ON PAGES 17, 18 AND 19, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 5.47% 6.08% -- -- -- 7.77%
Lipper Income 8.95 8.91 9.55 -- -- -- 9.55
Benchmark 8.78 10.14 9.64 -- -- -- 10.42
ALLIANCE GROWTH
INVESTORS 11.30 10.00 9.48 -- -- -- 14.23
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GROWTH &
INCOME 18.70 12.69 -- -- -- -- 11.47
Lipper Growth & Income 19.96 15.39 -- -- -- -- 14.78
Benchmark 21.28 17.93 -- -- -- -- 17.24
ALLIANCE COMMON STOCK 22.84 15.87 14.39 14.49% 15.17% 14.17% 13.90
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE GLOBAL 13.28 11.44 12.19 -- -- -- 10.43
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 10.90
Lipper International 13.36 -- -- -- -- -- 14.33
Benchmark 6.05 -- -- -- -- -- 8.74
ALLIANCE AGGRESSIVE STOCK 20.79 14.33 10.55 17.24 -- -- 18.79
Lipper Small Company
Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
ALLIANCE MONEY MARKET 4.11 3.82 3.12 4.68 5.85 -- 6.05
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57% 2.80% 4.38% -- -- -- 5.75%
Lipper Gen. U.S.
Government 1.57 3.99 5.21 -- -- -- 6.76
Benchmark 4.06 5.37 6.23 -- -- -- 7.43
ALLIANCE HIGH YIELD 21.46 11.43 13.34 -- -- -- 10.13
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
</TABLE>
13
<PAGE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 17.34% 34.32% -- -- -- 72.02%
Lipper Income 8.95 29.47 58.37 -- -- -- 94.21
Benchmark 8.78 33.60 58.40 -- -- -- 105.23
ALLIANCE GROWTH
INVESTORS 11.30 33.11 57.28 -- -- -- 162.18
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GROWTH &
INCOME 18.70 43.09 -- -- -- -- 42.30
Lipper Growth & Income 19.96 53.82 -- -- -- -- 56.73
Benchmark 21.28 63.99 -- -- -- -- 67.75
ALLIANCE COMMON STOCK 22.84 55.58 95.88 287.01% 731.70% 1,314.86% 1,430.82
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1,416.26 1,655.74
ALLIANCE GLOBAL 13.28 38.40 77.77 -- -- -- 152.69
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 - -- -- 95.62
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 19.76
Lipper International 13.36 -- -- -- -- -- 26.53
Benchmark 6.05 -- -- -- -- -- 15.78
ALLIANCE Aggressive Stock 20.79 49.45 65.10 390.47 -- -- 556.42
Lipper Small Company
Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 46.89 99.38 280.32 -- -- 318.19
ALLIANCE MONEY MARKET 4.11 11.90 16.59 58.03 134.78 -- 148.19
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 -- 184.26
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57 8.63 23.89 -- -- -- 37.89
Lipper Gen. U.S.
Government 1.57 12.45 28.92 -- -- -- 45.71
Benchmark 4.06 16.98 35.30 -- -- -- 51.07
ALLIANCE HIGH YIELD 21.46 38.37 87.00 -- -- -- 162.38
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
</TABLE>
- ------------
See footnotes on next page.
14
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.79%
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.53
ALLIANCE GROWTH
& INCOME -- -- -- -- -- --
ALLIANCE COMMON
STOCK** (3.09)% 31.91% 16.02% 6.21% 21.03% 24.16
ALLIANCE GLOBAL -- -- -- (13.62) 9.61 25.29
ALLIANCE
INTERNATIONAL -- -- -- -- -- --
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.83 6.06 (0.03) 41.86
ALLIANCE MONEY
MARKET** 9.59 6.91 5.39 5.41 6.09 7.93
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- --
ALLIANCE HIGH
YIELD -- -- -- 3.49 8.48 3.93
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS 5.14% 18.51% 4.50% 9.54% (5.20)% 19.02% 3.99%
ALLIANCE GROWTH
INVESTORS 9.39 47.19 3.69 13.95 (4.27) 24.92 11.30
ALLIANCE GROWTH
& INCOME -- -- -- (0.55) (1.72) 22.65 18.70
ALLIANCE COMMON
STOCK** (9.17) 36.30 2.03 23.39 (3.26) 30.93 22.84
ALLIANCE GLOBAL (7.15) 29.06 (1.65) 30.60 4.02 17.45 13.28
ALLIANCE
INTERNATIONAL -- -- -- -- -- 10.34 8.54
ALLIANCE
AGGRESSIVE
STOCK 6.92 84.73 (4.28) 15.41 (4.92) 30.13 20.79
ALLIANCE MONEY
MARKET** 6.99 4.97 2.37 1.78 2.82 4.53 4.11
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- 11.30 4.38 9.27 (5.47) 12.03 2.57
ALLIANCE HIGH
YIELD (2.26) 23.03 11.02 21.74 (3.90) 18.54 21.46
<FN>
- ------------
* Returns do not reflect the distribution fee, the withdrawal charge, the
Combined GMDB/GMIB Benefit charge, the annual contract fee and any
charge for tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were: 1976 1977 1978 1979 1980 1981 1982 1983
ALLIANCE COMMON STOCK 8.20% (10.28)% 6.99% 28.35% 48.39% (6.94)% 16.22% 24.67%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.71 11.72 7.70%
</TABLE>
ON PAGE 27, UNDER THE HEADING "TRANSFERS AMONG INVESTMENT OPTIONS," DELETE
THE FIRST BULLETED PARAGRAPH.
ON PAGE 28, UNDER THE HEADING "DOLLAR COST AVERAGING"
REPLACE THE FIRST SENTENCE IN THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE.
If you have at least $10,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market
Fund to other Investment Funds on a monthly, quarterly, or annual basis.
REPLACE THE SECOND AND THIRD SENTENCES IN THE SECOND PARAGRAPH WITH THE
FOLLOWING SENTENCES.
The minimum amount that may be transferred on each Transaction Date is
$250. The maximum amount which may be transferred is equal to the Annuity
Account Value in the Alliance Money Market Fund at the time the option is
elected, divided by the number of transfers scheduled to made each Contract
Year.
15
<PAGE>
ON PAGE 31, UNDER THE HEADING, "DISTRIBUTION OF THE CERTIFICATES," REPLACE
THE FOURTH AND FIFTH SENTENCES OF THE FIRST PARAGRAPH WITH THE FOLLOWING TWO
SENTENCES.
EDI's principal business address is 1290 Avenue of the Americas, New York,
New York 10104. EDI was paid a fee of $1,204,370 for 1996 and $126,914 for
1995 for its services under its "Distribution Agreement" with Equitable
Life and the Separate Account.
ON PAGE 33, UNDER THE SUB-HEADING "PAYMENTS," DELETE THE SECOND PARAGRAPH.
ON PAGE 43, DELETE THE SECTION WITH THE HEADING "TRUST CHARGES TO
PORTFOLIOS," AND REPLACE WITH THE FOLLOWING SECTION.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, direct
operating expenses of HR Trust (such as trustees' fees, expenses of
independent auditors and legal counsel, bank and custodian charges and
liability insurance), and certain investment-related expenses of HR Trust
(such as brokerage commissions and other expenses related to the purchase
and sale of securities), are reflected in each Portfolio's daily share
price. The maximum investment advisory fees paid annually by the Portfolios
cannot be changed without a vote by shareholders. They are as follows:
AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors ....... 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance Growth Investors.............. 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Growth & Income............... 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance Common Stock.................. 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Global........................ 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance International................. 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance Aggressive Stock.............. 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Small Cap Growth.............. 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Money Market.................. 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance Intermediate Govt Securities 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance High Yield.................... 0.600% 0.575% 0.550% 0.530% 0.520%
</TABLE>
- ------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Investment advisory fees are established under HR Trust's investment advisory
agreements between HR Trust and its investment adviser, Alliance. Fees and
expenses are described more fully in the HR Trust prospectus.
16
<PAGE>
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the 12b-1
fee, other direct operating expenses of EQ Trust (such as trustees' fees,
expenses of independent auditors and legal counsel, administrative service
fees, custodian fees, and liability insurance), and certain
investment-related expenses of EQ Trust (such as brokerage commissions and
other expenses related to the purchase and sale of securities), are reflected
in each Portfolio's daily share price. The investment management fees paid
annually by the Portfolios cannot be changed without a vote by shareholders.
They are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
------------------------
<S> <C>
EQ/Putnam Balanced..................... 0.55%
EQ/Putnam Growth & Income Value ....... 0.55%
MFS Emerging Growth Companies.......... 0.55%
MFS Research........................... 0.55%
Merrill Lynch Basic Value Equity ...... 0.55%
Merrill Lynch World Strategy........... 0.70%
Morgan Stanley Emerging Markets
Equity................................ 1.15%
T. Rowe Price Equity Income ........... 0.55%
T. Rowe Price International Stock .... 0.75%
Warburg Pincus Small Company Value ... 0.65%
</TABLE>
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ
Financial. EQ Financial has entered into expense limitation agreements with
EQ Trust, with respect to each Portfolio, pursuant to which EQ Financial has
agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolios' average daily net assets) to
0.85% each for the EQ/Putnam Growth & Income Value, MFS Research, Merrill
Lynch Basic Value Equity, T. Rowe Price Equity, and MFS Emerging Growth
Companies Portfolios; 0.90% for the EQ/Putnam Balanced Portfolio; 1.00% for
Warburg Pincus Small Company Value Portfolio; 1.20% each for T. Rowe Price
International Stock and Merrill Lynch World Strategy Portfolios; and 1.75%
for Morgan Stanley Emerging Markets Equity Portfolio. See the prospectus for
EQ Trust for more information.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. This fee will not be
increased for the life of the Certificates. Fees and expenses are described
more fully in the EQ Trust prospectus.
ON PAGE 44, UNDER THE HEADING "TRUST VOTING RIGHTS"
REPLACE THE FIRST SENTENCE OF THE SECOND PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Because HR Trust is a Massachusetts business trust and EQ Trust is a
Delaware business trust, annual meetings are not required.
ON PAGE 44, UNDER THE HEADING "VOTING RIGHTS OF OTHERS," REPLACE THE FIRST
TWO SENTENCES OF THE PARAGRAPH WITH THE FOLLOWING SENTENCES:
Currently we control each trust. EQ Trust shares currently are sold only to
our separate accounts. HR Trust shares are held by other separate accounts
of insurance companies affiliated and unaffiliated with us.
ON PAGE 45, UNDER THE SUB-HEADING "CONTRIBUTIONS TO IRAS," REPLACE THE SECOND
SENTENCE OF THE FOURTH PARAGRAPH WITH THE FOLLOWING SENTENCE:
If the individual's spouse does not work or elects to be treated as having
no compensation, the individual and the individual's spouse may contribute
up to $4,000 to individual retirement arrangements (but no more than $2,000
to any one individual retirement arrangement).
ON PAGE 46, REPLACE THE SECOND SENTENCE OF THE FIFTH PARAGRAPH WITH THE
FOLLOWING SENTENCE:
The deductible and nondeductible contributions to the individual's IRA (or
the nonworking spouse's IRA) may not, however, together exceed the maximum
$2,000 per person limit.
17
<PAGE>
ON PAGE 46, UNDER THE SUB-HEADING "EXCESS CONTRIBUTIONS," REPLACE THE LAST
SENTENCE ON THIS PAGE WITH THE FOLLOWING SENTENCE:
If excess contributions are not withdrawn before the time for filing the
individual's Federal income tax return for the year (including extensions),
"regular" contributions may still be withdrawn after that time if the IRA
contribution for the tax year did not exceed $2,000 and no tax deduction
was taken for the excess contribution; in that event, the excess
contribution would not be includable in gross income and would not be
subject to the 10% penalty tax.
ON PAGE 50, UNDER THE HEADING "PENALTY TAX ON EARLY DISTRIBUTIONS," ADD THE
FOLLOWING SENTENCE AT THE END OF THE FIRST PARAGRAPH:
Also not subject to penalty tax are IRA distributions used to pay certain
extraordinary medical expenses or medical insurance premiums for defined
unemployed individuals.
ON PAGE 50, UNDER THE HEADING "TAX PENALTY FOR EXCESS DISTRIBUTIONS OR
ACCUMULATION," REPLACE THE TWO PARAGRAPHS WITH THE FOLLOWING PARAGRAPH:
A 15% excise tax is imposed on an individual's aggregate excess
distributions from all tax-favored retirement plans, including IRAs. The
excise tax is in addition to the ordinary income tax due, but is reduced by
the amount (if any) of the early distribution penalty tax imposed by the
Code. This tax is temporarily suspended for distributions to the individual
for the years 1997, 1998 and 1999. However, the excise tax continues to
apply for estate tax purposes. In certain cases the estate tax imposed on a
deceased individual's estate will be increased if the accumulated value of
the individual's interest in tax-favored retirement plans is excessive. The
aggregate accumulations will be subject to excise tax in 1997 if they
exceed the present value of a hypothetical life annuity paying $160,000 a
year.
ON PAGE 51, UNDER THE HEADING "FEDERAL AND STATE INCOME TAX WITHHOLDING,"
REPLACE THE FOURTH SENTENCE OF THE THIRD PARAGRAPH WITH THE FOLLOWING
SENTENCE:
For 1997, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,400 taxable amount will generally be
exempt from Federal income tax withholding, unless the recipient specifies
a different choice of withholding exemptions.
18
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
PAGE
----
Part 1: Minimum Distribution Withdrawals 2
Part 2: Accumulation Unit Values 2
Part 3: Annuity Unit Values 2
Part 4: Custodian and Independent Accountants 3
Part 5: Alliance Money Market Fund and Alliance Intermediate 3
Government Securities Fund Yield Information
Part 6: Long-Term Market Trends 5
Part 7: Financial Statements 7
HOW TO OBTAIN A ROLLOVER IRA STATEMENT OF ADDITIONAL
INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me a Rollover IRA SAI:
(Supplement dated May 1, 1997 to Rollover IRA and Choice
Income Plan Prospectus
dated October 17, 1996)
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
19
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
SUPPLEMENT DATED MAY 1, 1997 TO INCOME MANAGER (SERVICE MANAGER)
ACCUMULATOR PROSPECTUS, DATED OCTOBER 17, 1996
- -----------------------------------------------------------------------------
This supplement dated May 1, 1997, updates certain information in the
Accumulator prospectus of The Equitable Life Assurance Society of the United
States (EQUITABLE LIFE), dated October 17, 1996. You should read this
supplement in conjunction with the prospectus. You should keep the supplement
and the prospectus for future reference. We have filed with the Securities
and Exchange Commission (SEC) our statement of additional information (SAI)
dated May 1, 1997. If you have previously received, but do not presently
have, a copy of the prospectus, you may obtain an additional copy of the
prospectus, as well as a copy of the SAI, from us, free of charge, if you
write to Equitable Life, Income Management Group, P.O. Box 1547, Secaucus, NJ
07096-1547, call (800) 789-7771 or if you only need a copy of the SAI, you
may mail in the SAI request form located at the end of the supplement. The
SAI has been incorporated by reference into this supplement.
In the supplement, each section of the prospectus in which a change has been
made is identified and the number of each prospectus page on which a change
occurs is also noted. Special terms used in the prospectus have the same
meaning in the supplement unless otherwise noted.
ON THE COVER PAGE OF THE PROSPECTUS, THE THIRD (INCLUDING THE CHART OF
INVESTMENT OPTIONS) AND FOURTH PARAGRAPHS ARE REPLACED BY THE FOLLOWING
PARAGRAPHS:
The Accumulator offers investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 21
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in
the GUARANTEED PERIOD ACCOUNT.
We invest each Investment Fund in Class IA shares of a corresponding
portfolio (PORTFOLIO) of The Hudson River Trust (HR TRUST) or Class IB
shares of a corresponding Portfolio of EQ Advisors Trust (EQ TRUST), mutual
funds whose shares are purchased by separate accounts of insurance
companies. The prospectuses for HR Trust and EQ Trust, both of which
accompany this supplement, describe the investment objectives, policies and
risks of the Portfolios.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity ______________
T. Rowe Price Equity Income *Available on or about September 2, 1997.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE FOLLOWING SENTENCE IS ADDED AT THE END OF THE FIFTH PARAGRAPH.
The Guarantee Periods currently available have Expiration Dates of
February 15 in years 1998 through 2007.
THROUGHOUT THE PROSPECTUS ANY REFERENCE TO THE INVESTMENT FUNDS AND GUARANTEE
PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET FORTH ABOVE.
- -----------------------------------------------------------------------------
Copyright 1997. The Equitable Life Assurance Society of the United States,
New York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
THROUGHOUT THE PROSPECTUS (EXCEPT WHERE OTHERWISE NOTED) THE REFERENCE TO
"TRUST" IS REPLACED BY "HR TRUST AND EQ TRUST."
ON PAGE 2, UNDER THE HEADING "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" REPLACE THE ENTIRE SECTION WITH THE FOLLOWING SECTION:
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996 is incorporated herein by reference.
All documents or reports filed by Equitable Life pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (EXCHANGE ACT) after the date hereof and prior to the termination
of the offering of the securities offered hereby shall be deemed to be
incorporated by reference in the prospectus and the supplement and to be a
part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of the
prospectus and the supplement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified and superseded, to constitute a part of the
prospectus and the supplement. Equitable Life files its Exchange Act
documents and reports, including its annual and quarterly reports on Form
10-K and Form 10-Q, electronically pursuant to EDGAR under CIK No.
0000727920. The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the SEC. The address of the site is
http://www.sec.gov.
Equitable Life will provide without charge to each person to whom a
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by
reference (other than exhibits not specifically incorporated by reference
into the text of such documents). Requests for such documents should be
directed to The Equitable Life Assurance Society of the United States, 1290
Avenue of the Americas, New York, New York 10104. Attention: Corporate
Secretary (telephone: (212) 554-1234).
ON PAGE 4, UNDER THE HEADING "GENERAL TERMS"
ADD THE FOLLOWING DEFINITIONS:
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants,
Inc. (EQ Financial) is the manager of EQ Trust and has appointed advisers
for each of the Portfolios.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
DELETE THE DEFINITION FOR "TRUST."
2
<PAGE>
ON PAGES 5, 6 AND 7, REPLACE THE "FEE TABLE" SECTION WITH THE FOLLOWING
SECTION:
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them on the same basis with other similar products.
The table reflects both the charges of the Separate Account and the expenses
of HR Trust and EQ Trust. Charges for applicable taxes such as state or local
premium taxes may also apply. For a complete description of the charges under
the Certificate, see "Part 6: Deductions and Charges." For a complete
description of each trust's charges and expenses, see the prospectuses for HR
Trust and EQ Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. However, if there is insufficient
value in the Investment Funds all or a portion of the distribution fee and
the annual contract fee, if any, will be deducted from your Annuity Account
Value in the Guaranteed Period Account rather than from the Investment Funds.
See "Part 6: Deductions and Charges." A market value adjustment (either
positive or negative) also may be applicable as a result of a withdrawal,
transfer or surrender of amounts from a Guarantee Period. See "Part 4: The
Guaranteed Period Account."
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
<S> <C> <C> <C>
DISTRIBUTION FEE (SALES LOAD) AS A PERCENTAGE OF EACH CONTRIBUTION
RECEIVED DURING THE FIRST CONTRACT YEAR (deducted annually on
each of the first seven Processing Dates)(1) ........................... 0.20%
CONTRACT
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon YEAR
surrender or for certain withdrawals. The applicable withdrawal charge 1 ....... 7.00%
percentage is determined by the Contract Year in which the withdrawal is made 2 ....... 6.00
or the Certificate is surrendered beginning with "Contract Year 1" with 3 ....... 5.00
respect to each contribution withdrawn or surrendered. For each contribution, 4 ....... 4.00
the Contract Year in which we receive that contribution is "Contract Year 5 ....... 3.00
1")(2) 6 ....... 2.00
7 ....... 1.00
8+ ...... 0.00
</TABLE>
<TABLE>
<CAPTION>
COMBINED GMDB
GMDB/GMIB ONLY
BENEFIT BENEFIT
(PLAN A) (PLAN B)
----------- ---------
<S> <C> <C>
GMDB/GMIB CHARGES (percentage deducted annually on each Processing Date as a
percentage of the guaranteed minimum death benefit then in effect)(3) ....... 0.45% 0.20%
ANNUAL CONTRACT FEE (DEDUCTED FROM ANNUITY ACCOUNT VALUE ON EACH PROCESSING
DATE)(4)
If the initial contribution is less than $25,000 ............................ $ 30
If the initial contribution is $25,000 or more .............................. $ 0
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH
INVESTMENT FUND)
MORTALITY AND EXPENSE RISK CHARGE ............................................ 0.90%
ASSET BASED ADMINISTRATIVE CHARGE ............................................ 0.25%
---------------------
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES ...................................... 1.15%
=====================
</TABLE>
- ------------
See footnotes on next page.
3
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
-----------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL
-------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08%
-------------- ----------- ---------- ---------- ----------
TOTAL HR TRUST ANNUAL
EXPENSES(5) 0.55% 0.59% 0.60% 0.41% 0.73%
============== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
ALLIANCE AGGRESSIVE SMALL MONEY GOVT. HIGH
HR TRUST INTERNATIONAL STOCK CAP GROWTH MARKET SECURITIES YIELD
--------------- ------------ ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.90% 0.55% 0.90% 0.35% 0.50% 0.60%
Other Expenses 0.18% 0.03% 0.10% 0.04% 0.09% 0.06%
--------------- ------------ ------------ ---------- -------------- ----------
TOTAL HR TRUST ANNUAL
EXPENSES(5) 1.08% 0.58% 1.00% 0.39% 0.59% 0.66%
=============== ============ ============ ========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
EQ/PUTNAM MFS MERRILL
GROWTH & EMERGING LYNCH
EQ/PUTNAM INCOME GROWTH MFS BASIC VALUE
EQ TRUST BALANCED VALUE COMPANIES RESEARCH EQUITY
----------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fee(6) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.10% 0.05% 0.05% 0.05% 0.05%
----------- ----------- ----------- ---------- -------------
TOTAL EQ TRUST ANNUAL
EXPENSES(7) 0.90% 0.85% 0.85% 0.85% 0.85%
=========== =========== =========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
MORGAN T. ROWE WARBURG
MERRILL STANLEY T. ROWE PRICE PINCUS
LYNCH EMERGING PRICE INTERNA- SMALL
WORLD MARKETS EQUITY TIONAL COMPANY
EQ TRUST STRATEGY EQUITY* INCOME STOCK VALUE
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.70% 1.15% 0.55% 0.75% 0.65%
12b-1 Fee(6) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.25% 0.35% 0.05% 0.20% 0.10%
---------- ---------- --------- ---------- ---------
TOTAL EQ TRUST ANNUAL
EXPENSES(7) 1.20% 1.75% 0.85% 1.20% 1.00%
========== ========== ========= ========== =========
</TABLE>
- ------------
Notes:
(1) The amount deducted is based on contributions that have not been
withdrawn. See "Part 6: Deductions and Charges," "Distribution Fee."
(2) Deducted upon a withdrawal with respect to amounts in excess of the
15% free corridor amount, and upon a surrender. See "Part 6:
Deductions and Charges," "Withdrawal Charge." We reserve the right
to impose an administrative charge of the lesser of $25 and 2.0% of
the amount withdrawn for each Lump Sum Withdrawal after the fifth in
a Contract Year. See "Withdrawal Processing Charge" also in Part 6.
(3) The guaranteed minimum death benefit (GMDB) is described under
"Death Benefit," "GMDB" and the guaranteed minimum income benefit
(GMIB) is described under "GMIB" both of which are in Part 5. See
"Part 6: Deductions and Charges," "Charges for Combined GMDB/GMIB
Benefit (Plan A) and Charges for GMDB Only Benefit (Plan B)."
(4) This charge is incurred at the beginning of the Contract Year and
deducted on the Processing Date. See "Part 6: Deductions and
Charges," "Annual Contract Fee."
(5) The amounts shown for the Portfolios of HR Trust (other than
Alliance Small Cap Growth) have been restated to reflect advisory
fees which went into effect as of May 1, 1997. "Other Expenses" are
based on the average daily net assets in each Portfolio during 1996.
The amounts shown for the Alliance Small Cap Growth Portfolio are
estimated for the current fiscal year as this Portfolio commenced
operations on May 1, 1997. The investment advisory fee for each
Portfolio may vary from year to year depending upon the average
daily net assets of the respective Portfolio of HR Trust. The
maximum investment advisory fees, however, cannot be increased
without a vote of that Portfolio's shareholders. The other direct
operating expenses will also fluctuate from year to year depending
on actual expenses. See "HR Trust Charges to Portfolios" in Part 6.
(6) The Class IB shares of EQ Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by EQ
Trust pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. The Rule 12b-1 Plan provides that EQ Trust, on
behalf of each Portfolio, may pay annually up to 0.25% of the
average daily net assets of a Portfolio attributable to its Class IB
shares in respect of activities primarily intended to result in the
sale of the Class IB shares. This fee will not be increased for the
life of the Certificates.
(7) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust
commenced operations on May 1, 1997. The maximum investment advisory
fees cannot be increased without a vote of that Portfolio's
shareholders. The other direct operating expenses will fluctuate
from year to year depending on actual expenses, but pursuant to
agreement, cannot together with other fees specified exceed the
total annual expenses specified. See "EQ Trust Charges to
Portfolios" in Part 6.
* Available on or about September 2, 1997.
4
<PAGE>
EXAMPLES
The examples below show the expenses that a hypothetical Certificate Owner
would pay under the Combined GMDB/GMIB Benefit (Plan A) and under the GMDB
Only Benefit (Plan B) in the two situations noted below assuming a $1,000
contribution invested in one of the Investment Funds listed, and a 5% annual
return on assets.(1) The annual contract fee was computed based on an initial
contribution of $10,000.
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be
greater or less than those shown. Similarly, the annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance.
COMBINED GMDB/GMIB BENEFIT (PLAN A) ELECTION
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
Alliance Conservative
Investors $ 90.26 $125.78 $164.15 $290.05
Alliance Growth Investors 90.65 126.98 166.16 294.09
Alliance Growth & Income 90.75 127.28 166.66 295.10
Alliance Common Stock 88.86 121.57 157.10 275.76
Alliance Global 92.05 131.17 173.15 308.12
Alliance International 95.53 141.59 190.48 342.39
Alliance Aggressive Stock 90.55 126.68 165.66 293.08
Alliance Small Cap Growth 94.73 139.22 -- --
Alliance Money Market 88.67 120.98 156.09 273.71
Alliance Intermediate
Government Securities 90.65 126.98 166.16 294.09
Alliance High Yield 91.35 129.08 169.66 301.13
EQ TRUST
EQ/Putnam Balanced $ 93.74 $136.25 -- --
EQ/Putnam Growth & Income
Value 93.24 134.75 -- --
MFS Emerging Growth
Companies 93.24 134.75 -- --
MFS Research 93.24 134.75 -- --
Merrill Lynch Basic Value
Equity 93.24 134.75 -- --
Merrill Lynch World
Strategy 96.72 145.15 -- --
Morgan Stanley Emerging
Markets Equity 102.19 161.34 -- --
T. Rowe Price Equity
Income 93.24 134.75 -- --
T. Rowe Price
International Stock 96.72 145.15 -- --
Warburg Pincus Small
Company Value 94.73 139.22 -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
IF YOU DO NOT SURRENDER YOUR CERTIFICATE
AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
Alliance Conservative
Investors $27.03 $ 83.14 $142.17 $298.10
Alliance Growth Investors 27.42 84.33 144.17 302.14
Alliance Growth & Income 27.52 84.63 144.67 303.14
Alliance Common Stock 25.63 78.93 135.12 283.82
Alliance Global 28.82 88.53 151.17 316.17
Alliance International 32.30 98.96 168.51 350.45
Alliance Aggressive Stock 27.32 84.03 143.67 301.14
Alliance Small Cap Growth 31.50 96.57 -- --
Alliance Money Market 25.44 78.34 134.11 281.77
Alliance Intermediate
Government Securities 27.42 84.33 144.17 302.14
Alliance High Yield 28.12 86.43 147.67 309.17
EQ TRUST
EQ/Putnam Balanced $30.51 $ 93.60 -- --
EQ/Putnam Growth & Income
Value 30.01 92.10 -- --
MFS Emerging Growth
Companies 30.01 92.10 -- --
MFS Research 30.01 92.10 -- --
Merrill Lynch Basic Value
Equity 30.01 92.10 -- --
Merrill Lynch World
Strategy 33.49 102.51 -- --
Morgan Stanley Emerging
Markets Equity 38.96 118.70 -- --
T. Rowe Price Equity
Income 30.01 92.10 -- --
T. Rowe Price
International Stock 33.49 102.51 -- --
Warburg Pincus Small
Company Value 31.50 96.57 -- --
</TABLE>
- ------------
See footnote on next page.
5
<PAGE>
GMDB ONLY BENEFIT (PLAN B) ELECTION
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
Alliance Conservative
Investors $ 90.26 $120.46 $153.06 $262.23
Alliance Growth Investors 90.65 121.66 155.07 266.33
Alliance Growth & Income 90.75 121.96 155.58 267.36
Alliance Common Stock 88.86 116.24 145.96 247.74
Alliance Global 92.05 125.87 162.12 280.56
Alliance International 95.53 136.32 179.54 315.32
Alliance Aggressive Stock 90.55 121.35 154.55 265.29
Alliance Small Cap Growth 94.73 133.93 -- --
Alliance Money Market 88.67 115.65 144.95 245.67
Alliance Intermediate
Government Securities 90.65 121.66 155.07 266.33
Alliance High Yield 91.35 123.77 158.60 273.47
EQ TRUST
EQ/Putnam Balanced $ 93.74 $130.95 -- --
EQ/Putnam Growth & Income
Value 93.24 129.45 -- --
MFS Emerging Growth
Companies 93.24 129.45 -- --
MFS Research 93.24 129.45 -- --
Merrill Lynch Basic Value
Equity 93.24 129.45 -- --
Merrill Lynch World
Strategy 96.72 139.88 -- --
Morgan Stanley Emerging
Markets Equity 102.19 156.12 -- --
T. Rowe Price Equity
Income 93.24 129.45 -- --
T. Rowe Price
International Stock 96.72 139.88 -- --
Warburg Pincus Small
Company Value 94.73 133.93 -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
IF YOU DO NOT SURRENDER YOUR CERTIFICATE
AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
Alliance Conservative
Investors $24.38 $ 74.85 $127.74 $265.82
Alliance Growth Investors 24.77 76.04 129.75 269.91
Alliance Growth & Income 24.87 76.34 130.25 270.93
Alliance Common Stock 22.98 70.63 120.64 251.32
Alliance Global 26.17 80.25 136.79 284.15
Alliance International 29.65 90.70 154.21 318.91
Alliance Aggressive Stock 24.67 75.74 129.24 268.88
Alliance Small Cap Growth 28.85 88.31 -- --
Alliance Money Market 22.79 70.02 119.62 249.24
Alliance Intermediate
Government Securities 24.77 76.04 129.75 269.91
Alliance High Yield 25.47 78.15 133.28 277.06
EQ TRUST
EQ/Putnam Balanced $27.86 $ 85.34 -- --
EQ/Putnam Growth & Income
Value 27.36 83.84 -- --
MFS Emerging Growth
Companies 27.36 83.84 -- --
MFS Research 27.36 83.84 -- --
Merrill Lynch Basic Value
Equity 27.36 83.84 -- --
Merrill Lynch World
Strategy 30.84 94.26 -- --
Morgan Stanley Emerging
Markets Equity 36.31 110.50 -- --
T. Rowe Price Equity
Income 27.36 83.84 -- --
T. Rowe Price
International Stock 30.84 94.26 -- --
Warburg Pincus Small
Company Value 28.85 88.31 -- --
</TABLE>
- ------------
Note:
(1) The amount accumulated from the $1,000 contribution could not be paid
in the form of an annuity at the end of any of the periods shown in the
examples. If the amount applied to purchase an annuity is less than
$2,000, or the initial payment is less than $20 we may pay the amount
to the payee in a single sum instead of as payments under an annuity
form. See "Income Annuity Options" in Part 5. The examples do not
reflect charges for applicable taxes such as state or local premium
taxes that may also be deducted in certain jurisdictions.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on May 1, 1995.
The following table shows the Accumulation Unit Values, as of May 1, 1995
and the last Business Day for the periods shown. There are no Accumulation
Unit Values for Alliance Small Cap Growth and Alliance High Yield Funds,
and the Investment Funds investing in Class IB shares of EQ Trust
Portfolios as such Funds were not available prior to the date of this
supplement.
<TABLE>
<CAPTION>
LAST BUSINESS DAY OF
----------------------------------------------------------
MAY 1, 1995 DECEMBER 1995 DECEMBER 1996 MARCH 1997
------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Alliance Conservative
Investors $ 14.647383 $ 16.549050 $ 17.209382 $ 17.009080
Alliance Growth
Investors 20.073331 23.593613 26.260729 25.712963
Alliance Growth &
Income 10.376155 11.989601 14.231408 14.317214
Alliance Common
Stock 102.335691 124.519251 152.955877 147.037726
Alliance Global 19.478146 22.293921 25.253538 24.366634
Alliance International 10.125278 11.033925 11.976127 11.827319
Alliance Aggressive
Stock 44.025496 54.591448 65.938687 64.279288
Alliance Money Market 23.150932 23.830754 24.810781 25.046934
Alliance Intermediate
Govt. Securities 12.498213 13.424767 13.770322 13.741339
</TABLE>
ON PAGE 8, UNDER THE HEADING "TRANSFER"
THE FIRST SENTENCE OF THE PARAGRAPH IS REVISED AS FOLLOWS:
You may make an unlimited number of transfer among the Investment Options.
DELETE THE SECOND SENTENCE.
ON PAGE 11 UNDER THE HEADING "EQUITABLE LIFE"
REPLACE THE FOURTH SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Our home office is located at 1290 Avenue of the Americas, New York, New
York 10104.
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding shares of common stock of the
Holding Company (assuming conversion of convertible preferred stock held by
AXA). Under its investment arrangements with Equitable Life and the Holding
Company, AXA is able to exercise significant influence over the operations
and capital structure of the Holding Company and its subsidiaries,
including Equitable Life. AXA, a French company, is the holding company for
an international group of insurance and related financial service
companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $239.8 billion of assets as of December 31, 1996.
ON PAGES 11 AND 12 REPLACE THE HEADING "THE TRUST" WITH "HR TRUST" AND ADD
THE FOLLOWING SENTENCE AFTER THE FIFTH SENTENCE OF THE FIRST PARAGRAPH:
Investment Funds that invest in Portfolios of HR Trust purchase Class IA
shares of a corresponding Portfolio of HR Trust.
7
<PAGE>
ON PAGE 12 IN THE HEADING "THE TRUST'S INVESTMENT ADVISOR" AND IN THE FIRST
SENTENCE OF THE PARAGRAPH UNDER THE HEADING REPLACE "THE TRUST" WITH "HR
TRUST."
IN THE FIRST PARAGRAPH OF THIS SECTION, REPLACE THE THIRD SENTENCE WITH THE
FOLLOWING SENTENCE:
On December 31, 1996, Alliance was managing approximately $182.8 billion in
assets.
DELETE THE SECOND PARAGRAPH.
ON PAGE 12, INSERT THE FOLLOWING SECTIONS AFTER THE LAST PARAGRAPH:
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type"
of mutual fund, EQ Trust issues different series of stock, each of which
relates to a different Portfolio of EQ Trust. EQ Trust commenced operations
on May 1, 1997. EQ Trust does not impose a sales charge or "load" for
buying and selling it shares. All dividend distributions to EQ Trust are
reinvested in full and fractional shares of the Portfolio to which they
relate. Investment Funds that invest in Portfolios of EQ Trust purchase
Class IB shares of a corresponding Portfolio of EQ Trust. More detailed
information about EQ Trust, its investment objectives, policies and
restrictions, risks, expenses, the Rule 12b-1 Plan relating to the Class IB
shares, and all other aspects of its operations appears in its prospectus
which accompanies this supplement and in its statement of additional
information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has
overall responsibility for the general management of EQ Trust. EQ Financial
is an investment adviser registered under the 1940 Act, and a broker-dealer
registered under the Exchange Act. EQ Financial is a Delaware corporation
and an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, New York 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, Massachusetts Financial Services Company, Merrill Lynch Asset
Management, L.P., Morgan Stanley Asset Management, Inc., T. Rowe Price
Associates, Inc. and Rowe Price-Fleming International Inc., and Warburg,
Pincus Counsellors, Inc., which serve as advisers to EQ/Putnam, MFS,
Merrill Lynch, Morgan Stanley, T. Rowe Price, and Warburg Pincus
Portfolios, respectively, of EQ Trust.
ON PAGE 13, UNDER THE HEADING "INVESTMENT POLICIES AND OBJECTIVES OF THE
TRUST'S PORTFOLIOS"
ADD THE FOLLOWING SENTENCES TO THE END OF THE FIRST PARAGRAPH:
Set forth below is a summary of the investment policies and objectives of
each Portfolio. This summary is qualified in its entirely by reference to
the prospectuses for HR Trust and EQ Trust, both of which accompany this
supplement. Please read the prospectuses for each of the trusts carefully
before investing.
DELETE THE DESCRIPTIONS OF "CONSERVATIVE INVESTORS," "GROWTH INVESTORS,"
"AGGRESSIVE STOCK," AND "INTERMEDIATE GOVERNMENT SECURITIES" AND INSERT THE
FOLLOWING DESCRIPTIONS:
<TABLE>
<CAPTION>
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded equity and debt High total return without,
Investors securities. in the adivser's opinion,
undue risk to principal
Alliance Growth Diversified mix of publicly traded equity and fixed High total return
Investors income securities, including at times common stocks consistent with the
issued by intermediate and small-sized companies and at adviser's determination of
times lower quality fixed income securities commonly reasonable risk
known as "junk bonds."
8
<PAGE>
Alliance Aggressive Primarily common stocks and other equity-type securities Long-term growth of
Stock issued by quality small and intermediate sized companies capital
with strong growth prospects and in covered options on
those securities.
Alliance Small Cap Primarily U.S. common stocks and other equity-type Long-term growth of
Growth securities issued by smaller companies that, in the capital
opinion of the adviser have favorable growth prospects.
Alliance Intermediate Primarily debt securities issued or guaranteed as to High current income
Government Securities principal and interest by the U.S. government or any of consistent with relative
its agencies or instrumentalities. Each investment will stability of principal
have a final maturity of not more than 10 years or a
duration not exceeding that of a 10-year Treasury note.
Alliance High Yield Primarily a diversified mix of high yield, fixed-income High return by maximizing
securities which generally involve greater volatility of current income and, to the
price and risk of principal and income than higher extent consistent with
quality fixed-income securities. Lower quality debt that objective, capital
securities are commonly known as "junk bonds." appreciation
</TABLE>
INSERT THE FOLLOWING DESCRIPTIONS AFTER THE DESCRIPTION OF "INTERMEDIATE
GOVERNMENT SECURITIES:"
<TABLE>
<CAPTION>
<S> <C> <C>
EQ/Putnam Balanced A well-diversified portfolio of stocks and bonds that Balanced investment
will produce both capital growth and current income.
EQ/Putnam Growth & Primarily common stocks that offer potential for Capital growth and,
Income Value capital growth and may, consistent with the secondarily, current
Portfolio's investment objective, invest in common income
stocks that offer potential for current income.
MFS Emerging Growth Primarily (i.e., at least 80% of its assets under Long-term growth of
Companies normal circumstances) in common stocks of emerging capital
growth companies that the Portfolio adviser believes
are early in their life cycle but which have the
potential to become major enterprises.
MFS Research A substantial portion of assets invested in common Long-term growth of
stock or securities convertible into common stock of capital and future
companies believed by the Portfolio adviser to possess income
better than average prospects for long-term growth.
Merrill Lynch Basic Investment in securities, primarily equities, that the Capital appreciation
Value Equity Portfolio adviser believes are undervalued and and, secondarily, income
therefore represent basic investment value.
Merrill Lynch World Investment primarily in a portfolio of equity and High total investment
Strategy fixed-income securities, including convertible return
securities, of U.S. and foreign issuers.
Morgan Stanley Emerging Primarily equity securities of emerging market country Long-term capital
Markets Equity* issuers with a focus on those in which the Portfolio's appreciation
adviser believes the economies are developing strongly
and in which the markets are becoming more
sophisticated.
</TABLE>
- ------------
* Available on or about September 2, 1997.
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
T. Rowe Price Primarily dividend paying common stocks of established Substantial dividend
Equity Income companies. income and also
capital appreciation
T. Rowe Price Primarily common stocks of established non-United Long-term growth of
International States companies. capital
Stock
Warburg Pincus Primarily in a portfolio of equity securities of small Long-term capital
Small Company capitalization companies (i.e., companies having market appreciation
Value capitalizations of $1 billion or less at the time of
initial purchase) that the Portfolio adviser considers
to be relatively undervalued.
</TABLE>
ON PAGE 14, REPLACE THE FIRST AND SECOND PARAGRAPHS WITH THE FOLLOWING
PARAGRAPHS:
This Part presents performance data for each of the Investment Funds
included in the tables below. The performance data were calculated by two
methods. The first method presented in the tables under "Standardized
Performance Data," reflects all applicable fees and charges, including the
Combined GMDB/GMIB Benefit charge, but not the charges for any applicable
taxes such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does
not reflect the distribution fee, the withdrawal charge, the Combined
GMDB/GMIB Benefit charge, the annual contract fee or the charge for tax
such as premium taxes. These additional charges would effectively reduce
the rates of return credited to a particular Certificate.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IA
shares of HR Trust Portfolios (other than the Alliance Small Cap Growth
Portfolio which commenced operations on May 1, 1997) are based on the
actual investment results of the Portfolios, and have been adjusted for the
fees and charges applicable under the Certificates.
The performance data for the Alliance Money Market and Alliance Common
Stock Funds that invest in corresponding HR Trust Portfolios, for periods
prior to March 22, 1985, reflect the investment results of two open-end
management separate accounts (the "predecessor separate accounts") which
were reorganized in unit investment trust form. The "Since Inception"
figures for these Investment Funds are based on the date of inception of
the predecessor separate accounts. These performance data have been
adjusted to reflect the maximum investment advisory fee payable for the
corresponding Portfolio of HR Trust, as well as an assumed charge of 0.06%
for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares
of Portfolios of EQ Trust have only recently been established and no
Certificates funded by those Investment Funds have been issued as of the
date of this Supplement. EQ Trust commenced operations on May 1, 1997.
Therefore, no actual historical performance data for any of these
Portfolios are available. In this connection, see the discussion
immediately following the tables below.
ON PAGE 14, REPLACE THE HEADING "PERFORMANCE DATA FOR A CERTIFICATE" WITH
"STANDARDIZED PERFORMANCE DATA."
IN THE FIRST SENTENCE OF THE THIRD PARAGRAPH UNDER THIS HEADING CHANGE THE
DATE FROM "DECEMBER 31, 1995" TO "DECEMBER 31, 1996."
10
<PAGE>
ON PAGES 14 AND 15, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
---------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
---- ---- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors (3.31)% 3.16% 4.76% -- 6.20%
Alliance Growth Investors 4.00 7.81 8.23 -- 12.10
Alliance Growth & Income 11.40 10.57 -- -- 7.57
Alliance Common Stock 15.54 13.83 13.23 13.84% 13.38
Alliance Global 5.98 9.32 11.03 -- 8.87
Alliance International 1.24 -- -- -- 6.02
Alliance Aggressive Stock 13.49 12.24 9.26 16.64 18.14
Alliance Money Market (3.19) 1.47 1.70 3.86 5.14
Alliance Intermediate Govt.
Securities (4.73) 0.39 3.02 -- 4.43
Alliance High Yield 14.16 9.26 12.21 -- 9.33
</TABLE>
- ------------
See footnotes below.
The table below illustrates the growth of an assumed investment of $1,000,
with fees and charges deducted on the standardized basis described above for
the first method of calculation.
STANDARDIZED PERFORMACE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
----------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
---- ---- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors $ 967 $1,098 $1,262 -- $ 1,618
Alliance Growth Investors 1,040 1,253 1,485 -- 2,494
Alliance Growth & Income 1,114 1,352 -- -- 1,339
Alliance Common Stock 1,155 1,475 1,862 $3,657 13,975
Alliance Global 1,060 1,307 1,687 -- 2,340
Alliance International 1,012 -- -- -- 1,124
Alliance Aggressive Stock 1,135 1,414 1,557 4,660 6,257
Alliance Money Market 968 1,045 1,088 1,461 2,230
Alliance Intermediate Govt.
Securities 953 1,012 1,161 -- 1,297
Alliance High Yield 1,142 1,304 1,779 -- 2,441
</TABLE>
- ------------
* The tables reflect charges under a Certificate with the 0.45% GMDB/GMIB
charge.
** The "Since Inception" dates for the Portfolios of HR Trust are as
follows: Alliance Conservative Investors (October 2, 1989); Alliance
Growth Investors (October 2, 1989); Alliance Growth & Income (October 1,
1993); Alliance Common Stock (January 13, 1976); Alliance Global (August
27, 1987); Alliance International (April 3, 1995); Alliance Aggressive
Stock (January 27, 1986); Alliance Money Market (July 13, 1981); Alliance
Intermediate Government Securities (April 1, 1991); and Alliance High
Yield (January 2, 1987).
ON PAGE 15, INSERT THE FOLLOWING PARAGRAPHS BEFORE THE "RATE OF RETURN DATA
FOR INVESTMENT FUNDS" SECTION:
Additional investment performance information appears in the attached HR
Trust and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations
on May 1, 1997. Therefore, no actual historical performance data are
available. However, historical performance of a composite of six other
advisory accounts managed by Alliance is described in the attached HR
Trust prospectus. According
11
<PAGE>
to that prospectus, these accounts have substantially the same investment
objectives and policies, and are managed in accordance with essentially
the same investment strategies and techniques, as those of the Alliance
Small Cap Growth Portfolio. It should be noted that these accounts are
not subject to certain of the requirements and restrictions to which the
Alliance Small Cap Growth Portfolio is subject and that they are managed
for tax exempt clients of Alliance. The investment performance
information included in the HR Trust prospectus for all Portfolios other
than the Alliance Small Cap Growth Portfolio is based on actual
historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR
Trust and the EQ Trust prospectuses, are provided by those prospectuses
to illustrate the past performance of each respective Portfolio adviser
in managing substantially similar investment vehicles as measured against
specified market indices and do not represent the past or future
performance of any Portfolio. None of the performance data contained in
the HR Trust and EQ Trust prospectuses reflects fees and charges imposed
under your Certificate, which fees and charges would reduce such
performance figures. Therefore, the performance data for each of the
Portfolios described in the EQ Trust prospectus and for the Alliance
Small Cap Growth Portfolio in the HR Trust prospectus may be of limited
use and are not intended to be a substitute for actual performance of the
corresponding Portfolios, nor are such results an estimate or guarantee
of future performance for these Portfolios.
ON PAGE 16, INSERT THE FOLLOWING BEFORE THE LAST PARAGRAPH UNDER THE HEADING
"PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS":
ALLIANCE HIGH YIELD: January 2, 1997; Merrill Lynch High Yield Master
Index.
ON PAGES 16, 17 AND 18, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 5.47% 6.08% -- -- -- 7.77%
Lipper Income 8.95 8.91 9.55 -- -- -- 9.55
Benchmark 8.78 10.14 9.64 -- -- -- 10.42
ALLIANCE GROWTH
INVESTORS 11.30 10.00 9.48 -- -- -- 14.23
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GROWTH &
INCOME 18.70 12.69 -- -- -- -- 11.47
Lipper Growth & Income 19.96 15.39 -- -- -- -- 14.78
Benchmark 21.28 17.93 -- -- -- -- 17.24
ALLIANCE COMMON STOCK 22.84 15.87 14.39 14.49% 15.17% 14.17% 13.90
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE GLOBAL 13.28 11.44 12.19 -- -- -- 10.43
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 10.90
Lipper International 13.36 -- -- -- -- -- 14.33
Benchmark 6.05 -- -- -- -- -- 8.74
ALLIANCE AGGRESSIVE STOCK 20.79 14.33 10.55 17.24 -- -- 18.79
Lipper Small Company
Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
ALLIANCE MONEY MARKET 4.11 3.82 3.12 4.68 5.85 -- 6.05
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
12
<PAGE>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57% 2.80% 4.38% -- -- -- 5.75%
Lipper Gen. U.S.
Government 1.57 3.99 5.21 -- -- -- 6.76
Benchmark 4.06 5.37 6.23 -- -- -- 7.43
ALLIANCE HIGH YIELD 21.46 11.43 13.34 -- -- -- 10.13
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
</TABLE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 17.34% 34.32% -- -- -- 72.02%
Lipper Income 8.95 29.47 58.37 -- -- -- 94.21
Benchmark 8.78 33.60 58.40 -- -- -- 105.23
ALLIANCE GROWTH
INVESTORS 11.30 33.11 57.28 -- -- -- 162.18
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GROWTH &
INCOME 18.70 43.09 -- -- -- -- 42.30
Lipper Growth & Income 19.96 53.82 -- -- -- -- 56.73
Benchmark 21.28 63.99 -- -- -- -- 67.75
ALLIANCE COMMON STOCK 22.84 55.58 95.88 287.01% 731.70% 1,314.86% 1,430.82
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1,416.26 1,655.74
ALLIANCE GLOBAL 13.28 38.40 77.77 -- -- -- 152.69
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 - -- -- 95.62
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 19.76
Lipper International 13.36 -- -- -- -- -- 26.53
Benchmark 6.05 -- -- -- -- -- 15.78
ALLIANCE AGGRESSIVE STOCK 20.79 49.45 65.10 390.47 -- -- 556.42
Lipper Small Company
Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 46.89 99.38 280.32 -- -- 318.19
ALLIANCE MONEY MARKET 4.11 11.90 16.59 58.03 134.78 -- 148.19
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 -- 184.26
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57 8.63 23.89 -- -- -- 37.89
Lipper Gen. U.S.
Government 1.57 12.45 28.92 -- -- -- 45.71
Benchmark 4.06 16.98 35.30 -- -- -- 51.07
ALLIANCE HIGH YIELD 21.46 38.37 87.00 -- -- -- 162.38
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
</TABLE>
- ------------
See footnotes on next page.
13
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.79%
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.53
ALLIANCE GROWTH
& INCOME -- -- -- -- -- --
ALLIANCE COMMON
STOCK** (3.09)% 31.91% 16.02% 6.21% 21.03% 24.16
ALLIANCE GLOBAL -- -- -- (13.62) 9.61 25.29
ALLIANCE
INTERNATIONAL -- -- -- -- -- --
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.83 6.06 (0.03) 41.86
ALLIANCE MONEY
MARKET** 9.59 6.91 5.39 5.41 6.09 7.93
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- --
ALLIANCE HIGH
YIELD -- -- -- 3.49 8.48 3.93
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS 5.14% 18.51% 4.50% 9.54% (5.20)% 19.02% 3.99%
ALLIANCE GROWTH
INVESTORS 9.39 47.19 3.69 13.95 (4.27) 24.92 11.30
ALLIANCE GROWTH
& INCOME -- -- -- (0.55) (1.72) 22.65 18.70
ALLIANCE COMMON
STOCK** (9.17) 36.30 2.03 23.39 (3.26) 30.93 22.84
ALLIANCE GLOBAL (7.15) 29.06 (1.65) 30.60 4.02 17.45 13.28
ALLIANCE
INTERNATIONAL -- -- -- -- -- 10.34 8.54
ALLIANCE
AGGRESSIVE
STOCK 6.92 84.73 (4.28) 15.41 (4.92) 30.13 20.79
ALLIANCE MONEY
MARKET** 6.99 4.97 2.37 1.78 2.82 4.53 4.11
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- 11.30 4.38 9.27 (5.47) 12.03 2.57
ALLIANCE HIGH
YIELD (2.26) 23.03 11.02 21.74 (3.90) 18.54 21.46
<FN>
- ------------
* Returns do not reflect the distribution fee, the withdrawal charge, the
Combined GMDB/GMIB Benefit charge, the annual contract fee and any
charge for tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were: 1976 1977 1978 1979 1980 1981 1982 1983
---- ---- ---- ---- ---- ---- ---- ----
ALLIANCE COMMON STOCK 8.20% (10.28)% 6.99% 28.35% 48.39% (6.94)% 16.22% 24.67%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.71 11.72 7.70%
</TABLE>
ON PAGE 25, UNDER THE HEADING "TRANSFERS AMONG INVESTMENT OPTIONS," DELETE
THE FIRST BULLETED PARAGRAPH.
ON PAGE 25, UNDER THE HEADING "DOLLAR COST AVERAGING"
REPLACE THE FIRST SENTENCE IN THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE.
If you have at least $10,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market
Fund to other Investment Funds on a monthly, quarterly, or annual basis.
REPLACE THE SECOND AND THIRD SENTENCES IN THE SECOND PARAGRAPH WITH THE
FOLLOWING SENTENCES.
The minimum amount that may be transferred on each Transaction Date is
$250. The maximum amount which may be transferred is equal to the Annuity
Account Value in the Alliance Money Market Fund at the time the option is
elected, divided by the number of transfers scheduled to made each Contract
Year.
ON PAGE 33, UNDER THE HEADING, "DISTRIBUTION OF THE CERTIFICATES," REPLACE
THE FOURTH AND FIFTH SENTENCES OF THE FIRST PARAGRAPH WITH THE FOLLOWING TWO
SENTENCES.
EDI's principal business address is 1290 Avenue of the Americas, New York,
New York 10104. EDI was paid a fee of $1,204,370 for 1996 and $126,914 for
1995 for its services under its "Distribution Agreement" with Equitable
Life and the Separate Account.
14
<PAGE>
ON PAGE 36, DELETE THE SECTION WITH THE HEADING "TRUST CHARGES TO
PORTFOLIOS," AND REPLACE WITH THE FOLLOWING SECTIONS.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, direct
operating expenses of HR Trust (such as trustees' fees, expenses of
independent auditors and legal counsel, bank and custodian charges and
liability insurance), and certain investment-related expenses of HR Trust
(such as brokerage commissions and other expenses related to the purchase
and sale of securities), are reflected in each Portfolio's daily share
price. The maximum investment advisory fees paid annually by the Portfolios
cannot be changed without a vote by shareholders. They are as follows:
AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors ....... 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance Growth Investors.............. 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Growth & Income............... 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance Common Stock.................. 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Global........................ 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance International................. 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance Aggressive Stock.............. 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Small Cap Growth.............. 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Money Market.................. 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance Intermediate Govt Securities 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance High Yield.................... 0.600% 0.575% 0.550% 0.530% 0.520%
</TABLE>
- ------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Investment advisory fees are established under HR Trust's investment
advisory agreements between HR Trust and its investment adviser, Alliance.
Fees and expenses are described more fully in the HR Trust prospectus.
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the
12b-1 fee, other direct operating expenses of EQ Trust (such as trustees'
fees, expenses of independent auditors and legal counsel, administrative
service fees, custodian fees, and liability insurance), and certain
investment-related expenses of EQ Trust (such as brokerage commissions and
other expenses related to the purchase and sale of securities), are
reflected in each Portfolio's daily share price. The investment management
fees paid annually by the Portfolios cannot be changed without a vote by
shareholders. They are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
------------------------
<S> <C>
EQ/Putnam Balanced ..................... 0.55%
EQ/Putnam Growth & Income Value ....... 0.55%
MFS Emerging Growth Companies .......... 0.55%
MFS Research ........................... 0.55%
Merrill Lynch Basic Value Equity ...... 0.55%
Merrill Lynch World Strategy ........... 0.70%
Morgan Stanley Emerging Markets Equity 1.15%
T. Rowe Price Equity Income ............ 0.55%
T. Rowe Price International Stock ..... 0.75%
Warburg Pincus Small Company Value .... 0.65%
</TABLE>
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ
Financial. EQ Financial has entered into expense limitation agreements with
EQ Trust, with respect to each Portfolio, pursuant to which EQ Financial
has agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolios' average daily net assets) to
0.85% each for the EQ/Putnam Growth & Income Value, MFS Research, Merrill
Lynch Basic Value Equity, T. Rowe Price Equity, and MFS Emerging Growth
Companies Portfolios; 0.90% for the EQ/Putnam Balanced Portfolio; 1.00% for
Warburg Pincus Portfolio; 1.20% each for T. Rowe Price International Stock
and Merrill Lynch World Strategy Portfolios; and 1.75% for Morgan Stanley
Emerging Markets Equity Portfolio. See the prospectus for EQ Trust for more
information.
15
<PAGE>
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio,
may pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. This fee will not be
increased for the life of the Certificates. Fees and expenses are described
more fully in the EQ Trust prospectus.
ON PAGE 37, UNDER THE HEADING "TRUST VOTING RIGHTS"
REPLACE THE FIRST SENTENCE OF THE SECOND PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Because HR Trust is a Massachusetts business trust and EQ Trust is a
Delaware business trust, annual meetings are not required.
ON PAGE 37, UNDER THE HEADING "VOTING RIGHTS OF OTHERS," REPLACE THE FIRST
TWO SENTENCES OF THE PARAGRAPH WITH THE FOLLOWING SENTENCES:
Currently we control each trust. EQ Trust shares currently are sold only to
our separate accounts. HR Trust shares are held by other separate accounts
of ours and by separate accounts of insurance companies affiliated and
unaffiliated with us.
ON PAGE 39, UNDER THE HEADING "FEDERAL AND STATE INCOME TAX WITHHOLDING,"
REPLACE THE FOURTH SENTENCE OF THE THIRD PARAGRAPH WITH THE FOLLOWING
SENTENCE:
For 1997, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,400 taxable amount will generally be
exempt from federal income tax withholding, unless the recipient specifies
a different choice of withholding exemption.
16
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
----
Part 1: Accumulation Unit Values 2
Part 2: Annuity Unit Values 2
Part 3: Custodian and Independent Accountants 3
Part 4: Alliance Money Market Fund and Alliance Intermediate 3
Government Securities Fund Yield Information
Part 5: Long-Term Market Trends 5
Part 6: Financial Statements 7
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL
INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI:
(Supplement dated May 1, 1997 to Accumulator Prospectus,
dated October 17, 1996)
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
17
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
SUPPLEMENT DATED MAY 1, 1997 TO INCOME MANAGER (SERVICE MARK) Rollover
IRA and Choice Income Plan Prospectus, dated May 1, 1996
- -----------------------------------------------------------------------------
This supplement dated May 1, 1997, updates certain information in the
Rollover IRA and Choice Income Plan prospectus of The Equitable Life
Assurance Society of the United States (EQUITABLE LIFE), dated May 1, 1996.
You should read this supplement in conjunction with the prospectus. You
should keep the supplement and the prospectus for future reference. We have
filed with the Securities and Exchange Commission (SEC) our statement of
additional information (SAI) dated May 1, 1997. If you have previously
received, but do not presently have, a copy of the prospectus, you may obtain
an additional copy of the prospectus, as well as a copy of the SAI, from us,
free of charge, if you write to Equitable Life, Income Management Group, P.O.
Box 1547, Secaucus, NJ 07096-1547, call (800) 789-7771 or if you only need a
copy of the SAI, you may mail in the SAI request form located at the end of
the supplement. The SAI has been incorporated by reference into this
supplement.
In the supplement, each section of the prospectus in which a change has been
made is identified and the number of each prospectus page on which a change
occurs is also noted. Special terms used in the prospectus have the same
meaning in the supplement unless otherwise noted.
ON THE COVER PAGE OF THE PROSPECTUS THE THIRD (INCLUDING THE CHART OF
INVESTMENT OPTIONS) AND FOURTH PARAGRAPHS ARE REPLACED BY THE FOLLOWING
PARAGRAPHS:
The Rollover IRA offers investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 21
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in
the GUARANTEED PERIOD ACCOUNT.
We invest each Investment Fund in Class IA shares of a corresponding
portfolio (PORTFOLIO) of The Hudson River Trust (HR TRUST) or Class IB
shares of a corresponding Portfolio of EQ Advisors Trust (EQ TRUST), mutual
funds whose shares are purchased by separate accounts of insurance
companies. The prospectuses for HR Trust and EQ Trust, both of which
accompany this supplement, describe the investment objectives, policies and
risks of the Portfolios.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity ______________
T. Rowe Price Equity Income *Available on or about September 2, 1997.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE FOLLOWING SENTENCE IS ADDED AT THE END OF THE FIFTH PARAGRAPH:
The Guarantee Periods currently available have Expiration Dates of
February 15 in years 1998 through 2007 under the Rollover IRA and 1998
through 2012 under the Choice Income Plan.
THROUGHOUT THE PROSPECTUS ANY REFERENCE TO THE INVESTMENT FUNDS AND GUARANTEE
PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET FORTH ABOVE.
- -----------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
THROUGHOUT THE PROSPECTUS (EXCEPT WHERE OTHERWISE NOTED) THE REFERENCE TO
"TRUST" IS REPLACED BY "HR TRUST AND EQ TRUST."
ON PAGE 2, UNDER THE HEADING "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" REPLACE THE ENTIRE SECTION WITH THE FOLLOWING SECTION:
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996 is incorporated herein by reference.
All documents or reports filed by Equitable Life pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (EXCHANGE ACT) after the date hereof and prior to the termination
of the offering of the securities offered hereby shall be deemed to be
incorporated by reference in the prospectus and the supplement and to be a
part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of the
prospectus and the supplement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified and superseded, to constitute a part of the
prospectus and the supplement. Equitable Life files its Exchange Act
documents and reports, including its annual and quarterly reports on Form
10-K and Form 10-Q, electronically pursuant to EDGAR under CIK No.
0000727920. The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the SEC. The address of the site is
http://www.sec.gov.
Equitable Life will provide without charge to each person to whom a
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by
reference (other than exhibits not specifically incorporated by reference
into the text of such documents). Requests for such documents should be
directed to The Equitable Life Assurance Society of the United States, 1290
Avenue of the Americas, New York, New York 10104. Attention: Corporate
Secretary (telephone: (212) 554-1234).
ON PAGE 4, UNDER THE HEADING "GENERAL TERMS"
ADD THE FOLLOWING DEFINITIONS:
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants,
Inc. (EQ Financial) is the manager of EQ Trust and has appointed advisers
for each of the Portfolios.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
DELETE THE DEFINITION FOR "TRUST."
2
<PAGE>
ON PAGES 6, 7 AND 8, REPLACE THE "FEE TABLE" SECTION WITH THE FOLLOWING
SECTION:
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them with other similar products. The table reflects
both the charges of the Separate Account and the expenses of HR Trust and EQ
Trust. Charges for applicable taxes such as state or local premium taxes may
also apply. For a complete description of the charges under the Certificate,
see "Part 7: Deductions and Charges." For a complete description of each
trust's charges and expenses, see the prospectuses for HR Trust and EQ Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. However, if there is insufficient
value in the Investment Funds, all or a portion of the distribution fee and
the annual contract fee, if any, may be deducted from your Annuity Account
Value in the Guaranteed Period Account rather than from the Investment Funds.
See "Part 7: Deductions and Charges." A market value adjustment (either
positive or negative) also may be applicable as a result of a withdrawal,
transfer or surrender of amounts from a Guarantee Period. See "Part 4: The
Guaranteed Period Account."
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
<TABLE>
<CAPTION>
<S> <C>
DISTRIBUTION FEE (SALES LOAD) AS A PERCENTAGE OF EACH CONTRIBUTION RECEIVED DURING THE
FIRST CONTRACT YEAR (deducted annually on each of the first seven Processing Dates)(1) .... 0.20%
CONTRACT
YEAR
----
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted 1...... 7.00%
upon surrender or for certain withdrawals. The applicable withdrawal 2...... 6.00
charge percentage is determined by the Contract Year in which the 3...... 5.00
withdrawal is made or the Certificate is surrendered beginning with 4...... 4.00
"Contract Year 1" with respect to each contribution withdrawn or 5...... 3.00
surrendered. For each contribution, the Contract Year in which we 6...... 2.00
receive that contribution is "Contract Year 1")(2) 7...... 1.00
8+..... 0.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TRANSFER CHARGE(3) ................................. ..................................... $ 0.00
GUARANTEED MINIMUM DEATH BENEFIT CHARGE (percentage deducted annually on each Processing
Date as a percentage of the guaranteed minimum death benefit then in effect)(4) ......... 0.20%
</TABLE>
ANNUAL CONTRACT FEE (DEDUCTED FROM ANNUITY ACCOUNT VALUE ON EACH PROCESSING
DATE)(5)
<TABLE>
<CAPTION>
<S> <C>
If the initial contribution is less than
$25,000.......................................... $30
If the initial contribution is $25,000 or more .. $ 0
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH
INVESTMENT FUND)
<TABLE>
<CAPTION>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE ...... 0.90%
ASSET BASED ADMINISTRATIVE CHARGE ...... 0.25%
-------
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES............................... 1.15%
=======
</TABLE>
- ------------
See footnotes on next page.
3
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
-----------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL
- -------- --------- --------- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08%
-------------- ----------- ---------- ---------- ----------
TOTAL HR TRUST ANNUAL
EXPENSES(6) 0.55% 0.59% 0.60% 0.41% 0.73%
============== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
ALLIANCE AGGRESSIVE SMALL CAP MONEY GOVT. HIGH
HR TRUST INTERNATIONAL STOCK GROWTH MARKET SECURITIES YIELD
- -------- ------------- ----- ------ ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.90% 0.55% 0.90% 0.35% 0.50% 0.60%
Other Expenses 0.18% 0.03% 0.10% 0.04% 0.09% 0.06%
--------------- ------------ ----------- ---------- -------------- ----------
TOTAL HR TRUST ANNUAL
EXPENSES(6) 1.08% 0.58% 1.00% 0.39% 0.59% 0.66%
=============== ============ =========== ========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
EQ/PUTNAM MFS MERRILL
GROWTH & EMERGING LYNCH
EQ/PUTNAM INCOME GROWTH MFS BASIC VALUE
EQ TRUST BALANCED VALUE COMPANIES RESEARCH EQUITY
- -------- -------- ----- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fee(7) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.10% 0.05% 0.05% 0.05% 0.05%
----------- ----------- ----------- ---------- -------------
TOTAL EQ TRUST ANNUAL
EXPENSES(8) 0.90% 0.85% 0.85% 0.85% 0.85%
=========== =========== =========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
MORGAN T. ROWE WARBURG
MERRILL STANLEY T. ROWE PRICE PINCUS
LYNCH EMERGING PRICE INTERNA- SMALL
WORLD MARKETS EQUITY TIONAL COMPANY
EQ TRUST STRATEGY EQUITY* INCOME STOCK VALUE
- -------- -------- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.70% 1.15% 0.55% 0.75% 0.65%
12b-1 Fee(7) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.25% 0.35% 0.05% 0.20% 0.10%
---------- ---------- --------- ---------- ---------
TOTAL EQ TRUST ANNUAL
EXPENSES(8) 1.20% 1.75% 0.85% 1.20% 1.00%
========== ========== ========= ========== =========
</TABLE>
- ------------
Notes:
(1) The amount deducted is based on contributions that have not been
withdrawn. The distribution fee will not apply while the IRA Assured
Payment Option or IRA APO Plus is in effect. See "Part 7: Deductions
and Charges," "Distribution Fee." Under Certificates issued prior to
May 1, 1996, the distribution fee is 0%.
(2) Deducted upon a withdrawal with respect to amounts in excess of the
15% (10% under the IRA Assured Payment Option and IRA APO Plus) free
corridor amount, and upon a surrender. See "Part 7: Deductions and
Charges," "Withdrawal Charge."
(3) We reserve the right to impose a charge in the future at a maximum
of $25 for each transfer among the Investment Options in excess of
five per Contract Year.
(4) See "Part 7: Deductions and Charges," "Guaranteed Minimum Death
Benefit Charge."
(5) This charge is incurred at the beginning of the Contract Year and
deducted on the Processing Date. See "Part 7: Deductions and
Charges," "Annual Contract Fee."
(6) The amounts shown for the Portfolios of HR Trust (other than
Alliance Small Cap Growth) have been restated to reflect advisory
fees which went into effect as of May 1, 1997. "Other Expenses" are
based on the average daily net assets in each Portfolio during 1996.
The amounts shown for the Alliance Small Cap Growth Portfolio are
estimated for the current fiscal year as this Portfolio commenced
operations on May 1, 1997. The investment advisory fee for each
Portfolio may vary from year to year depending upon the average
daily net assets of the respective Portfolio of HR Trust. The
maximum investment advisory fees, however, cannot be increased
without a vote of that Portfolio's shareholders. The other direct
operating expenses will also fluctuate from year to year depending
on actual expenses. See "HR Trust Charges to Portfolios" in Part 7.
(7) The Class IB shares of EQ Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by EQ
Trust pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. The Rule 12b-1 Plan provides that EQ Trust, on
behalf of each Portfolio, may pay annually up to 0.25% of the
average daily net assets of a Portfolio attributable to its Class IB
shares in respect of activities primarily intended to result in the
sale of the Class IB shares. This fee will not be increased for the
life of the Certificates.
(8) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust
commenced operations on May 1, 1997. The maximum investment advisory
fees cannot be increased without a vote of that Portfolio's
shareholders. The other direct operating expenses will fluctuate
from year to year depending on actual expenses, but pursuant to
agreement, cannot together with other fees specified exceed the
total annual expenses specified. See "EQ Trust Charges to
Portfolios" in Part 7.
* Available on or about September 2, 1997.
4
<PAGE>
EXAMPLES
The examples below show the expenses that a hypothetical Certificate Owner
would pay in the two situations noted below assuming a $1,000 contribution
invested in one of the Investment Funds listed, and a 5% annual return on
assets.(1) The annual contract fee was computed based on an initial
contribution of $10,000.
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be
greater or less than those shown. Similarly, the annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance.
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, THE EXPENSES
WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
HR TRUST
Alliance Conservative Investors $ 90.26 $120.46 $153.06 $262.23
Alliance Growth Investors 90.65 121.66 155.07 266.33
Alliance Growth & Income 90.75 121.96 155.58 267.36
Alliance Common Stock 88.86 116.24 145.96 247.74
Alliance Global 92.05 125.87 162.12 280.56
Alliance International 95.53 136.32 179.54 315.32
Alliance Aggressive Stock 90.55 121.35 154.55 265.29
Alliance Small Cap Growth 94.73 133.93 -- --
Alliance Money Market 88.67 115.65 144.95 245.67
Alliance Intermediate Government
Securities 90.65 121.66 155.07 266.33
Alliance High Yield 91.35 123.77 158.60 273.47
EQ TRUST
EQ/Putnam Balanced $ 93.74 $130.95 -- --
EQ/Putnam Growth & Income Value 93.24 129.45 -- --
MFS Emerging Growth Companies 93.24 129.45 -- --
MFS Research 93.24 129.45 -- --
Merrill Lynch Basic Value Equity 93.24 129.45 -- --
Merrill Lynch World Strategy 96.72 139.88 -- --
Morgan Stanley Emerging Markets Equity 102.19 156.12 -- --
T. Rowe Price Equity Income 93.24 129.45 -- --
T. Rowe Price International Stock 96.72 139.88 -- --
Warburg Pincus Small Company Value 94.73 133.93 -- --
- --------------
See footnote on next page.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN,
THE EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
HR TRUST
Alliance Conservative Investors $24.38 $ 74.85 $127.74 $265.82
Alliance Growth
Investors 24.77 76.04 129.75 269.91
Alliance Growth &
Income 24.87 76.34 130.25 270.93
Alliance Common Stock 22.98 70.63 120.64 251.32
Alliance Global 26.17 80.25 136.79 284.15
Alliance International 29.65 90.70 154.21 318.91
Alliance Aggressive Stock 24.67 75.74 129.24 268.88
Alliance Small Cap Growth 28.85 88.31 -- --
Alliance Money Market 22.79 70.02 119.62 249.24
Alliance Intermediate Government
Securities 24.77 76.04 129.75 269.91
Alliance High Yield 25.47 78.15 133.28 277.06
EQ TRUST
EQ/Putnam Balanced $27.86 $ 85.34 -- --
EQ/Putnam Growth & Income Value 27.36 83.84 -- --
MFS Emerging Growth Companies 27.36 83.84 -- --
MFS Research 27.36 83.84 -- --
Merrill Lynch Basic
Value Equity 27.36 83.84 -- --
Merrill Lynch World Strategy 30.84 94.26 -- --
Morgan Stanley
Emerging Markets Equity 36.31 110.50 -- --
T. Rowe Price Equity Income 27.36 83.84 -- --
T. Rowe Price International Stock 30.84 94.26 -- --
Warburg Pincus Small Company Value 28.85 88.31 -- --
</TABLE>
- ------------
Note:
(1) The amount accumulated from the $1,000 contribution could not be paid
in the form of an annuity at the end of any of the periods shown in the
examples. If the amount applied to purchase an annuity is less than
$2,000, or the initial payment is less than $20 we may pay the amount
to the payee in a single sum instead of as payments under an annuity
form. See "Income Annuity Options" in Part 6. The examples do not
reflect charges for applciable taxes such as state or local premium
taxes that may also be deducted in certain jurisdictions.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on May 1, 1995.
The following table shows the Accumulation Unit Values, as of May 1, 1995
and the last Business Day for the periods shown. There are no Accumulation
Unit Values for Alliance Small Cap Growth and Alliance High Yield Funds,
and the Investment Funds investing in Class IB shares of EQ Trust
Portfolios as such Funds were not available prior to the date of this
supplement.
<TABLE>
<CAPTION>
LAST BUSINESS DAY OF
----------------------------------------------------------
MAY 1, 1995 DECEMBER 1995 DECEMBER 1996 MARCH 1997
------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Alliance Conservative
Investors $ 14.647383 $ 16.549050 $ 17.209382 17.009080
Alliance Growth
Investors 20.073331 23.593613 26.260729 25.712963
Alliance Growth &
Income 10.376155 11.989601 14.231408 14.317214
Alliance Common
Stock 102.335691 124.519251 152.955877 147.037726
Alliance Global 19.478146 22.293921 25.253538 24.366634
Alliance International 10.125278 11.033925 11.976127 11.827319
Alliance Aggressive
Stock 44.025496 54.591448 65.938687 64.279288
Alliance Money Market 23.150932 23.830754 24.810781 25.046934
Alliance Intermediate
Govt. Securities 12.498213 13.424767 11.976127 13.741339
</TABLE>
ON PAGE 9, UNDER THE HEADING "TRANSFER"
THE FIRST SENTENCE OF THE PARAGRAPH IS REVISED AS FOLLOWS:
Under the Rollover IRA, you may make unlimited transfer among the
Investment Options.
DELETE THE SECOND SENTENCE.
ON PAGE 10, UNDER THE HEADING "IRA ASSURED PAYMENT OPTION," DELETE THE THIRD
PARAGRAPH.
ON PAGE 12, UNDER THE HEADING "EQUITABLE LIFE"
REPLACE THE FOURTH SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Our home office is located at 1290 Avenue of the Americas, New York, New
York 10104.
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding shares of common stock of the
Holding Company (assuming conversion of convertible preferred stock held by
AXA). Under its investment arrangements with Equitable Life and the Holding
Company, AXA is able to exercise significant influence over the operations
and capital structure of the Holding Company and its subsidiaries,
including Equitable Life. AXA, a French company, is the holding company for
an international group of insurance and related financial service
companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $239.8 billion of assets as of December 31, 1996.
ON PAGES 12 AND 13, REPLACE THE HEADING "THE TRUST" WITH "HR TRUST" AND ADD
THE FOLLOWING SENTENCE AFTER THE FIFTH SENTENCE OF THE FIRST PARAGRAPH:
Investment Funds that invest in Portfolios of HR Trust purchase Class IA
shares of a corresponding Portfolio of HR Trust.
7
<PAGE>
ON PAGE 13, UNDER THE HEADING "THE TRUST'S INVESTMENT ADVISER" AND IN THE
FIRST SENTENCE OF THE PARAGRAPH UNDER THE HEADING REPLACE "THE TRUST" WITH
"HR TRUST."
IN THE FIRST PARAGRAPH OF THIS SECTION REPLACE THE THIRD SENTENCE WITH THE
FOLLOWING SENTENCE:
On December 31, 1996, Alliance was managing approximately $182.8 billion in
assets.
DELETE THE SECOND PARAGRAPH.
ON PAGE 13, INSERT THE FOLLOWING SECTIONS AFTER THE LAST PARAGRAPH:
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type"
of mutual fund, EQ Trust issues different series of stock, each of which
relates to a different Portfolio of EQ Trust. EQ Trust commenced operations
on May 1, 1997. EQ Trust does not impose a sales charge or "load" for
buying and selling it shares. All dividend distributions to EQ Trust are
reinvested in full and fractional shares of the Portfolio to which they
relate. Investment Funds that invest in Portfolios of EQ Trust purchase
Class IB shares of a corresponding Portfolio of EQ Trust. More detailed
information about EQ Trust, its investment objectives, policies and
restrictions, risks, expenses, the Rule 12b-1 Plan relating to the Class IB
shares, and all other aspects of its operations appears in its prospectus
which accompanies this supplement and in its statement of additional
information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has
overall responsibility for the general management of EQ Trust. EQ Financial
is an investment adviser registered under the 1940 Act, and a broker-dealer
registered under the Exchange Act. EQ Financial is a Delaware corporation
and an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, NY 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, Massachusetts Financial Services Company, Merrill Lynch Asset
Management, L.P., Morgan Stanley Asset Management, Inc., T. Rowe Price
Associates, Inc. and Rowe Price-Fleming International, Inc. and Warburg,
Pincus Counsellors, Inc., which serve as advisers to EQ/Putnam, MFS,
Merrill Lynch, Morgan Stanley, T. Rowe Price, and Warburg Pincus
Portfolios, respectively, of EQ Trust.
ON PAGE 14, UNDER THE HEADING "INVESTMENT POLICIES AND OBJECTIVES OF THE
TRUST'S PORTFOLIOS"
ADD THE FOLLOWING SENTENCES TO THE END OF THE FIRST PARAGRAPH:
Set forth below is a summary of the investment policies and objectives of
each Portfolio. This summary is qualified in its entirely by reference to
the prospectuses for HR Trust and EQ Trust, both of which accompany this
supplement. Please read the prospectuses for each of the trusts carefully
before investing.
DELETE THE DESCRIPTIONS OF "CONSERVATIVE INVESTORS," "GROWTH INVESTORS,"
"AGGRESSIVE STOCK" AND "INTERMEDIATE GOVERNMENT SECURITIES" AND INSERT THE
FOLLOWING DESCRIPTIONS:
<TABLE>
<CAPTION>
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded equity and debt High total return without,
Investors securities. in the adviser's opinion,
undue risk to principal
Alliance Growth Diversified mix of publicly traded equity and fixed High total return
Investors income securities, including at times common stocks consistent with the
issued by intermediate and small-sized companies and at adviser's determination of
times lower quality fixed income securities commonly reasonable risk
known as "junk bonds."
Alliance Aggressive Primarily common stocks and other equity-type securities Long-term growth of
Stock issued by quality small and intermediate sized companies capital
with strong growth prospects and in covered options on
those securities.
8
<PAGE>
Alliance Small Cap Primarily U.S. common stocks and other equity-type Long-term growth of
Growth securities issued by smaller companies that, in the capital
opinion of the adviser, have favorable growth prospects.
Alliance Intermediate Primarily debt securities issued or guaranteed as to High current income
Government Securities principal and interest by the U.S. government or any of consistent with relative
its agencies or instrumentalities. Each investment will stability of principal
have a final maturity of not more than 10 years or a
duration not exceeding that of a 10-year Treasury note.
Alliance High Yield Primarily a diversified mix of high yield, fixed-income High return by maximizing
securities which generally involve greater volatility of current income and, to the
price and risk of principal and income than higher extent consistent with
quality fixed-income securities. Lower quality debt that objective, capital
securities are commonly known as "junk bonds." appreciation
</TABLE>
INSERT THE FOLLOWING DESCRIPTIONS AFTER THE DESCRIPTION OF "INTERMEDIATE
GOVERNMENT SECURITIES:"
<TABLE>
<CAPTION>
<S> <C> <C>
EQ/Putnam Balanced A well-diversified portfolio of stocks and bonds that Balanced investment
will produce both capital growth and current income.
EQ/Putnam Growth & Primarily common stocks that offer potential for Capital growth and,
Income Value capital growth and may, consistent with the Portfolio's secondarily, current
investment objective, invest in common stocks that income
offer potential for current income.
MFS Emerging Growth Primarily (i.e., at least 80% of its assets under Long-term growth of
Companies normal circumstances) in common stocks of emerging capital
growth companies that the Portfolio adviser believes
are early in their life cycle but which have the
potential to become major enterprises.
MFS Research A substantial portion of assets invested in common Long-term growth of
stock or securities convertible into common stock of capital and future
companies believed by the Portfolio adviser to possess income
better than average prospects for long-term growth.
Merrill Lynch Basic Investment in securities, primarily equities, that the Capital appreciation
Value Equity Portfolio adviser believes are undervalued and and, secondarily, income
therefore represent basic investment value.
Merrill Lynch World Investment primarily in a portfolio of equity and High total investment
Strategy fixed-income securities, including convertible return
securities of U.S. and foreign issuers.
Morgan Stanley Emerging Primarily equity securities of emerging market country Long-term capital
Markets Equity* issuers with a focus on those in which the Portfolio's appreciation
adviser believes the economies are developing strongly
and in which the markets are becoming more
sophisticated.
T. Rowe Price Equity Primarily dividend paying common stocks of established Substantial dividend
Income companies. income and also capital
appreciation
T. Rowe Price Primarily common stocks of established non-United Long-term growth of
International Stock States companies. capital
Warburg Pincus Small Primarily in a portfolio of equity securities of small Long-term capital
Company Value capitalization companies (i.e., companies having market appreciation
capitalizations of $1 billion or less at the time of
initial purchase) that the Portfolio adviser considers
to be relatively undervalued.
</TABLE>
- ------------
* Available on or about September 2, 1997.
9
<PAGE>
ON PAGE 15, REPLACE THE FIRST AND SECOND PARAGRAPHS WITH THE FOLLOWING
PARAGRAPHS:
This Part presents performance data for each of the Investment Funds
included in the tables below. The performance data were calculated by two
methods. The first method presented in the tables under "Standardized
Performance Data," reflects all applicable fees and charges, other than the
charge for any applicable taxes such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does
not reflect the distribution fee, the withdrawal charge, the guaranteed
minimum death benefit charge, the annual contract fee or the charge for tax
such as premium taxes. These additional charges would effectively reduce
the rates of return credited to a particular Certificate.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IA
shares of HR Trust Portfolios (other than the Alliance Small Cap Growth
Portfolio which commenced operations on May 1, 1997), are based on the
actual investment results of the Portfolios and have been adjusted for the
fees and charges applicable under the Certificates.
The performance data for the Alliance Money Market and Alliance Common
Stock Funds that invest in corresponding HR Trust Portfolios, for periods
prior to March 22, 1985, reflect the investment results of two open-end
management separate accounts (the "predecessor separate accounts") which
were reorganized in unit investment trust form. The "Since Inception"
figures for these Investment Funds are based on the date of inception of
the predecessor separate accounts. These performance data have been
adjusted to reflect the maximum investment advisory fee payable for the
corresponding Portfolio of HR Trust, as well as an assumed charge of 0.06%
for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares
of Portfolios of EQ Trust have only recently been established and no
Certificates funded by those Investment Funds have been issued as of the
date of this supplement. EQ Trust commenced operations on May 1, 1997.
Therefore, no actual historical performance data for any of these
Portfolios are available. In this connection, see the discussion
immediately following the tables below.
ON PAGE 15, REPLACE THE HEADING "PERFORMANCE DATA FOR A CERTIFICATE" WITH
"STANDARDIZED PERFORMANCE DATA."
IN THE FIRST SENTENCE OF THE THIRD PARAGRAPH UNDER THIS HEADING CHANGE THE
DATE FROM "DECEMBER 31, 1995" TO "DECEMBER 31, 1996."
10
<PAGE>
ON PAGES 15 AND 16, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
--------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION*
---- ---- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors (3.31)% 3.35% 4.99% -- 6.44%
Alliance Growth Investors 4.00 8.01 8.46 -- 12.30
Alliance Growth & Income 11.40 10.76 -- -- 7.80
Alliance Common Stock 15.54 14.03 13.45 14.02% 13.53
Alliance Global 5.98 9.51 11.24 -- 9.12
Alliance International 1.24 -- -- -- 6.16
Alliance Aggressive Stock 13.49 12.44 9.50 16.78 18.25
Alliance Money Market (3.19) 1.66 1.94 4.12 5.38
Alliance Intermediate Govt.
Securities (4.73) 0.58 3.25 -- 4.66
Alliance High Yield 14.16 9.46 12.42 -- 9.57
</TABLE>
- ------------
See footnote below.
The table below illustrates the growth of an assumed investment of $1,000,
with fees and charges illustrated on the standardized basis described above
for the first method of calculation.
STANDARDIZED PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
---------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION*
---- ---- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors $ 967 $1,104 $1,275 -- $ 1,647
Alliance Growth Investors 1,040 1,260 1,501 -- 2,529
Alliance Growth & Income 1,114 1,359 -- -- 1,350
Alliance Common Stock 1,155 1,483 1,880 $3,713 14,359
Alliance Global 1,060 1,313 1,703 -- 2,394
Alliance International 1,012 -- -- -- 1,127
Alliance Aggressive Stock 1,135 1,422 1,574 4,718 6,319
Alliance Money Market 968 1,051 1,101 1,497 2,314
Alliance Intermediate Govt.
Securities 953 1,018 1,173 -- 1,314
Alliance High Yield 1,142 1,312 1,795 -- 2,494
</TABLE>
- ------------
* The "Since Inception" dates for the Portfolios of HR Trust are as follows:
Alliance Conservative Investors (October 2, 1989); Alliance Growth
Investors (October 2, 1989); Alliance Growth & Income (October 1, 1993);
Alliance Common Stock (January 13, 1976); Alliance Global (August 27,
1987); Alliance International (April 3, 1995); Alliance Aggressive Stock
(January 27, 1986); Alliance Money Market (July 13, 1981); Alliance
Intermediate Government Securities (April 1, 1991); and Alliance High
Yield (January 2, 1987).
ON PAGE 16, INSERT THE FOLLOWING PARAGRAPHS BEFORE THE "RATE OF RETURN DATA
FOR INVESTMENT FUNDS" SECTION:
Additional investment performance information appears in the attached HR
Trust and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations on
May 1, 1997. Therefore, no actual historical performance data are
available. However, historical performance of a composite of six other
advisory accounts managed by Alliance is described in the attached HR Trust
prospectus. According to that prospectus, these accounts have substantially
the same investment objectives and policies, and are managed in accordance
with essentially the same investment strategies and techniques, as those of
the Alliance Small Cap Growth Portfolio. It should be noted that these
accounts are not subject to certain of
11
<PAGE>
the requirements and restrictions to which the Alliance Small Cap Growth
Portfolio is subject and that they are managed for tax exempt clients of
Alliance. The investment performance information included in the HR Trust
prospectus for all Portfolios other than the Alliance Small Cap Growth
Portfolio is based on actual historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR
Trust and the EQ Trust prospectuses, are provided by those prospectuses to
illustrate the past performance of each respective Portfolio adviser in
managing substantially similar investment vehicles as measured against
specified market indices and do not represent the past or future
performance of any Portfolio. None of the performance data contained in the
HR Trust and EQ Trust prospectuses reflects fees and charges imposed under
your Certificate, which fees and charges would reduce such performance
figures. Therefore, the performance data for each of the Portfolios
described in the EQ Trust prospectus and for the Alliance Small Cap Growth
Portfolio in the HR Trust prospectus may be of limited use and are not
intended to be a substitute for actual performance of the corresponding
Portfolios, nor are such results an estimate or guarantee of future
performance for these Portfolios.
ON PAGE 17, INSERT THE FOLLOWING BEFORE THE LAST PARAGRAPH UNDER THE HEADING
"PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS":
ALLIANCE HIGH YIELD: January 2, 1987; Merrill Lynch High Yield Master
Index.
ON PAGES 17, 18 AND 19, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 5.47% 6.08% -- -- -- 7.77%
Lipper Income 8.95 8.91 9.55 -- -- -- 9.55
Benchmark 8.78 10.14 9.64 -- -- -- 10.42
ALLIANCE GROWTH
INVESTORS 11.30 10.00 9.48 -- -- -- 14.23
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GROWTH &
INCOME 18.70 12.69 -- -- -- -- 11.47
Lipper Growth & Income 19.96 15.39 -- -- -- -- 14.78
Benchmark 21.28 17.93 -- -- -- -- 17.24
ALLIANCE COMMON STOCK 22.84 15.87 14.39 14.49% 15.17% 14.17% 13.90
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE GLOBAL 13.28 11.44 12.19 -- -- -- 10.43
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 10.90
Lipper International 13.36 -- -- -- -- -- 14.33
Benchmark 6.05 -- -- -- -- -- 8.74
ALLIANCE AGGRESSIVE STOCK 20.79 14.33 10.55 17.24 -- -- 18.79
Lipper Small Company
Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
ALLIANCE MONEY MARKET 4.11 3.82 3.12 4.68 5.85 -- 6.05
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57 2.80 4.38 -- -- -- 5.75
Lipper Gen. U.S.
Government 1.57 3.99 5.21 -- -- -- 6.76
Benchmark 4.06 5.37 6.23 -- -- -- 7.43
ALLIANCE HIGH YIELD 21.46 11.43 13.34 -- -- -- 10.13
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
</TABLE>
12
<PAGE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 17.34% 34.32% -- -- -- 72.02%
Lipper Income 8.95 29.47 58.37 -- -- -- 94.21
Benchmark 8.78 33.60 58.40 -- -- -- 105.23
ALLIANCE GROWTH
INVESTORS 11.30 33.11 57.28 -- -- -- 162.18
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GROWTH &
INCOME 18.70 43.09 -- -- -- -- 42.30
Lipper Growth & Income 19.96 53.82 -- -- -- -- 56.73
Benchmark 21.28 63.99 -- -- -- -- 67.75
ALLIANCE COMMON STOCK 22.84 55.58 95.88 287.01% 731.70% 1,314.86% 1,430.82
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1,416.26 1,655.74
ALLIANCE GLOBAL 13.28 38.40 77.77 -- -- -- 152.69
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 -- -- -- 95.62
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 19.76
Lipper International 13.36 -- -- -- -- -- 26.53
Benchmark 6.05 -- -- -- -- -- 15.78
ALLIANCE AGGRESSIVE STOCK 20.79 49.45 65.10 390.47 -- -- 556.42
Lipper Small Company
Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 46.89 99.38 280.32 -- -- 318.19
ALLIANCE MONEY MARKET 4.11 11.90 16.59 58.03 134.78 -- 148.19
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 -- 184.26
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57 8.63 23.89 -- -- -- 37.89
Lipper Gen. U.S.
Government 1.57 12.45 28.92 -- -- -- 45.71
Benchmark 4.06 16.98 35.30 -- -- -- 51.07
ALLIANCE HIGH YIELD 21.46 38.37 87.00 -- -- -- 162.38
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
</TABLE>
- ------------
See footnotes on next page.
13
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.79%
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.53
ALLIANCE GROWTH
& INCOME -- -- -- -- -- --
ALLIANCE COMMON
STOCK** (3.09)% 31.91% 16.02% 6.21% 21.03% 24.16
ALLIANCE GLOBAL -- -- -- (13.62) 9.61 25.29
ALLIANCE
INTERNATIONAL -- -- -- -- -- --
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.83 6.06 (0.03) 41.86
ALLIANCE MONEY
MARKET** 9.59 6.91 5.39 5.41 6.09 7.93
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- --
ALLIANCE
HIGH YIELD -- -- -- 3.49 8.48 3.93
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS 5.14% 18.51% 4.50% 9.54% (5.20)% 19.02% 3.99%
ALLIANCE GROWTH
INVESTORS 9.39 47.19 3.69 13.95 (4.27) 24.92 11.30
ALLIANCE GROWTH
& INCOME -- -- -- (0.55) (1.72) 22.65 18.70
ALLIANCE COMMON
STOCK** (9.17) 36.30 2.03 23.39 (3.26) 30.93 22.84
ALLIANCE GLOBAL (7.15) 29.06 (1.65) 30.60 4.02 17.45 13.28
ALLIANCE
INTERNATIONAL -- -- -- -- -- 10.34 8.54
ALLIANCE
AGGRESSIVE
STOCK 6.92 84.73 (4.28) 15.41 (4.92) 30.13 20.79
ALLIANCE MONEY
MARKET** 6.99 4.97 2.37 1.78 2.82 4.53 4.11
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- 11.30 4.38 9.27 (5.47) 12.03 2.57
ALLIANCE
HIGH YIELD (2.26) 23.03 11.02 21.74 (3.90) 18.54 21.46
<FN>
- ------------
* Returns do not reflect the distribution fee, the withdrawal charge, the
guaranteed minimum death benefit charge, the annual contract fee and
any charge for tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were: 1976 1977 1978 1979 1980 1981 1982 1983
---- ---- ---- ---- ---- ---- ---- ----
ALLIANCE COMMON STOCK 8.20% (10.28)% 6.99% 28.35% 48.39% (6.94)% 16.22% 24.67%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.71 11.72 7.70%
</TABLE>
ON PAGE 27, UNDER THE HEADING "TRANSFERS AMONG INVESTMENT OPTIONS," DELETE
THE FIRST BULLETED PARAGRAPH.
ON PAGE 28, UNDER THE HEADING "DOLLAR COST AVERAGING"
REPLACE THE FIRST SENTENCE IN THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
If you have at least $10,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market
Fund to other Investment Funds on a monthly, quarterly, or annual basis.
REPLACE THE SECOND AND THIRD SENTENCES IN THE SECOND PARAGRAPH WITH THE
FOLLOWING SENTENCES:
The minimum amount that may be transferred on each Transaction Date is
$250. The maximum amount which may be transferred is equal to the Annuity
Account Value in the Alliance Money Market Fund at the time the option is
elected, divided by the number of transfers scheduled to made each Contract
Year.
14
<PAGE>
ON PAGE 29, INSERT THE FOLLOWING SECTION BEFORE THE "CASH VALUE" SECTION:
GUARANTEED MINIMUM INCOME BENEFIT (GMIB)
When you elect the IRA Assured Payment Option discussed in Part 6 of the
prospectus, the GMIB provides a minimum amount of guaranteed lifetime
income under such option. On the Transaction Date, the amount of the
periodic lifetime income to be provided will be based on the greater of (i)
the Annuity Account Value in the Investment Funds and (ii) an amount equal
to the GMDB (without regard to the seventh Contract Year reset) described
above, reduced by any remaining withdrawal charges; each divided by
"guaranteed maximum annuity purchase rates" under the Certificate. The
guaranteed maximum annuity purchase rates are based on (i) interest at 2.5%
if the GMIB is exercised within 30 days following a Contract Date
anniversary in years 7 through 9 and at 3% if exercised within 30 days
following the 10th or later Contract Date anniversary, and (ii) mortality
based on the 1983 Individual Annuity Mortality Table "a" projected with
modified Scale G. The mortality table used in determining such annuity
purchase rates assumes that mortality will improve in the future and is
more conservative than the basis underlying current annuity purchase rates.
Your Annuity Account Value in the Investment Funds will depend on the
performance of such Funds. The amount equal to the GMDB (as discussed
above) does not have an Annuity Account Value or a Cash Value and is used
solely for purposes of calculating the GMIB.
If you have any Annuity Account Value in the Guaranteed Period Account as
of the Transaction Date that you exercise the GMIB, such Annuity Account
Value will also be applied (at current annuity purchase rates) toward
providing payments under the IRA Assured Payment Option. Such Annuity
Account Value will increase the payments provided by the GMIB. A market
value adjustment may apply.
When you exercise the GMIB, we automatically determine whether the
application of your Annuity Account Value in the Investment Funds at
current purchase rates under the IRA Assured Payment Option (with a fixed
period as specified below) would produce higher lifetime income, and if so,
the higher income will be provided.
In addition, you can elect any of our income annuity options at any time.
See "Income Annuity Options" in Part 6 of the prospectus.
The GMIB applies only if your election of the IRA Assured Payment Option
meets the following conditions:
o The IRA Assured Payment Option is elected within 30 days following the
7th or later Contract Date anniversary; provided it is not elected
earlier than your age 60, nor later than age 83.
o The fixed period you select is as indicated below, based on your age
at the time of election and the type of payments selected:
<TABLE>
<CAPTION>
LEVEL PAYMENTS
--------------
AGE FIXED PERIOD
--- ------------
<S> <C>
60 through 75 10 years
76 through 78 85 less your age
79 through 83 7 years
INCREASING PAYMENTS
-------------------
AGE FIXED PERIOD
--- ------------
60 through 70 15 years
71 through 75 12 years
76 through 80 9 years
81 through 83 6 years
</TABLE>
o Payments start one payment mode after the IRA Assured Payment Option
goes into effect.
Each year on your Contract Date anniversary, if you are eligible to
exercise the GMIB, we will send you a notice of how much income could be
provided under such option on the Contract Date anniversary. You may then
notify us within 30 days following the Contract Date anniversary if you
want to exercise the GMIB by submitting the proper form. The income to be
provided under the IRA Assured Payment Option will be determined on the
Transaction Date that we receive your request and, therefore, may differ
from the notice. It will be based on the GMIB as of such Transaction Date.
15
<PAGE>
The GMDB, which relates to the Investment Funds, will no longer be in
effect if you elect the IRA Assured Payment Option. If you subsequently
terminate the IRA Assured Payment Option and have your Certificate operate
under the Rollover IRA rules, then the GMDB will go back into effect based
on your Annuity Account Value in the Investment Funds as of the Transaction
Date that the Rollover IRA goes into effect.
GMIB Charge
If you elect to have GMIB added to your Certificate, an additional 0.10%
charge will be applied against the GMDB for providing the GMIB. The charge
will be added as of the Processing Date following election of this benefit.
The combined GMDB/GMIB charge will be 0.30% of the GMDB in effect on each
Processing Date.
ON PAGE 30, UNDER THE HEADING, "DISTRIBUTION OF THE CERTIFICATES," REPLACE
THE FOURTH AND FIFTH SENTENCES OF THE FIRST PARAGRAPH WITH THE FOLLOWING TWO
SENTENCES:
EDI's principal business address is 1290 Avenue of the Americas, New York,
New York 10104. EDI was paid a fee of $1,204,370 for 1996 and $126,914 for
1995 for its services under its "Distribution Agreement" with Equitable
Life and the Separate Account.
ON PAGE 32, UNDER THE SUB-HEADING "PAYMENTS," DELETE THE SECOND PARAGRAPH.
ON PAGE 41, DELETE THE SECTION WITH THE HEADING "TRUST CHARGES TO
PORTFOLIOS," AND REPLACE WITH THE FOLLOWING SECTION:
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, direct
operating expenses of HR Trust (such as trustees' fees, expenses of
independent auditors and legal counsel, bank and custodian charges and
liability insurance), and certain investment-related expenses of HR Trust
(such as brokerage commissions and other expenses related to the purchase
and sale of securities), are reflected in each Portfolio's daily share
price. The maximum investment advisory fees paid annually by the Portfolios
cannot be changed without a vote by shareholders. They are as follows:
AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors ....... 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance Growth Investors.............. 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Growth & Income............... 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance Common Stock.................. 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Global........................ 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance International................. 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance Aggressive Stock.............. 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Small Cap Growth.............. 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Money Market.................. 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance Intermediate Govt Securities 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance High Yield.................... 0.600% 0.575% 0.550% 0.530% 0.520%
</TABLE>
- ------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
16
<PAGE>
Investment advisory fees are established under HR Trust's investment advisory
agreements between HR Trust and its investment adviser, Alliance. Fees and
expenses are described more fully in the HR Trust prospectus.
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the 12b-1
fee, other direct operating expenses of EQ Trust (such as trustees' fees,
expenses of independent auditors and legal counsel, administrative service
fees, custodian fees, and liability insurance), and certain
investment-related expenses of EQ Trust (such as brokerage commissions and
other expenses related to the purchase and sale of securities), are reflected
in each Portfolio's daily share price. The investment management fees paid
annually by the Portfolios cannot be changed without a vote by shareholders.
They are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
------------------------
<S> <C>
EQ/Putnam Balanced..................... 0.55%
EQ/Putnam Growth and Income Value ..... 0.55%
MFS Emerging Growth Companies.......... 0.55%
MFS Research........................... 0.55%
Merrill Lynch Basic Value Equity ...... 0.55%
Merrill Lynch World Strategy........... 0.70%
Morgan Stanley Emerging Markets
Equity................................ 1.15%
T. Rowe Price Equity Income............ 0.55%
T. Rowe Price International Stock ..... 0.75%
Warburg Pincus Small Company Value .... 0.65%
</TABLE>
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ
Financial. EQ Financial has entered into expense limitation agreements with
EQ Trust, with respect to each Portfolio, pursuant to which EQ Financial has
agreed to waive or limit its fees and total annual operating expenses
(expressed as a percentage of the Portfolios' average daily net assets) to
0.85% each for the EQ/Putnam Growth & Income Value, MFS Research, Merrill
Lynch Basic Value Equity, T. Rowe Price Equity, and MFS Emerging Growth
Companies Portfolios; 0.90% for the EQ/Putnam Balanced Portfolio; 1.00% for
Warburg Pincus Small Company Value Portfolio; 1.20% each for T. Rowe Price
International Stock and Merrill Lynch World Strategy Portfolios; and 1.75%
for Morgan Stanley Emerging Markets Equity Portfolio. See the prospectus for
EQ Trust for more information.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. This fee will not be
increased for the life of the Certificates. Fees and expenses are described
more fully in the EQ Trust prospectus.
ON PAGE 43, UNDER THE HEADING "TRUST VOTING RIGHTS"
REPLACE THE FIRST SENTENCE OF THE SECOND PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Because HR Trust is a Massachusetts business trust and EQ Trust is a
Delaware business trust, annual meetings are not required.
ON PAGE 43, UNDER THE HEADING "VOTING RIGHTS OF OTHERS," REPLACE THE FIRST
TWO SENTENCES OF THE PARAGRAPH WITH THE FOLLOWING SENTENCES:
Currently we control each trust. EQ Trust shares currently are sold only to
our separate accounts. HR Trust shares are held by other separate accounts
of insurance companies affiliated and unaffiliated with us.
ON PAGE 44, UNDER THE SUB-HEADING "CONTRIBUTIONS TO IRAS," REPLACE THE SECOND
SENTENCE OF THE FOURTH PARAGRAPH WITH THE FOLLOWING SENTENCE:
If the individual's spouse does not work or elects to be treated as having
no compensation, the individual and the individual's spouse may contribute
up to $4,000 to individual retirement arrangements (but no more than $2,000
to any one individual retirement arrangement).
ON PAGE 45, REPLACE THE SECOND SENTENCE OF THE FIFTH PARAGRAPH WITH THE
FOLLOWING SENTENCE:
The deductible and nondeductible contributions to the individual's IRA (or
the nonworking spouse's IRA) may not, however, together exceed the maximum
$2,000 per person limit.
17
<PAGE>
ON PAGE 45, UNDER THE SUB-HEADING "EXCESS CONTRIBUTIONS," REPLACE THE LAST
SENTENCE ON THIS PAGE WITH THE FOLLOWING SENTENCE:
If excess contributions are not withdrawn before the time for filing the
individual's Federal income tax return for the year (including extensions),
"regular" contributions may still be withdrawn after that time if the IRA
contribution for the tax year did not exceed $2,000 and no tax deduction
was taken for the excess contribution; in that event, the excess
contribution would not be includable in gross income and would not be
subject to the 10% penalty tax.
ON PAGE 49, UNDER THE HEADING "PENALTY TAX ON EARLY DISTRIBUTIONS," ADD THE
FOLLOWING SENTENCE AT THE END OF THE FIRST PARAGRAPH:
Also not subject to penalty tax are IRA distributions used to pay certain
extraordinary medical expenses or medical insurance premiums for defined
unemployed individuals.
ON PAGE 49, UNDER THE HEADING "TAX PENALTY FOR EXCESS DISTRIBUTIONS OR
ACCUMULATION," REPLACE THE TWO PARAGRAPHS WITH THE FOLLOWING PARAGRAPH:
A 15% excise tax is imposed on an individual's aggregate excess
distributions from all tax-favored retirement plans. The excise tax is in
addition to the ordinary income tax due, but is reduced by the amount (if
any) of the early distribution penalty tax imposed by the Code. This tax is
temporarily suspended for distributions to the individual for the years
1997, 1998 and 1999. However, the excise tax continues to apply for estate
tax purposes. In certain cases the estate tax imposed on a deceased
individual's estate will be increased if the accumulated value of the
individual's interest in tax-favored retirement plans is excessive. The
aggregate accumulations will be subject to excise tax in 1997 if they
exceed the present value of a hypothetical life annuity paying $160,000 a
year.
ON PAGE 50, UNDER THE HEADING ON PAGE 49 "FEDERAL AND STATE INCOME TAX
WITHHOLDING," REPLACE THE FOURTH SENTENCE OF THE THIRD PARAGRAPH WITH THE
FOLLOWING SENTENCE:
For 1997, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,400 taxable amount will generally be
exempt from Federal income tax withholding, unless the recipient specifies
a different choice of withholding exemptions.
18
<PAGE>
INSERT THE FOLLOWING APPENDIX AFTER PAGE 56 "APPENDIX V:"
APPENDIX VI: GMIB EXAMPLES
The GMIB is equal to:
(A) the greater of
(i) the Annuity Account Value in the Investment Funds, and
(ii) an amount equal to the GMDB (without regard to the seventh
Contract Year reset), reduced by any remaining withdrawal
charges;
divided by
(B) the guaranteed maximum annuity purchase rates.
The examples below assume a male age 60 has purchased the Rollover IRA
with an initial contribution of $100,000 that is allocated 100% to the
Investment Funds (excluding the Alliance Money Market and Intermediate
Government Securities Funds). The GMDB (without regard to the seventh
Contract Year reset) in the 10th Contract Year is $179,085 at 6%
interest. Assuming hypothetical rates of return (after deduction of
charges) in the Investment Funds of 0% in Example 1 and 8% in Example 2
during the 10 Contract Years, the GMIB in the 10th Contract Year
(assuming level payments under the IRA Assured Payment Option) would be
as follows:
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2
--------- ---------
<S> <C> <C>
(1) Hypothetical Rate of Return ................... 0% 8%
(2) Annuity Account Value as of the Contract Date $100,000 $100,000
(3) The greater of (i) the GMDB (without regard
to the seventh Contract Year reset) and (ii)
the Annuity Account Value as of the 10th
Contract Date anniversary ..................... $179,085 $215,892
(4) Guaranteed Maximum Annuity
Purchase Rates for level payments under
the IRA Assured Payment Option ................ $14.73 $14.73
(5) GMIB as of 10th Contract Date
anniversary ((3) / (4)) ....................... $12,160 $14,659
</TABLE>
In Example 1, the GMDB (without regard to the seventh Contract Year
reset) which is higher than the Annuity Account Value would provide a
GMIB of $12,160. In Example 2, the Annuity Account Value, which at this
point is higher than the GMDB (without regard to the seventh Contract
Year reset), would provide a GMIB of $14,659.
The rates of return discussed above are for illustrative purposes only
and are not intended to represent an expected or guaranteed rate of
return. Your investment results will vary. The level of GMIB under the
IRA Assured Payment Option will also depend on the guaranteed maximum
annuity purchase rates as of the Transaction Date and the type of
payments selected. The examples assume no transfers or withdrawals, which
would affect the GMDB and, thus, the GMIB.
19
<PAGE>
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
PAGE
----
Part 1: Minimum Distribution Withdrawals 2
Part 2: Accumulation Unit Values 2
Part 3: Annuity Unit Values 2
Part 4: Custodian and Independent Accountants 3
Part 5: Alliance Money Market Fund and Alliance Intermediate 3
Government Securities Fund Yield Information
Part 6: Long-Term Market Trends 4
Part 7: Financial Statements 6
HOW TO OBTAIN A ROLLOVER IRA STATEMENT OF ADDITIONAL
INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me a Rollover IRA SAI:
(Supplement dated May 1, 1997 to Rollover IRA and Choice
Income Plan Prospectus dated May 1, 1996)
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
20
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
SUPPLEMENT DATED MAY 1, 1997 TO INCOME MANAGER (SERVICE MARK)
Accumulator Prospectus, dated May 1, 1996
- -----------------------------------------------------------------------------
This supplement dated May 1, 1997, updates certain information in the
Accumulator prospectus of The Equitable Life Assurance Society of the United
States (EQUITABLE LIFE), dated May 1, 1996. You should read this supplement
in conjunction with the prospectus. You should keep the supplement and the
prospectus for future reference. We have filed with the Securities and
Exchange Commission (SEC) our statement of additional information (SAI) dated
May 1, 1997. If you have previously received, but do not presently have, a
copy of the prospectus, you may obtain an additional copy of the prospectus,
as well as a copy of the SAI, from us, free of charge, if you write to
Equitable Life, Income Management Group, P.O. Box 1547, Secaucus, NJ
07096-1547, call (800) 789-7771 or if you only need a copy of the SAI, you
may mail in the SAI request form located at the end of the supplement. The
SAI has been incorporated by reference into this supplement.
In the supplement, each section of the prospectus in which a change has been
made is identified and the number of each prospectus page on which a change
occurs is also noted. Special terms used in the prospectus have the same
meaning in the supplement unless otherwise noted.
ON THE COVER PAGE OF THE PROSPECTUS, THE THIRD (INCLUDING THE CHART OF
INVESTMENT OPTIONS) AND FOURTH PARAGRAPHS ARE REPLACED BY THE FOLLOWING
PARAGRAPHS:
The Accumulator offers investment options (INVESTMENT OPTIONS) that permit
you to create your own strategies. These Investment Options include 21
variable investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in
the GUARANTEED PERIOD ACCOUNT.
We invest each Investment Fund in Class IA shares of a corresponding
portfolio (PORTFOLIO) of The Hudson River Trust (HR TRUST) or Class IB
shares of a corresponding Portfolio of EQ Advisors Trust (EQ TRUST), mutual
funds whose shares are purchased by separate accounts of insurance
companies. The prospectuses for HR Trust and EQ Trust, both of which
accompany this supplement, describe the investment objectives, policies and
risks of the Portfolios.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity ______________
T. Rowe Price Equity Income *Available on or about September 2, 1997.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE FOLLOWING SENTENCE IS ADDED AT THE END OF THE FIFTH PARAGRAPH.
The Guarantee Periods currently available have Expiration Dates of
February 15 in years 1998 through 2007.
THROUGHOUT THE PROSPECTUS ANY REFERENCE TO THE INVESTMENT FUNDS AND GUARANTEE
PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET FORTH ABOVE.
- -----------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
THROUGHOUT THE PROSPECTUS (EXCEPT WHERE OTHERWISE NOTED) THE REFERENCE TO
"TRUST" IS REPLACED BY "HR TRUST AND EQ TRUST."
ON PAGE 2, UNDER THE HEADING "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" REPLACE THE ENTIRE SECTION WITH THE FOLLOWING SECTION:
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996 is incorporated herein by reference.
All documents or reports filed by Equitable Life pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (EXCHANGE ACT) after the date hereof and prior to the termination
of the offering of the securities offered hereby shall be deemed to be
incorporated by reference in the prospectus and the supplement and to be a
part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of the
prospectus and the supplement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified and superseded, to constitute a part of the
prospectus and the supplement. Equitable Life files its Exchange Act
documents and reports, including its annual and quarterly reports on Form
10-K and Form 10-Q, electronically pursuant to EDGAR under CIK No.
0000727920. The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the SEC. The address of the site is
http://www.sec.gov.
Equitable Life will provide without charge to each person to whom a
prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by
reference (other than exhibits not specifically incorporated by reference
into the text of such documents). Requests for such documents should be
directed to The Equitable Life Assurance Society of the United States, 1290
Avenue of the Americas, New York, New York 10104. Attention: Corporate
Secretary (telephone: (212) 554-1234).
ON PAGE 4, UNDER THE HEADING "GENERAL TERMS"
ADD THE FOLLOWING DEFINITIONS:
EQ TRUST--EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants,
Inc. (EQ Financial) is the manager of EQ Trust and has appointed advisers
for each of the Portfolios.
HR TRUST--The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (Alliance) is the manager and adviser to HR Trust.
DELETE THE DEFINITION FOR "TRUST."
2
<PAGE>
ON PAGES 5, 6 AND 7, REPLACE THE "FEE TABLE" SECTION WITH THE FOLLOWING
SECTION:
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them on the same basis with other similar products.
The table reflects both the charges of the Separate Account and the expenses
of HR Trust and EQ Trust. Charges for applicable taxes such as state or local
premium taxes may also apply. For a complete description of the charges under
the Certificate, see "Part 6: Deductions and Charges." For a complete
description of each trust's charges and expenses, see the prospectuses for HR
Trust and EQ Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. However, if there is insufficient
value in the Investment Funds all or a portion of the distribution fee and
the annual contract fee, if any, will be deducted from your Annuity Account
Value in the Guaranteed Period Account rather than from the Investment Funds.
See "Part 6: Deductions and Charges." A market value adjustment (either
positive or negative) also may be applicable as a result of a withdrawal,
transfer or surrender of amounts from a Guarantee Period. See "Part 4: The
Guaranteed Period Account."
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
<TABLE>
<CAPTION>
<S> <C>
DISTRIBUTION FEE (SALES LOAD) AS A PERCENTAGE OF EACH CONTRIBUTION RECEIVED DURING THE
FIRST CONTRACT YEAR (deducted annually on each of the first seven Processing Dates)(1) .... 0.20%
CONTRACT
YEAR
----
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (deducted upon 1 ... 7.00%
surrender or for certain withdrawals. The applicable withdrawal charge 2 ... 6.00
percentage is determined by the Contract Year in which the withdrawal 3 ... 5.00
is made or the Certificate is surrendered beginning with "Contract Year 4 ... 4.00
1" with respect to each contribution withdrawn or surrendered. For each 5 ... 3.00
contribution, the Contract Year in which we receive that contribution 6 ... 2.00
is "Contract Year 1")(2) 7 ... 1.00
8+ .. 0.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TRANSFER CHARGE(3) .......................................................................... $0.00
GUARANTEED MINIMUM DEATH BENEFIT CHARGE (percentage deducted annually on each Processing
Date as a percentage of the guaranteed minimum death benefit then in effect)(4) ............ 0.35%
</TABLE>
ANNUAL CONTRACT FEE (DEDUCTED FROM ANNUITY ACCOUNT VALUE ON EACH PROCESSING
DATE)(5)
<TABLE>
<CAPTION>
<S> <C>
If the initial contribution is less than
$25,000......................................... $30
If the initial contribution is $25,000 or more . $ 0
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH
INVESTMENT FUND)
<TABLE>
<CAPTION>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE ...... 0.90%
ASSET BASED ADMINISTRATIVE CHARGE ...... 0.25%
-------
TOTAL SEPARATE ACCOUNT ANNUAL
EXPENSES............................... 1.15%
=======
</TABLE>
- ------------
See footnotes on next page.
3
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
-----------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL
-------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08%
-------------- ----------- ---------- ---------- ----------
TOTAL HR TRUST ANNUAL
EXPENSES(6) 0.55% 0.59% 0.60% 0.41% 0.73%
============== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
ALLIANCE AGGRESSIVE SMALL MONEY GOVT. HIGH
HR TRUST INTERNATIONAL STOCK CAP GROWTH MARKET SECURITIES YIELD
--------------- ------------ ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.90% 0.55% 0.90% 0.35% 0.50% 0.60%
Other Expenses 0.18% 0.03% 0.10% 0.04% 0.09% 0.06%
--------------- ------------ ------------ ---------- -------------- ----------
TOTAL HR TRUST ANNUAL
EXPENSES(6) 1.08% 0.58% 1.00% 0.39% 0.59% 0.66%
=============== ============ ============ ========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
EQ/PUTNAM MFS MERRILL
GROWTH & EMERGING LYNCH
EQ/PUTNAM INCOME GROWTH MFS BASIC VALUE
EQ TRUST BALANCED VALUE COMPANIES RESEARCH EQUITY
----------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.55% 0.55% 0.55% 0.55% 0.55%
12b-1 Fee(7) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.10% 0.05% 0.05% 0.05% 0.05%
----------- ----------- ----------- ---------- -------------
TOTAL EQ TRUST ANNUAL
EXPENSES(8) 0.90% 0.85% 0.85% 0.85% 0.85%
=========== =========== =========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
MORGAN T. ROWE WARBURG
MERRILL STANLEY T. ROWE PRICE PINCUS
LYNCH EMERGING PRICE INTERNA- SMALL
WORLD MARKETS EQUITY TIONAL COMPANY
EQ TRUST STRATEGY EQUITY* INCOME STOCK VALUE
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fee 0.70% 1.15% 0.55% 0.75% 0.65%
12b-1 Fee(7) 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.25% 0.35% 0.05% 0.20% 0.10%
---------- ---------- --------- ---------- ---------
TOTAL EQ TRUST ANNUAL
EXPENSES(8) 1.20% 1.75% 0.85% 1.20% 1.00%
========== ========== ========= ========== =========
</TABLE>
- ------------
Notes:
(1) The amount deducted is based on contributions that have not been
withdrawn. See "Part 6: Deductions and Charges," "Distribution Fee."
(2) Deducted upon a withdrawal with respect to amounts in excess of the
15% free corridor amount, and upon a surrender. See "Part 6:
Deductions and Charges," "Withdrawal Charge."
(3) We reserve the right to impose a charge in the future at a maximum
of $25 for each transfer among the Investment Options in excess of
five per Contract Year.
(4) See "Part 6: Deductions and Charges," "Guaranteed Minimum Death
Benefit Charge."
(5) This charge is incurred at the beginning of the Contract Year and
deducted on the Processing Date. See "Part 6: Deductions and
Charges," "Annual Contract Fee."
(6) The amounts shown for the Portfolios of HR Trust (other than
Alliance Small Cap Growth) have been restated to reflect advisory
fees which went into effect as of May 1, 1997. "Other Expenses" are
based on the average daily net assets in each Portfolio during 1996.
The amounts shown for the Alliance Small Cap Growth Portfolio are
estimated for the current fiscal year as this Portfolio commenced
operations on May 1, 1997. The investment advisory fee for each
Portfolio may vary from year to year depending upon the average
daily net assets of the respective Portfolio of HR Trust. The
maximum investment advisory fees, however, cannot be increased
without a vote of that Portfolio's shareholders. The other direct
operating expenses will also fluctuate from year to year depending
on actual expenses. See "HR Trust Charges to Portfolios" in Part 6.
(7) The Class IB shares of EQ Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by EQ
Trust pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. The Rule 12b-1 Plan provides that EQ Trust, on
behalf of each Portfolio, may pay annually up to 0.25% of the
average daily net assets of a Portfolio attributable to its Class IB
shares in respect of activities primarily intended to result in the
sale of the Class IB shares. This fee will not be increased for the
life of the Certificates.
(8) "Other Expenses" shown are based on estimated amounts (after expense
waiver or limitation) for the current fiscal year, as EQ Trust
commenced operations on May 1, 1997. The maximum investment advisory
fees cannot be increased without a vote of that Portfolio's
shareholders. The other direct operating expenses will fluctuate
from year to year depending on actual expenses, but pursuant to
agreement, cannot together with other fees specified exceed the
total annual expenses specified. See "EQ Trust Charges to
Portfolios" in Part 6.
* Available on or about September 2, 1997.
4
<PAGE>
EXAMPLES
- --------
The examples below show the expenses that a hypothetical Certificate Owner
would pay in the two situations noted below assuming a $1,000 contribution
invested in one of the Investment Funds listed, and a 5% annual return on
assets.(1) The annual contract fee was computed based on an initial
contribution of $10.000.
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be
greater or less than those shown. Similarly, the annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance.
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
HR TRUST
Alliance Conservative
Investors $ 90.26 $123.66 $159.71 $278.92
Alliance Growth Investors 90.65 124.85 161.72 282.98
Alliance Growth & Income 90.75 125.15 162.22 284.01
Alliance Common Stock 88.86 119.44 152.64 264.56
Alliance Global 92.05 129.06 168.75 297.11
Alliance International 95.53 139.48 186.10 331.55
Alliance Aggressive Stock 90.55 124.55 161.22 281.96
Alliance Small Cap Growth 94.73 137.10 -- --
Alliance Money Market 88.67 118.84 151.63 262.49
Alliance Intermediate
Government Securities 90.65 124.85 161.72 282.98
Alliance High Yield 91.35 126.96 165.25 290.09
EQ TRUST
EQ/Putnam Balanced $ 93.74 $134.13 -- --
EQ/Putnam Growth & Income
Value 93.24 132.63 -- --
MFS Emerging Growth
Companies 93.24 132.63 -- --
MFS Research 93.24 132.63 -- --
Merrill Lynch Basic Value
Equity 93.24 132.63 -- --
Merrill Lynch World
Strategy 96.72 143.04 -- --
Morgan Stanley Emerging
Markets Equity 102.19 159.26 -- --
T. Rowe Price Equity Income 93.24 132.63 -- --
T. Rowe Price International
Stock 96.72 143.04 -- --
Warburg Pincus Small
Company Value 94.73 137.10 -- --
</TABLE>
- --------------
See footnote on next page.
5
<PAGE>
<TABLE>
<CAPTION>
IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD SHOWN,
THE EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
HR TRUST
Alliance Conservative Investors $25.97 $ 79.83 $136.40 $285.19
Alliance Growth Investors 26.36 81.02 138.41 289.26
Alliance Growth & Income 26.46 81.32 138.91 290.27
Alliance Common Stock 24.57 75.61 129.33 270.83
Alliance Global 27.76 85.22 145.43 303.37
Alliance International 31.24 95.66 162.80 337.84
Alliance Aggressive Stock 26.26 80.72 137.90 288.23
Alliance Small Cap Growth 30.44 93.27 -- --
Alliance Money Market 24.38 75.02 128.33 268.78
Alliance Intermediate Government
Securities 26.36 81.02 138.41 289.26
Alliance High Yield 27.06 83.12 141.92 296.33
EQ TRUST
EQ/Putnam Balanced $29.45 $ 90.30 -- --
EQ/Putnam Growth & Income Value 28.95 88.80 -- --
MFS Emerging Growth Companies 28.95 88.80 -- --
MFS Research 28.95 88.80 -- --
Merrill Lynch Basic Value Equity 28.95 88.80 -- --
Merrill Lynch World Strategy 32.43 99.21 -- --
Morgan Stanley Emerging Markets
Equity 37.90 115.42 -- --
T. Rowe Price Equity Income 28.95 88.80 -- --
T. Rowe Price International Stock 32.43 99.21 -- --
Warburg Pincus Small Company
Value 30.44 93.27 -- --
</TABLE>
- ------------
Note:
(1) The amount accumulated from the $1,000 contribution could not be paid in
the form of an annuity at the end of any of the periods shown in the
examples. If the amount applied to purchase an annuity is less than
$2,000, or the initial payment is less than $20 we may pay the amount to
the payee in a single sum instead of as payments under an annuity form.
See "Income Annuity Options" in Part 5. The examples do not reflect
charges for applicable taxes such as state or local premium taxes that
may also be deducted in certain jurisdictions.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on May 1, 1995.
The following table shows the Accumulation Unit Values, as of May 1, 1995
and the last Business Day for the periods shown. There are no Accumulation
Unit Values for Alliance Small Cap Growth and Alliance High Yield Funds,
and the Investment Funds investing in Class IB shares of EQ Trust
Portfolios as such Funds were not available prior to the date of this
supplement.
<TABLE>
<CAPTION>
LAST BUSINESS DAY OF
----------------------------------------------------------
MAY 1, 1995 DECEMBER 1995 DECEMBER 1996 MARCH 1997
------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Alliance Conservative
Investors $ 14.647383 $ 16.549050 $ 17.209382 17.009080
Alliance Growth
Investors 20.073331 23.593613 26.260729 25.712963
Alliance Growth &
Income 10.376155 11.989601 14.231408 14.317214
Alliance Common
Stock 102.335691 124.519251 152.955877 147.037726
Alliance Global 19.478146 22.293921 25.253538 24.366634
Alliance International 10.125278 11.033925 11.976127 11.827319
Alliance Aggressive
Stock 44.025496 54.591448 65.938687 64.279288
Alliance Money Market 23.150932 23.830754 24.810781 25.046934
Alliance Intermediate
Govt. Securities 12.498213 13.424767 11.976127 13.741339
</TABLE>
ON PAGE 8, UNDER THE HEADING "TRANSFERS"
THE FIRST SENTENCE OF THE PARAGRAPH IS REVISED AS FOLLOWS:
You may make an unlimited number of transfers among the Investment Options.
DELETE THE SECOND SENTENCE.
ON PAGE 11 UNDER THE HEADING "EQUITABLE LIFE"
REPLACE THE FOURTH SENTENCE OF THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
Our home office is located at 1290 Avenue of the Americas, New York, New
York 10104.
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (the Holding Company). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of December 31, 1996, AXA beneficially owned
approximately 63.8% of the outstanding shares of common stock of the
Holding Company (assuming conversion of convertible preferred stock held by
AXA). Under its investment arrangements with Equitable Life and the Holding
Company, AXA is able to exercise significant influence over the operations
and capital structure of the Holding Company and its subsidiaries,
including Equitable Life. AXA, a French company, is the holding company for
an international group of insurance and related financial service
companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $239.8 billion of assets as of December 31, 1996.
ON PAGES 11 AND 12 REPLACE THE HEADING "THE TRUST" WITH "HR TRUST" AND ADD
THE FOLLOWING SENTENCE AFTER THE FIFTH SENTENCE OF THE FIRST PARAGRAPH:
Investment Funds that invest in Portfolios of HR Trust purchase Class IA
shares of a corresponding Portfolio of HR Trust.
7
<PAGE>
ON PAGE 12 IN THE HEADING "THE TRUST'S INVESTMENT ADVISOR" AND IN THE FIRST
SENTENCE OF THE PARAGRAPH UNDER THE HEADING REPLACE "THE TRUST" WITH "HR
TRUST."
IN THE FIRST PARAGRAPH OF THIS SECTION, REPLACE THE THIRD SENTENCE WITH THE
FOLLOWING SENTENCE:
On December 31, 1996, Alliance was managing approximately $182.8 billion in
assets.
DELETE THE SECOND PARAGRAPH.
ON PAGE 12, INSERT THE FOLLOWING SECTIONS AFTER THE LAST PARAGRAPH:
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type"
of mutual fund, EQ Trust issues different series of stock, each of which
relates to a different Portfolio of EQ Trust. EQ Trust commenced operations
on May 1, 1997. EQ Trust does not impose a sales charge or "load" for
buying and selling it shares. All dividend distributions to EQ Trust are
reinvested in full and fractional shares of the Portfolio to which they
relate. Investment Funds that invest in Portfolios of EQ Trust purchase
Class IB shares of a corresponding Portfolio of EQ Trust. More detailed
information about EQ Trust, its investment objectives, policies and
restrictions, risks, expenses, the Rule 12b-1 Plan relating to the Class IB
shares, and all other aspects of its operations appears in its prospectus
which accompanies this supplement and in its statement of additional
information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ Financial) which,
subject to supervision and direction of the Trustees of EQ Trust, has
overall responsibility for the general management of EQ Trust. EQ Financial
is an investment adviser registered under the 1940 Act, and a broker-dealer
registered under the Exchange Act. EQ Financial is a Delaware corporation
and an indirect, wholly-owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New
York, New York 10104.
EQ Financial has entered into investment advisory agreements with Putnam
Investments, Massachusetts Financial Services Company, Merrill Lynch Asset
Management, L.P., Morgan Stanley Asset Management, Inc., T. Rowe Price
Associates, Inc. and Rowe Price-Fleming International Inc., and Warburg,
Pincus Counsellors, Inc., which serve as advisers to EQ/Putnam, MFS,
Merrill Lynch, Morgan Stanley, T. Rowe Price, and Warburg Pincus
Portfolios, respectively, of EQ Trust.
ON PAGE 13, UNDER THE HEADING "INVESTMENT POLICIES AND OBJECTIVES OF THE
TRUST'S PORTFOLIOS"
ADD THE FOLLOWING SENTENCES TO THE END OF THE FIRST PARAGRAPH:
Set forth below is a summary of the investment policies and objectives of
each Portfolio. This summary is qualified in its entirely by reference to
the prospectuses for HR Trust and EQ Trust, both of which accompany this
supplement. Please read the prospectuses for each of the trusts carefully
before investing.
DELETE THE DESCRIPTIONS OF "CONSERVATIVE INVESTORS," "GROWTH INVESTORS,"
"AGGRESSIVE STOCK" AND "INTERMEDIATE GOVERNMENT SECURITIES" AND INSERT THE
FOLLOWING DESCRIPTIONS:
<TABLE>
<CAPTION>
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded equity and debt High total return without,
Investors securities. in the adviser's opinion,
undue risk to principal
Alliance Growth Diversified mix of publicly traded equity and fixed High total return
Investors income securities, including at times common stocks consistent with the
issued by intermediate and small-sized companies and at adviser's determination of
times lower quality fixed income securities commonly reasonable risk
known as "junk bonds."
8
<PAGE>
Alliance Aggressive Primarily common stocks and other equity-type securities Long-term growth of
Stock issued by quality small and intermediate sized companies capital
with strong growth prospects and in covered options on
those securities.
Alliance Small Cap Primarily U.S. common stocks and other equity-type Long-term growth of
Growth securities issued by smaller companies that, in the capital
opinion of the adviser, have favorable growth prospects.
Alliance Intermediate Primarily debt securities issued or guaranteed as to High current income
Government Securities principal and interest by the U.S. government or any of consistent with relative
its agencies or instrumentalities. Each investment will stability of principal
have a final maturity of not more than 10 years or a
duration not exceeding that of a 10-year Treasury note.
Alliance High Yield Primarily a diversified mix of high yield, fixed-income High return by maximizing
securities which generally involve greater volatility of current income and, to the
price and risk of principal and income than higher extent consistent with
quality fixed-income securities. Lower quality debt that objective, capital
securities are commonly known as "junk bonds." appreciation
</TABLE>
INSERT THE FOLLOWING DESCRIPTIONS AFTER THE DESCRIPTION OF "INTERMEDIATE
GOVERNMENT SECURITIES:"
<TABLE>
<CAPTION>
<S> <C> <C>
EQ/Putnam Balanced A well-diversified portfolio of stocks and bonds that Balanced investment
will produce both capital growth and current income.
EQ/Putnam Growth & Primarily common stocks that offer potential for Capital growth and,
Income Value capital growth and may, consistent with the secondarily, current
Portfolio's investment objective, invest in common income
stocks that offer potential for current income.
MFS Emerging Growth Primarily (i.e., at least 80% of its assets under Long-term growth of
Companies normal circumstances) in common stocks of emerging capital
growth companies that the Portfolio adviser believes
are early in their life cycle but which have the
potential to become major enterprises.
MFS Research A substantial portion of assets invested in common Long-term growth of
stock or securities convertible into common stock of capital and future
companies believed by the Portfolio adviser to possess income
better than average prospects for long-term growth.
Merrill Lynch Basic Investment in securities, primarily equities, that the Capital appreciation
Value Equity Portfolio adviser believes are undervalued and and, secondarily, income
therefore represent basic investment value.
Merrill Lynch World Investment primarily in a portfolio of equity and High total investment
Strategy fixed-income securities, including convertible return
securities, of U.S. and foreign issuers.
Morgan Stanley Emerging Primarily equity securities of emerging market country Long-term capital
Markets Equity* issuers with a focus on those in which the Portfolio's appreciation
adviser believes the economies are developing strongly
and in which the markets are becoming more
sophisticated.
</TABLE>
- ------------
* Available on or about September 2, 1997.
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
T. Rowe Price Primarily dividend paying common stocks of established Substantial dividend
Equity Income companies. income and also
capital appreciation
T. Rowe Price Primarily common stocks of established non-United Long-term growth of
International States companies. capital
Stock
Warburg Pincus Primarily in a portfolio of equity securities of small Long-term capital
Small Company capitalization companies (i.e., companies having market appreciation
Value capitalizations of $1 billion or less at the time of
initial purchase) that the Portfolio adviser considers
to be relatively undervlaued.
</TABLE>
ON PAGE 14, REPLACE THE FIRST AND SECOND PARAGRAPHS WITH THE FOLLOWING
PARAGRAPHS:
This Part presents performance data for each of the Investment Funds
included in the tables below. The performance data were calculated by two
methods. The first method presented in the tables under "Standardized
Performance Data," reflects all applicable fees and charges, other than the
charge for any applicable taxes such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does
not reflect the distribution fee, the withdrawal charge, the guaranteed
minimum death benefit charge, the annual contract fee or the charge for tax
such as premium taxes. These additional charges would effectively reduce
the rates of return credited to a particular Certificate.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IA
shares of HR Trust Portfolios (other than the Alliance Small Cap Growth
Portfolio which commenced operations on May 1, 1997), are based on the
actual investment results of the Portfolios and have been adjusted for the
fees and charges applicable under the Certificates.
The performance data for the Alliance Money Market and Alliance Common
Stock Funds that invest in corresponding HR Trust Portfolios, for periods
prior to March 22, 1985, reflect the investment results of two open-end
management separate accounts (the "predecessor separate accounts") which
were reorganized in unit investment trust form. The "Since Inception"
figures for these Investment Funds are based on the date of inception of
the predecessor separate accounts. These performance data have been
adjusted to reflect the maximum investment advisory fee payable for the
corresponding Portfolio of HR Trust, as well as an assumed charge of 0.06%
for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares
of Portfolios of EQ Trust have only recently been established and no
Certificates funded by those Investment Funds have been issued as of the
date of this Supplement. EQ Trust commenced operations on May 1, 1997.
Therefore, no actual historical performance data for any of these
Portfolios are available. In this connection, see the discussion
immediately following the tables below.
ON PAGE 14, REPLACE THE HEADING "PERFORMANCE DATA FOR A CERTIFICATE" WITH
"STANDARDIZED PERFORMANCE DATA."
IN THE FIRST SENTENCE OF THE THIRD PARAGRAPH UNDER THIS HEADING CHANGE THE
DATE FROM "DECEMBER 31, 1995" TO "DECEMBER 31, 1996."
10
<PAGE>
ON PAGES 14 AND 15, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
STANDARDIZED PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
--------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION*
---- ---- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors (3.31)% 3.24% 4.85% -- 6.29%
Alliance Growth Investors 4.00 7.89 8.32 -- 12.17
Alliance Growth & Income 11.40 10.64 -- -- 7.66
Alliance Common Stock 15.54 13.91 13.32 13.88% 13.41
Alliance Global 5.98 9.40 11.11 -- 8.96
Alliance International 1.24 -- -- -- 6.07
Alliance Aggressive Stock 13.49 12.32 9.35 16.64 18.12
Alliance Money Market (3.19) 1.55 1.80 3.97 5.23
Alliance Intermediate Govt.
Securities (4.73) 0.47 3.11 -- 4.52
Alliance High Yield 14.16 9.34 12.29 -- 9.41
</TABLE>
- ------------
See footnote below.
The table below illustrates the growth of an assumed investment of $1,000,
with fees and charges deducted on the standardized basis described above for
the first method of calculation.
STANDARDIZED PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE
SURRENDERED ON DECEMBER 31, 1996
<TABLE>
<CAPTION>
LENGTH OF INVESTMENT PERIOD
---------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION*
---- ---- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors $ 967 $1,100 $1,267 -- $ 1,629
Alliance Growth Investors 1,040 1,256 1,491 -- 2,506
Alliance Growth & Income 1,114 1,355 -- -- 1,344
Alliance Common Stock 1,155 1,478 1,869 $3,668 14,040
Alliance Global 1,060 1,309 1,694 -- 2,359
Alliance International 1,012 -- -- -- 1,125
Alliance Aggressive Stock 1,135 1,417 1,564 4,663 6,244
Alliance Money Market 968 1,047 1,093 1,475 2,261
Alliance Intermediate Govt.
Securities 953 1,014 1,166 -- 1,304
Alliance High Yield 1,142 1,307 1,785 -- 2,459
</TABLE>
- ------------
* The "Since Inception" dates for the Portfolios of HR Trust are as follows:
Alliance Conservative Investors (October 2, 1989); Alliance Growth
Investors (October 2, 1989); Alliance Growth & Income (October 1, 1993);
Alliance Common Stock (January 13, 1976); Alliance Global (August 27,
1987); Alliance International (April 3, 1995); Alliance Aggressive Stock
(January 27, 1986); Alliance Money Market (July 13, 1981); Alliance
Intermediate Government Securities (April 1, 1991); and Alliance High
Yield (January 2, 1987).
ON PAGE 15, INSERT THE FOLLOWING PARAGRAPHS BEFORE THE "RATE OF RETURN DATA
FOR INVESTMENT FUNDS" SECTION:
Additional investment performance information appears in the attached HR
Trust and EQ Trust prospectuses.
11
<PAGE>
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations
on May 1, 1997. Therefore, no actual historical performance data are
available. However, historical performance of a composite of six other
advisory accounts managed by Alliance is described in the attached HR
Trust prospectus. According to that prospectus, these accounts have
substantially the same investment objectives and policies, and are
managed in accordance with essentially the same investment strategies
and techniques, as those of the Alliance Small Cap Growth Portfolio. It
should be noted that these accounts are not subject to certain of the
requirements and restrictions to which the Alliance Small Cap Growth
Portfolio is subject and that they are managed for tax exempt clients of
Alliance. The investment performance information included in the HR
Trust prospectus for all Portfolios other than the Alliance Small Cap
Growth Portfolio is based on actual historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the
HR Trust and the EQ Trust prospectuses, are provided by those
prospectuses to illustrate the past performance of each respective
Portfolio adviser in managing substantially similar investment vehicles
as measured against specified market indices and do not represent the
past or future performance of any Portfolio. None of the performance
data contained in the HR Trust and EQ Trust prospectuses reflects fees
and charges imposed under your Certificate, which fees and charges would
reduce such performance figures. Therefore, the performance data for
each of the Portfolios described in the EQ Trust prospectus and for the
Alliance Small Cap Growth Portfolio in the HR Trust prospectus may be of
limited use and are not intended to be a substitute for actual
performance of the corresponding Portfolios, nor are such results an
estimate or guarantee of future performance for these Portfolios.
ON PAGE 16, INSERT THE FOLLOWING BEFORE THE LAST PARAGRAPH UNDER THE HEADING
"PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS":
ALLIANCE HIGH YIELD: January 2, 1987; Merrill Lynch High Yield Master
Index.
ON PAGES 16, 17 AND 18, REPLACE THE TABLES AND FOOTNOTES WITH THE FOLLOWING
TABLES AND FOOTNOTES:
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 5.47% 6.08% -- -- -- 7.77%
Lipper Income 8.95 8.91 9.55 -- -- -- 9.55
Benchmark 8.78 10.14 9.64 -- -- -- 10.42
ALLIANCE GROWTH
INVESTORS 11.30 10.00 9.48 -- -- -- 14.23
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GROWTH &
INCOME 18.70 12.69 -- -- -- -- 11.47
Lipper Growth & Income 19.96 15.39 -- -- -- -- 14.78
Benchmark 21.28 17.93 -- -- -- -- 17.24
ALLIANCE COMMON STOCK 22.84 15.87 14.39 14.49 15.17 14.17% 13.90
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE GLOBAL 13.28 11.44 12.19 -- -- -- 10.43
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 10.90
Lipper International 13.36 -- -- -- -- -- 14.33
Benchmark 6.05 -- -- -- -- -- 8.74
ALLIANCE AGGRESSIVE STOCK 20.79 14.33 10.55 17.24 -- -- 18.79
Lipper Small Company
Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
12
<PAGE>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ---------- -----------
ALLIANCE MONEY MARKET 4.11 3.82 3.12 4.68 5.85 -- 6.05
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57% 2.80% 4.38% -- -- -- 5.75%
Lipper Gen. U.S.
Government 1.57 3.99 5.21 -- -- -- 6.76
Benchmark 4.06 5.37 6.23 -- -- -- 7.43
ALLIANCE HIGH YIELD 21.46 11.43 13.34 -- -- -- 10.13
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
</TABLE>
- ------------
See footnotes on next page.
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-------- --------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 17.34% 34.32% -- -- -- 72.02%
Lipper Income 8.95 29.47 58.37 -- -- -- 94.21
Benchmark 8.78 33.60 58.40 -- -- -- 105.23
ALLIANCE GROWTH
INVESTORS 11.30 33.11 57.28 -- -- -- 162.18
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GROWTH &
INCOME 18.70 43.09 -- -- -- -- 42.30
Lipper Growth & Income 19.96 53.82 -- -- -- -- 56.73
Benchmark 21.28 63.99 -- -- -- -- 67.75
ALLIANCE COMMON STOCK 22.84 55.58 95.88 287.01 731.70 1,314.86% 1,430.82
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1,416.26 1,655.74
ALLIANCE GLOBAL 13.28 38.40 77.77 -- -- -- 152.69
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 -- -- -- 95.62
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 19.76
Lipper International 13.36 -- -- -- -- -- 26.53
Benchmark 6.05 -- -- -- -- -- 15.78
ALLIANCE AGGRESSIVE STOCK 20.79 49.45 65.10 390.47 -- -- 556.42
Lipper Small Company
Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 46.89 99.38 280.32 -- -- 318.19
ALLIANCE MONEY MARKET 4.11 11.90 16.59 58.03 134.78 -- 148.19
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 -- 184.26
ALLIANCE INTERMEDIATE
GOVERNMENT
SECURITIES 2.57 8.63 23.89 -- -- -- 37.89
Lipper Gen. U.S.
Government 1.57 12.45 28.92 -- -- -- 45.71
Benchmark 4.06 16.98 35.30 -- -- -- 51.07
ALLIANCE HIGH YIELD 21.46 38.37 87.00 -- -- -- 162.38
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
</TABLE>
- ------------
See footnotes on next page.
13
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989
--------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.79%
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.53
ALLIANCE GROWTH
& INCOME -- -- -- -- -- --
ALLIANCE COMMON
STOCK** (3.09)% 31.91% 16.02% 6.21% 21.03% 24.16
ALLIANCE GLOBAL -- -- -- (13.62) 9.61 25.29
ALLIANCE
INTERNATIONAL -- -- -- -- -- --
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.83 6.06 (0.03) 41.86
ALLIANCE MONEY
MARKET** 9.59 6.91 5.39 5.41 6.09 7.93
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- --
ALLIANCE
HIGH YIELD -- -- -- 3.49 8.48 3.93
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS 5.14% 18.51% 4.50% 9.54% (5.20)% 19.02% 3.99%
ALLIANCE GROWTH
INVESTORS 9.39 47.19 3.69 13.95 (4.27) 24.92 11.30
ALLIANCE GROWTH
& INCOME -- -- -- (0.55) (1.72) 22.65 18.70
ALLIANCE COMMON
STOCK** (9.17) 36.30 2.03 23.39 (3.26) 30.93 22.84
ALLIANCE GLOBAL (7.15) 29.06 (1.65) 30.60 4.02 17.45 13.28
ALLIANCE
INTERNATIONAL -- -- -- -- -- 10.34 8.54
ALLIANCE
AGGRESSIVE
STOCK 6.92 84.73 (4.28) 15.41 (4.92) 30.13 20.79
ALLIANCE MONEY
MARKET** 6.99 4.97 2.37 1.78 2.82 4.53 4.11
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- 11.30 4.38 9.27 (5.47) 12.03 2.57
ALLIANCE
HIGH YIELD (2.26) 23.03 11.02 21.74 (3.90) 18.54 21.46
<FN>
- ------------
* Returns do not reflect the distribution fee, the withdrawal charge, the
guaranteed minimum death benefit charge, the annual contract fee and
any charge for tax such as premium taxes.
** Prior to 1984 the Year-by-Year Rates of Return were: 1976 1977 1978 1979 1980 1981 1982 1983
---- ---- ---- ---- ---- ---- ---- ----
ALLIANCE COMMON STOCK 8.20% (10.28)% 6.99% 28.35% 48.39% (6.94)% 16.22% 24.67%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.71 11.72 7.70%
</TABLE>
On page 25, under the heading "Transfers Among Investment Options," delete
the first bulleted paragraph.
ON PAGE 25, UNDER THE HEADING "DOLLAR COST AVERAGING"
REPLACE THE FIRST SENTENCE IN THE FIRST PARAGRAPH WITH THE FOLLOWING
SENTENCE:
If you have at least $10,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage
of your Annuity Account Value transferred from the Alliance Money Market
Fund to other Investment Funds on a monthly, quarterly, or annual basis.
REPLACE THE SECOND AND THIRD SENTENCES IN THE SECOND PARAGRAPH WITH THE
FOLLOWING SENTENCES:
The minimum amount that may be transferred on each Transaction Date is
$250. The maximum amount which may be transferred is equal to the Annuity
Account Value in the Alliance Money Market Fund at the time the option is
elected, divided by the number of transfers scheduled to made each Contract
Year.
ON PAGE 29, INSERT THE FOLLOWING SECTION BEFORE THE "CASH VALUE" SECTION:
GUARANTEED MINIMUM INCOME BENEFIT (GMIB)
The GMIB provides a minimum amount of guaranteed lifetime income upon the
application of the Annuity Account Value in the Investment Funds to
purchase the Assured Payment Plan (Life Annuity with a Period Certain). The
Assured Payment Plan provides payments during a period certain with
payments continuing for life thereafter. On the Transaction Date, the
amount of the periodic lifetime income to be purchased under the Assured
Payment Plan will be based on the greater of (i) the Annuity Account Value
in the
14
<PAGE>
Investment Funds and (ii) an amount equal to the GMDB (without regard to
the seventh Contract Year reset) described above, reduced by any remaining
withdrawal charges; each divided by "guaranteed maximum annuity purchase
rates" under the Certificate. The guaranteed maximum annuity purchase rates
are based on (i) interest at 2.5% if the GMIB is exercised within 30 days
following a Contract Date anniversary in years 7 through 9 and at 3% if
exercised within 30 days following the 10th or later Contract Date
anniversary, and (ii) mortality based on the 1983 Individual Annuity
Mortality Table "a" projected with modified Scale G. The mortality table
used in determining such annuity purchase rates assumes that mortality will
improve in the future and is more conservative than the basis underlying
current annuity purchase rates. Your Annuity Account Value in the
Investment Funds will depend on the performance of such Funds. The amount
equal to the GMDB (as discussed above) does not have an Annuity Account
Value or a Cash Value and is used solely for purposes of calculating the
GMIB.
If you have any Annuity Account Value in the Guaranteed Period Account
under your Accumulator Certificate as of the Transaction Date that you
exercise the GMIB, such Annuity Account Value will also be applied (at
current annuity purchase rates) toward the purchase of payments under the
Assured Payment Plan. Such Annuity Account Value will increase the payments
provided by the GMIB. A market value adjustment may apply.
When you exercise the GMIB, we automatically determine whether the
application of your Annuity Account Value in the Investment Funds at
current purchase rates under the Assured Payment Plan (with a period
certain as specified below) would produce higher lifetime income, and if
so, the higher income will be provided.
In addition, you can elect any of our income annuity options at any time.
See "Income Annuity Options" below.
The GMIB applies only if your election of the Assured Payment Plan meets
the following conditions:
o The Assured Payment Plan is purchased within 30 days following
the 7th or later Contract Date anniversary under your Accumulator
Certificate; provided it is not purchased earlier than the
Annuitant's age 60, nor later than the Annuitant's age 83.
o The period certain you select is as indicated below, based on the
Annuitant's issue age for the Assured Payment Plan Certificate
and the type of payments selected;
<TABLE>
<CAPTION>
LEVEL PAYMENTS
--------------
ANNUITANT
ISSUE AGE PERIOD CERTAIN
--------- --------------
<S> <C>
60 through 80 10 years
81 through 83 90 less issue age
</TABLE>
<TABLE>
<CAPTION>
INCREASING PAYMENTS
-------------------
ANNUITANT
ISSUE AGE PERIOD CERTAIN
--------- --------------
<S> <C>
60 through 70 15 years
71 through 75 12 years
76 through 80 9 years
81 through 83 6 years
</TABLE>
o Payments start one payment mode after the Contract Date of the
Assured Payment Plan Certificate.
Each year on your Contract Date anniversary, if you are eligible to
exercise the GMIB, we will send you a notice of how much income could be
provided under such option on the Contract Date anniversary. You may then
notify us within 30 days following the Contract Date anniversary if you
want to exercise the GMIB by submitting the proper form and returning your
Accumulator Certificate. The income to be provided under the Assured
Payment Plan Certificate will be determined on the Transaction Date that we
receive your request and the Certificate and, therefore, may differ from
the notice. It will be based on the GMIB as of such Transaction Date.
15
<PAGE>
The Assured Payment Plan (Life Annuity with a Period Certain) is offered
through our Prospectus for the Assured Payment Plan, which may be obtained
from your registered representative. You should read it carefully before
you decide to purchase such Plan.
GMIB Charge
If you elect to have GMIB added to your Certificate, an additional 0.10%
charge will be applied against the GMDB for providing the GMIB. The charge
will be added as of the Processing Date following election of this benefit.
The combined GMDB/GMIB charge will be 0.45% of the GMDB in effect on each
Processing Date.
ON PAGE 31, UNDER THE HEADING, "DISTRIBUTION OF THE CERTIFICATES," REPLACE
THE FOURTH AND FIFTH SENTENCES OF THE FIRST PARAGRAPH WITH THE FOLLOWING TWO
SENTENCES:
EDI's principal business address is 1290 Avenue of the Americas, New York,
New York 10104. EDI was paid a fee of $1,204,370 for 1996 and $126,914 for
1995 for its services under its "Distribution Agreement" with Equitable
Life and the Separate Account.
ON PAGE 33, DELETE THE SECTION WITH THE HEADING "TRUST CHARGES TO
PORTFOLIOS," AND REPLACE WITH THE FOLLOWING SECTIONS:
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, other
direct operating expenses of HR Trust (such as trustees' fees, expenses of
independent auditors and legal counsel, bank and custodian charges and
liability insurance), and certain investment-related expenses of HR Trust
(such as brokerage commissions and other expenses related to the purchase
and sale of securities), are reflected in each Portfolio's daily share
price. The maximum investment advisory fees paid annually by the Portfolios
cannot be changed without a vote by shareholders. They are as follows:
AVERAGE DAILY NET ASSETS
<TABLE>
<CAPTION>
FIRST NEXT NEXT NEXT
$750 MILLION $750 MILLION $1 BILLION $2.5 BILLION THEREAFTER
-------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors ....... 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance Growth Investors.............. 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Growth & Income............... 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance Common Stock.................. 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Global........................ 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance International................. 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance Aggressive Stock.............. 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Small Cap Growth.............. 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Money Market.................. 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance Intermediate Govt Securities 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance High Yield.................... 0.600% 0.575% 0.550% 0.530% 0.520%
</TABLE>
- ------------
* On assets in excess of $10 billion, the management fee for the Alliance
Common Stock Portfolio is reduced to 0.335% of average daily net assets.
Investment advisory fees are established under HR Trust's investment
advisory agreements between HR Trust and its investment adviser, Alliance.
Fees and expenses are described more fully in the HR Trust prospectus.
EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the
12b-1 fee, other direct operating expenses of EQ Trust (such as trustees'
fees, expenses of independent auditors and legal counsel, administrative
service fees, custodian fees, and liability insurance), and certain
investment-related
16
<PAGE>
expenses of EQ Trust (such as brokerage commissions and other expenses
related to the purchase and sale of securities), are reflected in each
Portfolio's daily share price. The investment management fees paid annually
by the Portfolios cannot be changed without a vote by shareholders. They
are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
------------------------
<S> <C>
EQ/Putnam Balanced..................... 0.55%
EQ/Putnam Growth and Income Value ..... 0.55%
MFS Emerging Growth Companies ........ 0.55%
MFS Research........................... 0.55%
Merrill Lynch Basic Value Equity ...... 0.55%
Merrill Lynch World Strategy........... 0.70%
Morgan Stanley Emerging Markets
Equity............................... 1.15%
T. Rowe Price Equity Income............ 0.55%
T. Rowe Price International Stock ..... 0.75%
Warburg Pincus Small Company Value .... 0.65%
</TABLE>
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ Financial.
EQ Financial has entered into expense limitation agreements with EQ Trust, with
respect to each Portfolio, pursuant to which EQ Financial has agreed to waive
or limit its fees and total annual operating expenses (expressed as a
percentage of the Portfolios' average daily net assets) to 0.85% each for the
EQ/Putnam Growth & Income Value, MFS Research, Merrill Lynch Basic Value
Equity, T. Rowe Price Equity, and MFS Emerging Growth Companies Portfolios;
0.90% for the EQ/Putnam Balanced Portfolio; 1.00% for Warburg Pincus Small
Company Value Portfolio; 1.20% each for T. Rowe Price International Stock and
Merrill Lynch World Strategy Portfolios; and 1.75% for Morgan Stanley Emerging
Markets Equity Portfolio. See the prospectus for EQ Trust for more information.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily intended
to result in the sale of the Class IB shares. This fee will not be increased
for the life of the Certificates. Fees and expenses are described more fully in
the EQ trust prospectus.
ON PAGE 35, UNDER THE HEADING "TRUST VOTING RIGHTS"
REPLACE THE FIRST SENTENCE OF THE SECOND PARAGRAPH WITH THE FOLLOWING SENTENCE:
Because HR Trust is a Massachusetts business trust and EQ Trust is a Delaware
business trust, annual meetings are not required.
ON PAGE 35, UNDER THE HEADING "VOTING RIGHTS OF OTHERS," REPLACE THE FIRST TWO
SENTENCES OF THE PARAGRAPH WITH THE FOLLOWING SENTENCES:
Currently we control each trust. EQ Trust shares currently are sold only to our
separate accounts. HR Trust shares are held by other separate accounts of ours
and by separate accounts of insurance companies affiliated and unaffiliated
with us.
ON PAGE 37, UNDER THE HEADING "FEDERAL AND STATE INCOME TAX WITHHOLDING,"
REPLACE THE FOURTH SENTENCE OF THE THIRD PARAGRAPH WITH THE FOLLOWING SENTENCE:
For 1997, a recipient of periodic payments (e.g., monthly or annual payments)
which total less than a $14,400 taxable amount will generally be exempt from
federal income tax withholding, unless the recipient specifies a different
choice of withholding exemption.
17
<PAGE>
INSERT THE FOLLOWING APPENDIX AFTER PAGE 46 "APPENDIX III:"
APPENDIX IV: GMIB EXAMPLES
The GMIB is equal to:
(A) the greater of
(i) the Annuity Account Value in the Investment Funds, and
(ii) an amount equal to the GMDB (without regard to the
seventh Contract Year reset), reduced by any remaining
withdrawal charges;
divided by
(B) the guaranteed maximum annuity purchase rates.
The examples below assume a male age 60 has purchased an Accumulator
Certificate with an initial contribution of $100,000 that is
allocated 100% to the Investment Funds (excluding the Alliance Money
Market and Alliance Intermediate Government Securities Funds). The
GMDB (without regard to the seventh Contract Year reset) in the 10th
Contract Year is $179,085 at 6% interest. Assuming hypothetical
rates of return (after deduction of charges) in the Investment Funds
of 0% in Example 1 and 8% in Example 2 during the 10 Contract Years,
the GMIB in the 10th Contract Year (assuming level payments under
the Assured Payment Plan) would be as follows:
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2
----------- -----------
<S> <C> <C>
(1)Hypothetical Rate of Return................................... 0% 8%
(2)Annuity Account Value as of the Contract Date ................ $100,000 $100,000
(3)The greater of (i) the GMDB (without regard to the seventh
Contract Year reset) and (ii) the Annuity Account Value as of
the 10th Contract Date anniversary ........................... $179,085 $215,892
(4)Guaranteed Maximum Annuity Purchase Rates for level payments
under the Assured Payment Plan ............................... $14.73 $14.73
(5)GMIB as of 10th Contract Date anniversary ((3) / (4)) ........ $12,160 $14,659
</TABLE>
In Example 1, the GMDB (without regard to the seventh Contract Year
reset) which is higher than the Annuity Account Value would provide
a GMIB of $12,160. In Example 2, the Annuity Account Value, which at
this point is higher than the GMDB (without regard to the seventh
Contract Year reset), would provide a GMIB of $14,659.
The rates of return discussed above are for illustrative purposes
only and are not intended to represent an expected or guaranteed
rate of return. Your investment results will vary. The level of GMIB
under the Assured Payment Plan will also depend on the guaranteed
maximum annuity purchase rates as of the Transaction Date and the
type of payments selected. The examples assume no transfers or
withdrawals, which would affect the GMDB and, thus, the GMIB.
18
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
----
Part 1: Accumulation Unit Values 2
Part 2: Annuity Unit Values 2
Part 3: Custodian and Independent Accountants 3
Part 4: Alliance Money Market Fund and Alliance Intermediate 3
Government Securities Fund Yield Information
Part 5: Long-Term Market Trends 5
Part 6: Financial Statements 7
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL
INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI:
(Supplement dated May 1, 1997 to Accumulator Prospectus,
dated May 1, 1996)
---------------------------------------------------------
Name
---------------------------------------------------------
Address
---------------------------------------------------------
City State Zip
19
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
INCOME MANAGER (SERVICE MARK) ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 45
<TABLE>
<CAPTION>
EQUITY SERIES
- --------------------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
<S> <C> <C>
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity
T. Rowe Price Equity Income *Available on or about September 2, 1997.
----------------------------------- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
-------------------------------- ----------------------------------------------
Merrill Lynch World Strategy Alliance Equity Index Fund (Available only under APO Plus)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 45 prospectus for the
Rollover IRA, dated May 1, 1997. Definitions of special terms used in the SAI
are found in the prospectus.
A copy of the prospectus is available free of charge by writing the
Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your Registered Representative.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------- --------
<S> <C>
Part 1 Minimum Distribution Withdrawals 2
- ----------------------------------------------------------- --------
Part 2 Accumulation Unit Values 2
- ----------------------------------------------------------- --------
Part 3 Annuity Unit Values 2
- ----------------------------------------------------------- --------
Part 4 Custodian and Independent Accountants 3
- ----------------------------------------------------------- --------
Part 5 Alliance Money Market Fund and
Alliance Intermediate Government
Securities Fund Yield Information 7 3
- ----------------------------------------------------------- --------
Part 6 Long-Term Market Trends 4
- ----------------------------------------------------------- --------
Part 7 Financial Statements 7
- ----------------------------------------------------------- --------
</TABLE>
Copyright 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
PART 1 - MINIMUM DISTRIBUTION WITHDRAWALS
If you elect Minimum Distribution Withdrawals described in Part 4 of the
prospectus, each year we calculate the Minimum Distribution Withdrawal amount
by using the value of your IRA as of December 31 of the prior calendar year.
We then calculate the minimum distribution amount based on the various
choices you make. This calculation takes into account withdrawals made during
the current calendar year but prior to the date we determine your Minimum
Distribution Withdrawal amount, except that when Minimum Distribution
Withdrawals are elected in the year in which you attain age 71 1/2, no
adjustment will be made for any withdrawals made between January 1 and April
1 in satisfaction of the minimum distribution requirement for the prior year.
An election can also be made (1) to have us recalculate your life expectancy,
or joint life expectancies, each year or (2) to have us determine your life
expectancy, or joint life expectancies, once and then subtract one year, each
year, from that amount. The joint life options are only available if the
spouse is the beneficiary. However, if you first elect Minimum Distribution
Withdrawals after April 1 of the year following the calendar year in which
you attain age 70 1/2, option (1) will apply.
PART 2 - ACCUMULATION UNIT VALUES
Accumulation Unit Values are determined at the end of each Valuation Period
for each of the Investment Funds. Other annuity contracts and certificates
which may be offered by us will have their own accumulation unit values for
the Investment Funds which may be different from those for the Rollover IRA.
The Accumulation Unit Value for an Investment Fund for any Valuation Period
is equal to the Accumulation Unit Value for the preceding Valuation Period
multiplied by the Net Investment Factor for that Investment Fund for that
Valuation Period. The NET INVESTMENT FACTOR is (a) -c where:
b
(a) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the Valuation Period before giving effect to
any amounts allocated to or withdrawn from the Investment Fund for the
Valuation Period. For this purpose, we use the share value reported to
us by HR Trust or EQ Trust, as applicable.
(b) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the preceding Valuation Period (after any
amounts allocated or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risk charge and
administration charge relating to the Certificates, times the number of
calendar days in the Valuation Period. These daily charges are at an
effective annual rate not to exceed a total of 1.15%.
PART 3 - ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on May 1, 1997 for Certificates
with assumed base rates of net investment return of both 5% and 3 1/2% a
year. For each Valuation Period after that date, it is the annuity unit value
for the immediately preceding Valuation Period multiplied by the adjusted Net
Investment Factor under the Certificate. For each Valuation Period, the
adjusted Net Investment Factor is equal to the Net Investment Factor reduced
for each day in the Valuation Period by:
o .00013366 of the Net Investment Factor if the assumed base rate of net
investment return is 5% a year; or
o .00009425 of the Net Investment Factor if the assumed base rate of net
investment return is 3 1/2%.
Because of this adjustment, the annuity unit value rises and falls depending
on whether the actual rate of net investment return (after deduction of
charges) is higher or lower than the assumed base rate.
All Certificates have a 5% assumed base rate of net investment return, except
in states where that rate is not permitted. Annuity payments under
Certificates with an assumed base rate of 3 1/2% will at first be smaller
than those under Certificates with a 5% assumed base rate. Payments under the
3 1/2% Certificates, however, will rise more rapidly when unit values are
rising, and payments will fall more slowly when unit values are falling than
those under 5% Certificates.
2
<PAGE>
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Business Day specified on your election form,
or on such other future date as specified therein and are made on a monthly
basis. The first three payments are of equal amounts. Each of the first three
payments will be based on the amount specified in the Tables of Guaranteed
Annuity Payments in the Certificate.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period). If the annuity
involved a life contingency, the risk class and the age of the annuitants
will affect payments.
The amount of the fourth and each later payment will vary according to the
investment performance of the Investment Funds. Each monthly payment will be
calculated by multiplying the number of annuity units credited by the average
annuity unit value for the second calendar month immediately preceding the
due date of the payment. The number of units is calculated by dividing the
first monthly payment by the annuity unit value for the Valuation Period
which includes the due date of the first monthly payment. The average annuity
unit value is the average of the annuity unit values for the Valuation
Periods ending in that month. Variable income annuities may also be available
by separate prospectus through the Investment Funds of other separate
accounts we offer.
Illustration of Changes in Annuity Unit Values. To show how we determine
variable annuity payments from month to month, assume that the Annuity
Account Value on an Annuity Commencement Date is enough to fund an annuity
with a monthly payment of $363 and that the annuity unit value for the
Valuation Period that includes the due date of the first annuity payment is
$1.05. The number of annuity units credited under the contract would be
345.71 (363 divided by 1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the
number of units (345.71) times the average annuity unit value ($1.10), or
$380.28. If the average annuity unit value was $1 in February, the annuity
payment for April would be 345.71 times $1, or $345.71.
PART 4 - CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of HR Trust and EQ Trust owned by
the Separate Account.
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years ended December 31, 1996 included in the SAI have been audited by
Price Waterhouse LLP.
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years ended December 31, 1996 included in this SAI have been so
included in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of such firm as experts in accounting and
auditing.
PART 5 - ALLIANCE MONEY
MARKET FUND AND ALLIANCE
INTERMEDIATE GOVERNMENT
SECURITIES FUND YIELD INFORMATION
Alliance Money Market Fund
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
Certificate with one Accumulation Unit at the beginning of the period. To
determine the seven-day rate of return, the net change in the Accumulation
Unit Value is computed by subtracting the Accumulation Unit Value at the
beginning of the period from an Accumulation Unit Value, exclusive of capital
changes, at the end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Money Market Fund but do not reflect the withdrawal charge, the Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge
or any charges for applicable taxes such as state or local premium taxes.
Under the Special Dollar Cost Averaging program, Accumulation Unit Values
also do not reflect the mortality and expense risks charge and the
administration charge.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of
3
<PAGE>
the period to obtain the adjusted base period rate of return. This seven-day
adjusted base period return is then multiplied by 365/7 to produce an
annualized seven-day current yield figure carried to the nearest
one-hundredth of one percent.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by adding
one to the adjusted base period return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result, i.e., effective yield
= (base period return + 1 ) 365/7 -- 1. The Alliance Money Market Fund yields
will fluctuate daily. Accordingly, yields for any given period are not
necessarily representative of future results. In addition, the value of
Accumulation Units of the Alliance Money Market Fund will fluctuate and not
remain constant.
Alliance Intermediate Government Securities Fund
The Alliance Intermediate Government Securities Fund calculates yield
information for 30-day periods. The 30-day current yield calculation is based
on a hypothetical Certificate with one Accumulation Unit at the beginning of
the period. To determine the 30-day rate of return, the net change in the
Accumulation Unit Value is computed by subtracting the Accumulation Unit
Value at the beginning of the period from an Accumulation Unit Value,
exclusive of capital changes, at the end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities Fund but do not reflect the withdrawal
charge, the Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit Charge or any charges for applicable taxes such as state or
local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This 30-day adjusted base period return is then multiplied by 365/30 to
produce an annualized 30-day current yield figure carried to the nearest
one-hundredth of one percent.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Intermediate Government Securities
Fund's investments, as follows: the unannualized adjusted base period return
is compounded by adding one to the adjusted base period return, raising the
sum to a power equal to 365 divided by 30, and subtracting one from the
result, i.e., effective yield = (base period return + 1) 365/30 -- 1.
Alliance Intermediate Government Securities Fund yields will fluctuate daily.
Accordingly, yields for any given period are not necessarily representative
of future results. In addition, the value of Accumulation Units of the
Alliance Intermediate Government Securities Fund will fluctuate and not
remain constant.
Alliance Money Market Fund and Alliance Intermediate Government Securities
Fund Yield Information
The Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund yields reflect charges that are not normally reflected in the
yields of other investments and therefore may be lower when compared with
yields of other investments. Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund yields should not be compared to the
return on fixed rate investments which guarantee rates of interest for
specified periods, such as the Guarantee Periods. Nor should the yield be
compared to the yield of money market funds or government securities funds
made available to the general public.
Because the Rollover IRA Certificates described in the prospectus are being
offered for the first time in 1997, no yield information is presented.
PART 6 - LONG-TERM MARKET TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return
trends for various types of securities. The information presented, while not
directly related to the performance of the Investment Funds, helps to provide
a perspective on the potential returns of different asset classes over
different periods
4
<PAGE>
of time. By combining this information with knowledge of your own financial
needs (e.g., the length of time until you retire, your financial requirements
at retirement), you may be able to better determine how you wish to allocate
contributions among the Investment Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long-or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus
is on long-term growth potential and protection against inflation, there may
be advantages to allocating some or all of their Annuity Account Value to
those Investment Funds that invest in stocks.
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED
AREA GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
TOTAL U.S.
RETURN INFLATION
- ------------------------------------------
INDEX VALUE
- ------------------------------------------
Dec 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
- ------------------------------------------
[END OF GRAPHICALLY REPRESENTED DATA]
[BLACK] Common Stock [WHITE] Inflation
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart on next page.
Over shorter periods of time, however, common stocks tend to be subject to
more dramatic changes in value than fixed income (debt) securities. Investors
who are nearing retirement age, or who have a need to limit short-term risk,
may find it preferable to allocate a smaller percentage of their Annuity
Account Value to those Investment Funds that invest in common stocks. The
following graph illustrates the monthly fluctuations in value of $1 based on
monthly returns of the Standard & Poor's 500 during 1990, a year that
represents more typical volatility than 1996.
Growth of $1 Invested on January 1, 1990
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
U.S. IT TOTAL
GVT TR RETURN
- ------------------------------------------
INDEX INDEX
- ------------------------------------------
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
Common Stock Intermediate-Term Govt. Bonds
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1996 for different
types of securities: common stocks, long-term government bonds, long-term
corporate bonds, intermediate-term govern-ment bonds and U.S. Treasury Bills.
For comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated
with deferred annuity products, are reflected.
The information presented is merely a summary of past experience for
unmanaged groups of securities and is neither an estimate nor guarantee of
future performance. Any invest ment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
5
<PAGE>
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated
in the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the trusts and Separate Account charges), see "Part 9:
Investment Performance" in the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
Yearbook(Trademark), Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)--Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS--Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1996, represented by the
Salomon Brothers Long-term, High-Grade Corporate Bond Index; for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1996; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent
coupon and a twenty year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS--Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five year
maturity.
U. S. TREASURY BILLS--Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
INFLATION--Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
6
<PAGE>
PART 7 - FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society
of the United States included herein should be considered only as bearing
upon the ability of Equitable Life to meet its obligations under the
Certificates.
There are no financial statements for the Separate Account investing in Class
IB shares of HR Trust and EQ Trust as the Separate Account did not invest in
such shares prior to the date of the prospectus and SAI.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life
insurance contracts and long-lived assets in 1996, for loan impairments in 1995
and for postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly
owned life insurance subsidiary, Equitable Variable Life Insurance
Company ("EVLICO"). Effective January 1, 1997, EVLICO was merged into
Equitable Life, which will continue to conduct the Company's insurance
business. Equitable Life's investment management business, which
comprises the Investment Services segment, is conducted principally by
Alliance Capital Management L.P. ("Alliance"), Equitable Real Estate
Investment Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette,
Inc. ("DLJ"), an investment banking and brokerage affiliate. AXA-UAP
("AXA"), a French holding company for an international group of
insurance and related financial services companies, is the Holding
Company's largest shareholder, owning approximately 60.8% at December
31, 1996 (63.6% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.4% if all securities convertible into, and
options on, common stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships
and joint ventures in which Equitable Life or its subsidiaries has
control and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for
the benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which
were in force on that date. Assets were allocated to the Closed Block
in an amount which, together with anticipated revenues from policies
included in the Closed Block, was reasonably expected to be sufficient
to support such business, including provision for payment of claims,
certain expenses and taxes, and for continuation of dividend scales
payable in 1991, assuming the experience underlying such scales
continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block
assets represents the expected future post-tax contribution from the
Closed Block which would be recognized in income over the period the
policies and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and
Guaranteed Interest Contract ("GIC") lines of business. The Company
established a pre-tax provision for the estimated future losses of the
GIC line of business and a premium deficiency reserve for the Wind-Up
Annuities. Subsequent losses incurred have been charged to the two loss
provisions. Management reviews the adequacy of the allowance and
reserve each quarter. During the fourth quarter 1996 review, management
determined it was necessary to increase the allowance for expected
future losses of the GIC Segment. Management believes the loss
provisions for GIC contracts and Wind-Up Annuities at December 31, 1996
are adequate to provide for all future losses; however, the
determination of loss provisions continues to involve numerous
estimates and subjective judgments regarding the expected performance
of discontinued operations investment assets. There can be no assurance
the losses provided for will not differ from the losses ultimately
realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect
of accounting change by $19.2 million, net of Federal income taxes of
$10.3 million for 1996. The financial statements for 1995 and 1994 have
been retroactively restated for the change which resulted in an
increase (decrease) in earnings before cumulative effect of accounting
change of $15.2 million, net of Federal income taxes of $8.2 million,
and $(2.6) million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in
investment gains (losses), net. Before implementing SFAS No. 121,
valuation allowances on real estate held for the production of income
were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
The adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on
real estate to be disposed of continue to be computed using the lower
of estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal
income tax benefit of $12.4 million, due to the writedown to fair value
of building improvements relating to facilities being vacated beginning
in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans
within the scope of this statement are measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. The Company
provides for impairment of loans through an allowance for possible
losses. The adoption of this statement did not have a material effect
on the level of these allowances or on the Company's consolidated
statements of earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred
policy acquisition costs ("DAC"), amounts attributable to participating
group annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant or, alternatively, to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Companies
which elect to continue to apply APB Opinion No. 25 must provide pro
forma net income disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company accounts for stock option plans
sponsored by the Holding Company, DLJ and Alliance in accordance with
the provisions of APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of
repurchase agreements, dollar-roll, securities lending and similar
transactions. Management has not yet determined the effect of
implementing SFAS No. 125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is
adjusted for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized
on transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired
real estate is written down to fair value with the impairment loss
being included in investment gains (losses) net. Valuation allowances
on real estate available for sale are computed using the lower of
current estimated fair value or depreciated cost, net of disposition
costs. Prior to the adoption of SFAS No. 121, valuation allowances on
real estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the
equity basis of accounting and are included either with equity real
estate or other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment
gains or losses.
Unrealized investment gains and losses on fixed maturities available
for sale and equity securities held by the Company are accounted for as
a separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in
the period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of
policy issue and loss recognition testing at the end of each accounting
period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses)
is recognized with an offset to unrealized gains (losses) in
consolidated shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset
to unrealized gains (losses) in consolidated shareholder's equity as of
the balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the
basis of actuarial assumptions equal to guaranteed mortality and
dividend fund interest rates. The liability for annual dividends
represents the accrual of annual dividends earned. Terminal dividends
are accrued in proportion to gross margins over the life of the
contract.
For non-participating traditional life insurance policies, future
policy benefit liabilities are estimated using a net level premium
method on the basis of actuarial assumptions as to mortality,
persistency and interest established at policy issue. Assumptions
established at policy issue as to mortality and persistency are based
on the Insurance Group's experience which, together with interest and
expense assumptions, include a margin for adverse deviation. When the
liabilities for future policy benefits plus the present value of
expected future gross premiums for a product are insufficient to
provide for expected future policy benefits and expenses for that
product, DAC is written off and thereafter, if required, a premium
deficiency reserve is established by a charge to earnings. Benefit
liabilities for traditional annuities during the accumulation period
are equal to accumulated contractholders' fund balances and after
annuitization are equal to the present value of expected future
payments. Interest rates used in establishing such liabilities range
from 2.25% to 11.5% for life insurance liabilities and from 2.25% to
13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities
("Pension Par") was completed which included management's revised
estimate of assumptions, including expected mortality and future
investment returns. The study's results prompted management to
establish a premium deficiency reserve which decreased earnings from
continuing operations and net earnings by $47.5 million ($73.0 million
pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as
claim incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a
reasonable basis and are adequate, there can be no assurance reserves
will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6
million at December 31, 1996 and 1995, respectively (excluding $175.0
million of reserve strengthening in 1996). Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
DI and major medical policies (excluding $175.0 million of reserve
strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable
Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's
shareholder. Earnings in excess of limitations, if any, would be
accrued as policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current
Federal income taxes were charged or credited to operations based upon
amounts estimated to be payable or recoverable as a result of taxable
operations for the current year. Deferred income tax assets and
liabilities were recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as
separate captions in the consolidated balance sheets. The Insurance
Group bears the investment risk on assets held in one Separate Account,
therefore, such assets are carried on the same basis as similar assets
held in the General Account portfolio. Assets held in the other
Separate Accounts are carried at quoted market values or, where quoted
values are not available, at estimated fair values as determined by the
Insurance Group.
The investment results of Separate Accounts on which the Insurance
Group does not bear the investment risk are reflected directly in
Separate Accounts liabilities. For 1996, 1995 and 1994, investment
results of such Separate Accounts were $2,970.6 million, $1,963.2
million and $665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality,
policy administration and surrender charges on all Separate Accounts
are included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon
the assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost
of $3,915.7 million and $3,748.9 million, respectively, had estimated
fair values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or
5 (below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total
mortgage loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to
time be restructured or modified. The investment in restructured
mortgage loans on real estate, based on amortized cost, amounted to
$388.3 million and $531.5 million at December 31, 1996 and 1995,
respectively. These amounts include $1.0 million and $3.8 million of
problem mortgage loans on real estate at December 31, 1996 and 1995,
respectively. Gross interest income on restructured mortgage loans on
real estate that would have been recorded in accordance with the
original terms of such loans amounted to $35.5 million, $52.1 million
and $44.9 million in 1996, 1995 and 1994, respectively. Gross interest
income on these loans included in net investment income aggregated
$28.2 million, $37.4 million and $32.8 million in 1996, 1995 and 1994,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where
the fair value of the collateral or the net present value of the
expected future cash flows related to the loan equals or exceeds the
recorded investment. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995,
respectively, including $17.9 million and $13.4 million recognized on a
cash basis.
The Insurance Group's investment in equity real estate is through
direct ownership and through investments in real estate joint ventures.
At December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate
acquired in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally
range from 40 to 50 years. Accumulated depreciation on real estate was
$587.5 million and $662.4 million at December 31, 1996 and 1995,
respectively. Depreciation expense on real estate totaled $91.8
million, $121.7 million and $117.0 million for 1996, 1995 and 1994,
respectively. As a result of the implementation of SFAS No. 121, during
1996 no depreciation expense has been recorded on real estate available
for sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized
on these sales. The change in unrealized investment (losses) gains
related to fixed maturities classified as available for sale for 1996,
1995 and 1994 amounted to $(258.0) million, $1,077.2 million and
$(742.2) million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an
investment gain of $20.6 million as a result of the issuance of
Alliance Units in this transaction. At December 31, 1996, the Company's
ownership of Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to
third parties at prevailing market prices. The Company continues to
hold its 1% general partnership interest in Alliance. The Company
recognized an investment gain of $52.4 million as a result of these
transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in
the contribution from the Closed Block of $27.5 million, $18.8 million
and $(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively,
of restructured securities which includes problem fixed maturities of
$.3 million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified
as held to maturity were transferred to the available for sale
portfolio. All actions resulted from significant deterioration in
creditworthiness. The amortized cost of the security sold was $4.2
million. The aggregate amortized cost of the securities transferred was
$81.3 million with gross unrealized investment losses of $.1 million
transferred to equity. At December 1, 1995, $1,750.7 million of
securities classified as held to maturity were transferred to the
available for sale portfolio. As a result, unrealized gains of $88.5
million on fixed maturities were recognized, offset by DAC amortization
of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had an amortized cost of $4.3 million and $36.5 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7
million, respectively. At December 31, 1996 and 1995, the restructured
mortgage loans on real estate amount included $.7 million and $8.8
million, respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and
1995, respectively, including $4.7 million and $1.3 million recognized
on a cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of
the Closed Block operations. Operating costs and expenses outside of
the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen
the loss provisions by $129.0 million, resulting in a post-tax charge
of $83.8 million to discontinued operations' results in the fourth
quarter of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets.
There can be no assurance the losses provided for will not differ from
the losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the loss provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment.
Subsequently, the GIC Segment remitted $1,155.4 million in cash to
continuing operations in partial repayment of borrowings by the GIC
Segment. No gains or losses were recognized on these transactions.
Amounts due to continuing operations at December 31, 1996, consisted of
$1,080.0 million borrowed by the discontinued GIC Segment offset by
$83.8 million representing an obligation of continuing operations to
provide assets to fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate
and recognition of impairment losses of $69.8 million on real estate
held and used. Writedowns of fixed maturities amounted to $1.6 million,
$8.1 million and $17.8 million for 1996, 1995 and 1994, respectively
and writedowns of equity real estate subsequent to the adoption of SFAS
No. 121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had amortized costs of $7.9 million and $35.4 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction
of debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate
purposes used to support Equitable Life's liquidity needs and is
supported by Equitable Life's existing $350.0 million five-year bank
credit facility. There were no borrowings outstanding under this
program at December 31, 1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of
Alliance, is a floating rate generally based upon a defined prime rate,
a rate related to the LIBOR or the Federal Funds rate. A facility fee
is payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for
general working capital purposes. As of December 31, 1996, Alliance had
not issued any commercial paper under its $100.0 million commercial
paper program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997
totaling $174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and
securities amounting to $1,406.4 million and $1,629.7 million at
December 31, 1996 and 1995, respectively, as collateral for certain
long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings
before Federal income taxes and minority interest by the expected
Federal income tax rate of 35%. The sources of the difference and the
tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes,
by an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by
the Internal Revenue Service. As a stock life insurance company,
Equitable Life no longer is required to reduce its policyholder
dividend deduction by the differential earnings amount, but
differential earnings amounts for pre-demutualization years were still
being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary
differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. The effect of reinsurance (excluding group life
and health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard
underwriting risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994,
respectively. Ceded death and disability benefits totaled $21.2
million, $188.1 million and $235.5 million for 1996, 1995 and 1994,
respectively. Insurance liabilities ceded totaled $652.4 million and
$724.2 million at December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans
are non-contributory. Equitable Life's and EREIM's benefits are based
on a cash balance formula or years of service and final average
earnings, if greater, under certain grandfathering rules in the plans.
Alliance's benefits are based on years of credited service, average
final base salary and primary social security benefits. The Company's
funding policy is to make the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1
million, net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable
Life. Benefit payments under these contracts were approximately $34.7
million, $36.4 million and $38.1 million for 1996, 1995 and 1994,
respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of
postretirement benefits are recognized in accordance with the
provisions of SFAS No. 106. The Company continues to fund
postretirement benefits costs on a pay-as-you-go basis and, for 1996,
1995 and 1994, the Company made estimated postretirement benefits
payments of $18.9 million, $31.1 million and $29.8 million,
respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was
7.50% and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%,
the accumulated postretirement benefits obligation as of December 31,
1996 would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly
are utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996,
the cost of terminating outstanding matched swaps in a loss position
was $8.3 million and the unrealized gain on outstanding matched swaps
in a gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2)
million, respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on
interest-sensitive individual annuities contracts. The outstanding
notional amounts at December 31, 1996 of contracts purchased and sold
were $5,050.0 million and $500.0 million, respectively. The net premium
paid by Equitable Life on these contracts was $22.5 million and is
being amortized ratably over the contract periods ranging from 3 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's
involvement in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect
any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans
are limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the
appropriate duration. For durations in excess of the published index
rate, the appropriate Treasury rate is used plus a spread equal to the
longest duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair
values for single premium deferred annuities ("SPDA") are estimated
using projected cash flows discounted at current offering rates. The
estimated fair values for supplementary contracts not involving life
contingencies ("SCNILC") and annuities certain are derived using
discounted cash flows based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage
debt are determined by discounting contractual cash flows at a rate
which takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing
loan or loan commitment agreements; and to provide short-term financing
loans which at December 31, 1996 totaled $14.6 million. Management
believes the Company will not incur any material losses as a result of
these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date,
no such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance
Society of the United States was filed on January 20, 1995 in New York
County Supreme Court. The action purports to be brought on behalf of a
class of persons insured after 1983 under Lifetime Guaranteed Renewable
Major Medical Insurance Policies issued by Equitable Life (the
"policies"). The complaint alleges that premium increases for these
policies after 1983, all of which were filed with and approved by the
New York State Insurance Department and certain other state insurance
departments, breached the terms of the policies, and that statements in
the policies and elsewhere concerning premium increases constituted
fraudulent concealment, misrepresentations in violation of New York
Insurance Law Section 4226 and deceptive practices under New York
General Business Law Section 349. The complaint seeks a declaratory
judgment, injunctive relief restricting the methods by which Equitable
Life increases premiums on the policies in the future, a refund of
premiums, and punitive damages. Plaintiffs also have indicated that
they will seek damages in an unspecified amount. Equitable Life moved
to dismiss the complaint in its entirety on the grounds that it fails
to state a claim and that uncontroverted documentary evidence
establishes a complete defense to the claims. On May 29, 1996, the New
York County Supreme Court entered a judgment dismissing the complaint
with prejudice. Plaintiffs have filed a notice of appeal of that
judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved
Equitable Life's rate increases. These actions are asserted on behalf
of proposed classes of Pennsylvania issued or renewed policyholders and
Texas issued or renewed policyholders, insured under the policies. The
Pennsylvania and Texas actions seek compensatory and punitive damages
and injunctive relief restricting the methods by which Equitable Life
increases premiums in the future based on the common law and statutes
of those states. On February 9, 1996, Equitable Life removed the
Pennsylvania action, Malvin, to the United States District Court for
the Middle District of Pennsylvania. Following the decision granting
Equitable Life's motion to dismiss the New York action (Golomb), on the
consent of the parties the District Court ordered an indefinite stay of
all proceedings in the Pennsylvania action, pending either party's
right to reinstate the proceeding, and ordered that for administrative
purposes the case be deemed administratively closed. On February 2,
1996, Equitable Life removed the Texas action, Bowler, to the United
States District Court for the Northern District of Texas. On May 20,
1996, the plaintiffs in Bowler amended their complaint by adding
allegations of misrepresentation regarding premium increases on other
types of guaranteed renewable major medical insurance policies issued
by Equitable Life up to and including 1983. On July 1, 1996, Equitable
Life filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted
plaintiffs leave to file a supplemental complaint on behalf of a
proposed class of Texas policyholders claiming unfair discrimination,
breach of contract and other claims arising out of alleged differences
between premiums charged to Texas policyholders and premiums charged to
similarly situated policyholders in New York and certain other states.
Plaintiffs seek refunds of alleged overcharges, exemplary or additional
damages citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued
by Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which
Equitable Life increases premiums in the future based on various common
law claims. On June 20, 1996, Equitable Life removed the Florida action
to Federal court. Equitable Life has answered the complaint, denying
the material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment
and plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially
the same allegations concerning premium rates and premium rate
increases on guaranteed renewable policies made in the Bowler action.
The complaint alleges, among other things, that differentials between
rates charged California policyholders and policyholders in New York
and certain other states, and the methods used by Equitable Life to
calculate premium increases, breached the terms of its policies, that
Equitable Life misrepresented and concealed the facts pertaining to
such differentials and methods in violation of California law, and that
Equitable Life also misrepresented that its rate increases were
approved by the California Insurance Department. Plaintiffs seek
compensatory damages in an unspecified amount, rescission, injunctive
relief and attorneys' fees. Equitable Life removed the action to
Federal court; plaintiff has moved to remand the case to state court.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, the Company's
management believes that the ultimate resolution of the Golomb, Malvin,
Bowler, Bachman and Fletcher litigations should not have a material
adverse effect on the financial position of the Company. Due to the
early stage of such litigations, the Company's management cannot make
an estimate of loss, if any, or predict whether or not such litigations
will have a material adverse effect on the Company's results of
operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and
its wholly owned subsidiary, EOC, in New York state court, entitled
Sidney C. Cole et al. v. The Equitable Life Assurance Society of the
United States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of
action under the New York State consumer protection statute. The only
remaining causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a
motion to have this proceeding moved from Kings County Supreme Court to
New York County for joint trial or consolidation with the Cole action.
The motion was denied by the court on January 9, 1997. On January 10,
1997, plaintiffs moved for certification of a nationwide class
consisting of all persons or entities who were sold one or more life
insurance products on a "vanishing premium" basis and/or were allegedly
induced to purchase additional policies from EVLICO, using the cash
value accumulated in existing policies, from January 1, 1980 through
and including December 31, 1996. Plaintiffs further moved to have
Michael Bradley designated as the class representative. Discovery
regarding class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual
who purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly
promised by Equitable Life and EOC. The second is a "fraud class,"
consisting of all persons with an interest in policies issued by
Equitable Life and EOC at any time since October 1, 1986. Plaintiff
seeks damages in an unspecified amount, and also seeks injunctive
relief attaching Equitable Life's and EOC's profits from their alleged
sales practices. Equitable Life's and EOC's time to answer or move with
respect to the complaint has been extended until February 24, 1997.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, the Company's management
believes that the ultimate resolution of the Cole, Duncan, Bradley and
Dillon litigations should not have a material adverse effect on the
financial position of the Company. Due to the early stages of such
litigations, the Company's management cannot make an estimate of loss,
if any, or predict whether or not any such litigation will have a
material adverse effect on the Company's results of operations in any
particular period.
On January 3, 1996, an amended complaint was filed in an action
entitled Frank Franze Jr. and George Busher, individually and on behalf
of all others similarly situated v. The Equitable Life Assurance
Society of the United States, and Equitable Variable Life Insurance
Company, No. 94-2036 in the United States District Court for the
Southern District of Florida. The action was brought by two individuals
who purchased variable life insurance policies. The plaintiffs purport
to represent a nationwide class consisting of all persons who purchased
variable life insurance policies from Equitable Life and EVLICO since
September 30, 1991. The basic allegation of the amended complaint is
that Equitable Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated
v. The Equitable Life Assurance Society of the United States, and
Equitable Variable Life Insurance Company, was filed in Massachusetts
state court making claims similar to those in the Franze action and
alleging violations of the Massachusetts securities laws. The plaintiff
purports to represent all persons in Massachusetts who purchased
variable life insurance contracts from Equitable Life and EVLICO from
January 9, 1993 to the present. The Massachusetts action seeks
rescission of the contracts or compensatory damages, attorneys' fees,
expenses and injunctive relief. Although the outcome of any litigation
cannot be predicted with certainty, particularly in the early stages of
an action, the Company's management believes that the ultimate
resolution of the litigations discussed in this paragraph should not
have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigation, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S.
Department of Labor ("DOL") requesting copies of any third-party
appraisals in Equitable Life's possession relating to the ten largest
properties (by value) in the Prime Property Fund ("PPF"). PPF is an
open-end, commingled real estate separate account of Equitable Life for
pension clients. Equitable Life serves as investment manager in PPF and
has retained EREIM as advisor. In early 1995, the DOL commenced a
national investigation of commingled real estate funds with pension
investors, including PPF. The investigation now appears to be focused
principally on appraisal and valuation procedures in respect of fund
properties. The most recent request from the DOL seems to reflect, at
least in part, an interest in the relationship between the valuations
for those properties reflected in appraisals prepared for local
property tax proceedings and the valuations used by PPF for other
purposes. At no time has the DOL made any specific allegation that
Equitable Life or EREIM has acted improperly and Equitable Life and
EREIM believe that any such allegation would be without foundation.
While the outcome of this investigation cannot be predicted with
certainty, in the opinion of management, the ultimate resolution of
this matter should not have a material adverse effect on the Company's
consolidated financial position or results of operations in any
particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The
arbitration panel issued a final award in favor of Casualty and GEICO
General on June 17, 1996. Casualty and GEICO General moved in the
pending Texas state court action, with Houston General's consent, for
an order confirming the arbitration award and entering judgment
dismissing the action. The motion was granted on January 29, 1997. The
parties have also stipulated to the dismissal without prejudice of a
related Texas Federal court action brought by Houston General against
GEICO General and Equitable Life. In connection with confirmation of
the arbitration award, Houston General paid to Casualty approximately
$839,600 in settlement of certain reimbursement claims by Casualty
against Houston General.
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Complaint") was filed against the Alliance North American
Government Income Trust, Inc. (the "Fund"), Alliance and certain other
defendants affiliated with Alliance, including the Holding Company,
alleging violations of Federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint, which seeks certification of a
plaintiff class of persons who purchased or owned Class A, B or C
shares of the Fund from March 27, 1992 through December 23, 1994, seeks
an unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations of the Complaint are that the Fund
purchased debt securities issued by the Mexican and Argentine
governments in amounts that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and
warrants to purchase shares of common stock of Rickel Home Centers,
Inc. ("Rickel") filed a class action complaint against Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC") and certain other
defendants for unspecified compensatory and punitive damages in the
United States District Court for the Southern District of New York. The
suit was brought on behalf of the purchasers of 126,457 units
consisting of $126,457,000 aggregate principal amount of 13 1/2% senior
notes due 2001 and 126,457 warrants to purchase shares of common stock
of Rickel issued by Rickel in October 1994. The complaint alleges
violations of Federal securities laws and common law fraud against
DLJSC, as the underwriter of the units and as an owner of 7.3% of the
common stock of Rickel, Eos Partners, L.P., and General Electric
Capital Corporation, each as owners of 44.2% of the common stock of
Rickel, and members of the Board of Directors of Rickel, including a
DLJSC Managing Director. The complaint seeks to hold DLJSC liable for
alleged misstatements and omissions contained in the prospectus and
registration statement filed in connection with the offering of the
units, alleging that the defendants knew of financial losses and a
decline in value of Rickel in the months prior to the offering and did
not disclose such information. The complaint also alleges that Rickel
failed to pay its semi-annual interest payment due on the units on
December 15, 1995 and that Rickel filed a voluntary petition for
reorganization pursuant to Chapter 11 of the United States Bankruptcy
Code on January 10, 1996. DLJSC intends to defend itself vigorously
against all of the allegations contained in the complaint. Although
there can be no assurance, DLJ does not believe the outcome of this
litigation will have a material adverse effect on its financial
condition. Due to the early stage of this litigation, based on the
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter
11 reorganization proceedings. The class action complaint alleges that
the plan of reorganization submitted by NGC was based upon projections
by NGC and DLJSC which intentionally understated forecasts, and
provided misleading and incorrect information in order to hide NGC's
true value and that defendants breached their fiduciary duties by,
among other things, providing false, misleading or incomplete
information to deliberately understate the value of NGC. The class
action complaint seeks compensatory and punitive damages purportedly
sustained by the class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in
the complaint. Although there can be no assurance, DLJ does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on its financial condition. Due to the early stage of
such litigation, based upon the information currently available to it,
DLJ's management cannot make an estimate of loss, if any, or predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed
in the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently
available to it, DLJ's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material
adverse effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of
the actions and proceedings have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek
damages of unspecified amounts. While the ultimate outcome of such
matters cannot be predicted with certainty, in the opinion of
management no such matter is likely to have a material adverse effect
on the Company's consolidated financial position or results of
operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million,
$110.6 million, $100.3 million, $72.3 million, $59.3 million and $427.3
million thereafter. Minimum future sublease rental income on these
noncancelable leases for 1997 and the succeeding four years are $9.8
million, $6.0 million, $4.5 million, $2.4 million, $.8 million and $.1
million thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million,
$219.8 million, $194.3 million, $174.6 million and $847.1 million
thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million
writeoff of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment
of dividends to its shareholders. For 1996, 1995 and 1994, statutory
net (loss) earnings totaled $(351.1) million, $(352.4) million and
$67.5 million, respectively. No amounts are expected to be available
for dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996,
1995 and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been
restated to reflect the Company's accounting change adopted in the
fourth quarter of 1996 for long-duration participating life contracts
in accordance with the provisions prescribed by SFAS No. 120. Net
earnings for the three months ended December 31, 1996 includes a charge
of $339.3 million related to writeoffs of DAC on DI contracts of $94.3
million, reserve strengthening on DI business of $113.7 million,
pension par of $47.5 million and the discontinued GIC Segment of $83.8
million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess
of the proceeds over the book value in DLJ at the date of sale of
$340.2 million has been reflected as a capital contribution. In 1995,
DLJ completed the initial public offering ("IPO") of 10.58 million
shares of its common stock, which included 7.28 million of the Holding
Company's shares in DLJ, priced at $27 per share. Concurrent with the
IPO, the Company contributed equity securities to DLJ having a market
value of $21.2 million. Upon completion of the IPO, the Company's
ownership percentage was reduced to 36.1%. The Company's ownership
interest will be further reduced upon the issuance of common stock
after the vesting of forfeitable restricted stock units acquired by
and/or the exercise of options granted to certain DLJ employees. DLJ
restricted stock units represents forfeitable rights to receive
approximately 5.2 million shares of DLJ common stock through February
2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of
DLJ is included in investment in and loans to affiliates in the
consolidated balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method
prescribed in APB Opinion No. 25. Had compensation expense of the
Company's stock option incentive plans for options granted after
December 31, 1994 been determined based on the estimated fair value at
the grant dates for awards under those plans, the Company's pro forma
net earnings for 1996 and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as
of the date of grants using Black-Scholes option pricing models. The
option and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
INCOME MANAGER (SERVICE MARK) ACCUMULATOR
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 45
<TABLE>
<CAPTION>
EQUITY SERIES
- -----------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
<S> <C> <C>
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity
T. Rowe Price Equity Income
*Available on or about September 2, 1997.
----------------------------------- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ----------------------------------- ---- --------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
- ----------------------------------- ---- -------------------------- ---------------------------------------------
</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 45 prospectus for the
Accumulator, dated May 1, 1997. Definitions of special terms used in the SAI
are found in the prospectus.
A copy of the prospectus is available free of charge by writing the
Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your Registered Representative.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ---------------------------------------------------------------- --------
<S> <C>
Part 1 Accumulation Unit Values 2
- ---------------------------------------------------------------- --------
Part 2 Annuity Unit Values 2
- ---------------------------------------------------------------- --------
Part 3 Custodian and Independent Accountants 3
- ---------------------------------------------------------------- --------
Part 4 Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund
Yield Information 3
- ---------------------------------------------------------------- --------
Part 5 Long-Term Market Trends 4
- ---------------------------------------------------------------- --------
Part 6 Key Factors In Retirement Planning 6
- ---------------------------------------------------------------- --------
Part 7 Financial Statements 11
- ---------------------------------------------------------------- --------
</TABLE>
Copyright 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
PART 1 - ACCUMULATION
UNIT VALUES
Accumulation Unit Values are determined at the end of each Valuation Period
for each of the Investment Funds. Other annuity contracts and certificates
which may be offered by us will have their own accumulation unit values for
the Investment Funds which may be different from those for the Accumulator.
The Accumulation Unit Value for an Investment Fund for any Valuation Period
is equal to the Accumulation Unit Value for the preceding Valuation Period
multiplied by the Net Investment Factor for that Investment Fund for that
Valuation Period. The NET INVESTMENT FACTOR is (a) -c where:
---
(b)
(a) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the Valuation Period before giving effect to
any amounts allocated to or withdrawn from the Investment Fund for the
Valuation Period. For this purpose, we use the share value reported to
us by HR Trust or EQ Trust, as applicable.
(b) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the preceding Valuation Period (after any
amounts allocated or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risks charge and
administration charge relating to the Certificates, times the number of
calendar days in the Valuation Period. These daily charges are at an
effective annual rate not to exceed a total of 1.15%.
PART 2 - ANNUITY UNIT VALUES
The annuity unit value for each Investment Fund was fixed at $1.00 on May 1,
1997 for Certificates with assumed base rates of net investment return of
both 5% and 3 1/2% a year. For each Valuation Period after that date, it is
the annuity unit value for the immediately preceding Valuation Period
multiplied by the adjusted Net Investment Factor under the Certificate. For
each Valuation Period, the adjusted Net Investment Factor is equal to the Net
Investment Factor reduced for each day in the Valuation Period by:
o .00013366 of the Net Investment Factor if the assumed base rate of net
investment return is 5% a year; or
o .00009425 of the Net Investment Factor if the assumed base rate of net
investment return is 3 1/2%.
Because of this adjustment, the annuity unit value rises and falls depending
on whether the actual rate of net investment return (after deduction of
charges) is higher or lower than the assumed base rate.
All Certificates have a 5% assumed base rate of net investment return, except
in states where that rate is not permitted. Annuity payments under
Certificates with an assumed base rate of 3 1/2% will at first be smaller
than those under Certificates with a 5% assumed base rate. Payments under the
3 1/2% Certificates, however, will rise more rapidly when unit values are
rising, and payments will fall more slowly when unit values are falling than
those under 5% Certificates.
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Business Day specified on your election form,
or on such other future date as specified therein and are made on a monthly
basis. The first three payments are of equal amounts. Each of the first three
payments will be based on the amount specified in the Tables of Guaranteed
Annuity Payments in the Certificate.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period). If the annuity
involved a life contingency, the risk class and the age of the annuitants
will affect payments.
The amount of the fourth and each later payment will vary according to the
investment performance of the Investment Funds. Each monthly payment will be
calculated by multiplying the number of annuity units credited by the average
annuity unit value for the second calendar month immediately preceding the
due date of the payment. The number of units is calculated by dividing the
first monthly payment by the annuity unit value for the Valuation Period
which includes the due date of the first monthly payment. The average annuity
unit value is the average of the annuity unit values for the Valuation
Periods ending in that month. Variable income annuities may also be available
by separate prospectus through the Investment Funds of other separate
accounts we offer.
Illustration of Changes in Annuity Unit Values.
To show how we determine variable annuity payments from month to month,
assume that
2
<PAGE>
the Annuity Account Value on an Annuity Commencement Date is enough to fund
an annuity with a monthly payment of $363 and that the annuity unit value for
the Valuation Period that includes the due date of the first annuity payment
is $1.05. The number of annuity units credited under the contract would be
345.71 (363 divided by 1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the
number of units (345.71) times the average annuity unit value ($1.10), or
$380.28. If the average annuity unit value was $1 in February, the annuity
payment for April would be 345.71 times $1, or $345.71.
PART 3 - CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of each Trust owned by the
Separate Account.
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years ended December 31, 1996 included in the SAI have been audited by
Price Waterhouse LLP.
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years ended December 31, 1996 included in this SAI have been so
included in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of such firm as experts in accounting and
auditing.
PART 4 - ALLIANCE MONEY MARKET FUND AND ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND YIELD INFORMATION
Alliance Money Market Fund
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
Certificate with one Accumulation Unit at the beginning of the period. To
determine the seven-day rate of return, the net change in the Accumulation
Unit Value is computed by subtracting the Accumulation Unit Value at the
beginning of the period from an Accumulation Unit Value, exclusive of capital
changes, at the end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Money Market Fund but do not reflect the withdrawal charge, the Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge
or any charges for applicable taxes such as state or local premium taxes.
Under the Special Dollar Cost Averaging program, Accumulation Unit Values
also do not reflect the mortality and expense risks charge and the
administration charge.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This seven-day adjusted base period return is then multiplied by 365/7 to
produce an annualized seven-day current yield figure carried to the nearest
one-hundredth of one percent.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by adding
one to the adjusted base period return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result, i.e., effective yield
= (base period return + 1 ) 365/7 -1. The Alliance Money Market Fund yields
will fluctuate daily. Accordingly, yields for any given period are not
necessarily representative of future results. In addition, the value of
Accumulation Units of the Alliance Money Market Fund will fluctuate and not
remain constant.
Alliance Intermediate Government Securities Fund
The Alliance Intermediate Government Securities Fund calculates yield
information for 30-day periods. The 30-day current yield calculation is based
on a hypothetical Certificate with one Accumulation Unit at the beginning of
the period. To determine the 30-day rate of return, the net change in the
Accumulation Unit Value is computed by subtracting the Accumulation Unit
Value at the beginning of the period from an Accumulation Unit Value,
exclusive of capital changes, at the end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities Fund but do not reflect the withdrawal
charge, the Combined Guaranteed Minimum Death Benefit and Guaranteed
3
<PAGE>
Minimum Income Benefit Charge or any charges for applicable taxes such as
state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This 30-day adjusted base period return is then multiplied by 365/30 to
produce an annualized 30-day current yield figure carried to the nearest
one-hundredth of one percent.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Intermediate Government Securities
Fund's investments, as follows: the unannualized adjusted base period return
is compounded by adding one to the adjusted base period return, raising the
sum to a power equal to 365 divided by 30, and subtracting one from the
result, i.e., effective yield = (base period return + 1) 365/30 -1. Alliance
Intermediate Government Securities Fund yields will fluctuate daily.
Accordingly, yields for any given period are not necessarily representative
of future results. In addition, the value of the Accumulation Units of the
Alliance Intermediate Government Securities Fund will fluctuate and not
remain constant.
Alliance Money Market Fund and Alliance Intermediate Government Securities
Fund Yield Information
Alliance Money Market Fund and the Alliance Intermediate Government
Securities Fund yields reflect charges that are not normally reflected in the
yields of other investments and therefore may be lower when compared with
yields of other investments. Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund yields should not be compared to the
return on fixed rate investments which guarantee rates of interest for
specified periods, such as the Guarantee Periods. Nor should the yield be
compared to the yield of money market funds or government securities funds
made available to the general public.
Because the Accumulator Certificates described in the prospectus are being
offered for the first time in 1997, no yield information is presented.
PART 5 - LONG-TERM MARKET
TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return
trends for various types of securities. The information presented, while not
directly related to the performance of the Investment Funds, helps to provide
a perspective on the potential returns of different asset classes over
different periods of time. By combining this information with knowledge of
personal financial needs (e.g., the length of time until you retire, your
financial requirements at retirement), you may be able to better determine
how you wish to allocate contributions among the Investment Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long-or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus
is on long-term growth potential and protection against inflation, there may
be advantages to allocating some or all of their Annuity Account Value to
those Investment Funds that invest in stocks.
Growth of $1 Invested on January 1, 1956
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED
AREA GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
TOTAL U.S.
RETURN INFLATION
- ------------------------------------------
INDEX VALUE
- ------------------------------------------
Dec 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
- ------------------------------------------
[END OF GRAPHICALLY REPRESENTED DATA]
[BLACK] Common Stock [WHITE] Inflation
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
Over shorter periods of time, however, common stocks tend to be subject to
more dramatic changes in value than fixed income (debt) securities. Investors
who are nearing retirement age, or who have a need to limit short-term risk,
may find it preferable to allocate a smaller percentage of their Annuity
Account Value to those Investment Funds that invest in common stocks. The
following graph illustrates the
4
<PAGE>
monthly fluctuations in value of $1 based on monthly returns of the Standard
& Poor's 500 during 1990, a year that represents more typical volatility than
1996.
Growth of $1 Invested on January 1, 1990
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
U.S. IT TOTAL
GVT TR RETURN
- ------------------------------------------
INDEX INDEX
- ------------------------------------------
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
Common Stock Intermediate-Term Govt. Bonds
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1996 for different
types of securities: common stocks, long-term government bonds, long-term
corporate bonds, intermediate-term government bonds and U.S. Treasury Bills.
For comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated
with deferred annuity products, are reflected.
The information presented is merely a summary of past experience for
unmanaged groups of securities and is neither an estimate or guarantee of
future performance. Any investment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated
in the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the trusts and Separate Account charges), see "Part 8:
Investment Performance" in the propectus.
5
<PAGE>
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
Yearbook(Trademark), Ibbotson Associates Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)--Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS--Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1996, represented by the
Salomon Brothers Long-term, High-Grade Corporate Bond Index for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1996; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent
coupon and a twenty year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS--Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five year
maturity.
U. S. TREASURY BILLS--Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
INFLATION--Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
PART 6: KEY FACTORS IN RETIREMENT PLANNING
INTRODUCTION
The Accumulator is available to help meet the retirement income and
investment needs of individuals. In assessing these retirement needs, some
key factors need to be addressed: (1) the impact of inflation on fixed
retirement incomes; (2) the importance of planning early for retirement; (3)
the benefits of tax-deferral; (4) the selection of an appropriate investment
strategy; and (5) the benefit of annuitization. Each of these factors is
addressed below.
Unless otherwise noted, all of the following presentations use an assumed
annual rate of return of 7.5% compounded annually. This rate of return is for
illustrative purposes only and is not intended to represent an expected or
guaranteed rate of return for any investment vehicle. In addition, unless
otherwise noted, none of the illustrations reflect any charges that may be
applied under a particular investment vehicle. Such charges would effectively
reduce the actual return under any investment vehicle.
All earnings in these presentations are assumed to accumulate tax-deferred
unless otherwise noted. Most programs designed for retirement savings offer
tax-deferral. Monies are taxed upon withdrawal and a 10% penalty tax may
apply to premature withdrawals. Certain retirement programs prohibit early
withdrawals. See "Part 6: Tax Aspects of the Certificates." Where taxes are
taken into consideration in these presentations, a 28% tax rate is assumed.
The source of the data used by us to compile the charts which appear in this
section (other than
6
<PAGE>
charts 1, 2, 3, 4 and 7) is Ibbotson Associates, Inc. Chicago. Stocks, Bonds,
Bills and Inflation 1997 Yearbook(TM). All rights reserved.
In reports or other communications or in advertising material we may make use
of these or other graphic or numerical illustrations that we prepare showing
the impact of inflation, planning early for retirement, tax-deferral,
diversification and other concepts important to retirement planning.
INFLATION
Inflation erodes purchasing power. This means that, in an inflationary
period, the dollar is worth less as time passes. Because many people live on
a fixed income during retirement, inflation is of particular concern to them.
The charts that follow illustrate the detrimental impact of inflation over an
extended period of time. Between 1966 and 1996, the average annual inflation
rate was 5.39%. As demonstrated in Chart 1, this 5.39% annual rate of
inflation would cause the purchasing power of $35,000 to decrease to only
$7,246 after 30 years.
In Chart 2, the impact of inflation is examined from another perspective.
Specifically, the chart illustrates the additional income needed to maintain
the purchasing power of $35,000 over a thirty year period. Again, the
1966-1996 historical inflation rate of 5.39% is used. In this case, an
additional $134,064 would be required to maintain the purchasing power of
$35,000 after 30 years.
[THE FOLLOWING TABLE WAS REPRESENTED AS A
3-D BAR GRAPH IN THE PROSPECTUS]
Today -- $35,000
10 years -- $20,705
20 years -- $12,248
30 years -- $ 7,246
[END OF GRAPHICALLY REPRESENTED DATA]
CHART 2
ANNUAL INCOME NEEDED
[THE FOLLOWING TABLE WAS REPRESENTED AS A
3-D BAR GRAPH IN THE PROSPECTUS]
Today -- $ 35,000
10 years -- $ 59,165
20 years -- $100,013
30 years -- $169,064
Increase Needed: $24,165 $65,013 $134,064
[END OF GRAPHICALLY REPRESENTED DATA]
STARTING EARLY
The impact of inflation accentuates the need to begin a retirement program
early. The value of starting early is illustrated in the following charts.
As shown in Chart 3, if an individual makes annual contributions of $2,500 to
his or her retirement program beginning at age 30, he or she would accumulate
$414,551 by age 65 under the assumptions described earlier. If that
individual waited until age 50, he or she would only accumulate $70,193 by
age 65 under the same assumptions.
CHART 3
[THE FOLLOWING TABLE WAS REPRESENTED AS
A STACKED AREA GRAPH IN THE PROSPECTUS:]
30 ................. $414,551
40 ................. $182,691
50 ................. $ 70,193
BLACK - Age 30 GRAY - Age 40 DOTTED - Age 50
[END OF GRAPHICALLY REPRESENTED DATA]
7
<PAGE>
In Table 1, the impact of starting early is demonstrated in another format.
For example, if an individual invests $300 monthly, he or she would
accumulate $387,193 in thirty years under our assumptions. In contrast, if
that individual invested the same $300 per month for 15 years, he or she
would accumulate only $97,804 under our assumptions.
TABLE 1
<TABLE>
<CAPTION>
MONTHLY YEAR YEAR YEAR YEAR YEAR
CONTRIBUTION 10 15 20 25 30
- -------------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 20 $ 3,532 $ 6,520 $ 10,811 $ 16,970 $ 25,813
50 8,829 16,301 27,027 42,425 64,532
100 17,659 32,601 54,053 84,851 129,064
200 35,317 65,202 108,107 169,701 258,129
300 52,976 97,804 162,160 254,552 387,193
</TABLE>
Chart 4 presents an additional way to demonstrate the significant impact of
starting to make contributions to a retirement program earlier rather than
later. It assumes that an individual had a goal to accumulate $250,000
(pre-tax) by age 65. If he or she starts at age 30, under our assumptions he
or she could reach the goal by making a monthly pre-tax contribution of $130
(equivalent to $93 after taxes). The total net cost for the 30 year old in
this hypothetical example would be $39,265. If the individual in this
hypothetical example waited until age 50, he or she would have to make a
monthly pre-tax contribution of $767 (equivalent to $552 after taxes) to
attain the goal, illustrating the importance of starting early.
CHART 4
GOAL: $250,000 BY AGE 65
[THE FOLLOWING TABLE WAS REPRESENTED
AS A BAR GRAPH IN THE PROSPECTUS:]
B W
$ 93 a Month ............. 30 $39,265 $210,735
$212 a Month ............. 40 $63,641 $186,359
$552 a Month ............. 50 $99,383 $150,617
BLACK - Net Cost
WHITE - Tax-Deferred Earnings at 7.5%
[END OF GRAPHICALLY REPRESENTED DATA]
TAX-DEFERRAL
Contributing to a retirement plan early is part of an effective strategy for
addressing the impact of inflation. Another part of such a strategy is to
carefully select the types of retirement programs in which to invest. In
deciding where to invest retirement contributions, there are three basic
types of programs.
The first type offers the most tax benefits, and therefore is potentially the
most beneficial for accumulating funds for retirement. Contributions are made
with pre-tax dollars or are tax-deductible and earnings grow income
tax-deferred. An example of this type of program is the deductible Individual
Retirement Annuity (IRA).
The second type of program also provides for tax deferred earnings growth;
however, contributions are made with after-tax dollars. Examples of this type
of program are non-deductible IRAs and non-qualified annuities.
The third approach to retirement savings is fully taxable. Contributions are
made with after-tax dollars and earnings are taxed each year. Examples of
this type of program include certificates of deposit, savings accounts, and
taxable stock, bond or mutual fund investments.
Consider an example. For the type of retirement program that offers both
pre-tax contributions and tax-deferral, assume that a $2,000 annual pre-tax
contribution is made for thirty years. In this example, the retirement funds
would be $176,363 after thirty years (assuming a 7.5% rate of return, no
withdrawals and assuming the deduction of the 1.15% Separate Account daily
asset charge and the $30 annual contract fee--but no withdrawal charge or
other charges under the Certificate, or trust charges to Portfolios), and
such funds would be $222,309 without the effect of any charges. Assuming a
lump sum withdrawal was made in year thirty and a 28% tax bracket, these
amounts would be $126,981 and $160,062, respectively.
For the type of program that offers only tax-deferral, assume an after-tax
annual contribution of $1,440 for thirty years and the same rate of return.
The after-tax contribution is derived by taxing the $2,000 pre-tax
contribution again assuming a 28% tax bracket. In this
8
<PAGE>
example, the retirement funds would be $126,275 after thirty years assuming
the deduction of charges and no withdrawals, and $160,062 without the effect
of charges. Assuming a lump sum withdrawal in year thirty, the total
after-tax amount would be $103,014 with charges deducted and $127,341 without
charges as described above.
For the fully taxable investment, assume an after-tax contribution of $1,440
for thirty years. Earnings are taxed annually. After thirty years, the amount
of this fully taxable investment is $108,046.
Keep in mind that taxable investments have fees and charges too (investment
advisory fees, administrative charges, 12b-1 fees, sales loads, brokerage
commissions, etc.). We have not attempted to apply these fees and charges to
the fully taxable amounts since this is intended merely as an example of tax
deferral.
Again, it must be emphasized that the assumed rate of return of 7.5%
compounded annually used in these examples is for illustrative purposes only
and is not intended to represent a guaranteed or expected rate of return on
any investment vehicle. Moreover, early withdrawals of tax-deferred
investments are generally subject to a 10% penalty tax.
INVESTMENT OPTIONS
Selecting an appropriate retirement program is clearly an important part of
an effective retirement planning strategy. Carefully choosing among
Investment Options is another essential component.
During the 1966-1997 period, common stock average annual returns outperformed
the average annual returns of fixed investments such as long-term government
bonds and Treasury Bills (T-Bills). See "Notes" below. Common stocks earned
an average annual return of 11.85% over this period, in contrast to 7.75% and
6.73% for the other two investment categories. Significantly, common stock
returns also outpaced inflation which grew at 5.39% over this period.
Although common stock returns have historically outpaced returns of fixed
investments, people often allocate a significant percentage of their
retirement funds to fixed return investments. Their primary concern is the
preservation of principal. Given this concern, Chart 5 illustrates the impact
of exposing only the interest generated by a fixed investment to the stock
market. In this illustration, the fixed investment is represented by a
Treasury Bill return and the stock investment is represented by the Standard
& Poor's 500 ("S&P 500").
The chart assumes that a $20,000 fixed investment was made on January 1,
1980. If the interest on that investment were to accumulate based upon the
return of the S&P 500, the total investment would have been worth $157,783 in
1996. Had the interest been reinvested in the fixed investment, the fixed
investment would have grown to $65,623. As illustrated in Chart 5,
significant opportunities for growth exist while preserving principal. See
"Notes" below.
CHART 5
$157,783 with Interest Exposed to Stock Market (S&P 500)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PROSPECTUS]
Market Value Market Value
Month of S&P 500 If 100% in
Ending & Fixed Acct 3 Mo. T-Bill
1980 J 20,160 20,160
F 20,338 20,339
M 20,547 20,586
A 20,823 20,845
M 21,031 21,014
J 21,183 21,142
J 21,369 21,254
A 21,515 21,390
S 21,708 21,550
O 21,930 21,755
N 22,333 21,964
D 22,522 22,252
1981 J 22,619 22,483
F 22,888 22,724
M 23,239 22,999
A 23,386 23,247
M 23,637 23,514
J 23,878 23,832
J 24,129 24,127
A 24,156 24,436
S 24,196 24,739
O 24,659 25,039
N 25,079 25,306
D 25,118 25,527
1982 J 25,195 25,731
F 25,113 25,968
M 25,278 26,222
A 25,722 26,518
M 25,770 26,799
J 25,861 27,057
J 25,945 27,341
A 26,850 27,549
S 27,028 27,689
O 27,937 27,852
D 25,118 25,527
1982 J 25,195 25,731
F 25,113 25,968
M 25,278 26,222
A 25,722 26,518
M 25,770 26,799
J 25,861 27,057
J 25,945 27,341
A 26,850 27,549
S 27,028 27,689
O 27,937 27,852
N 28,411 28,028
D 28,690 28,216
1983 J 29,131 28,410
F 29,492 28,587
M 29,965 28,767
A 30,862 28,971
M 30,943 29,171
J 31,495 29,366
J 31,284 29,584
A 31,627 29,808
S 31,938 30,035
O 31,930 30,263
N 32,348 30,475
D 32,418 30,698
1984 J 32,490 30,931
F 32,222 31,150
M 32,577 31,378
A 32,826 31,632
M 32,297 31,879
J 32,719 32,118
J 32,701 32,381
A 34,295 32,650
S 34,470 32,931
O 34,708 33,260
N 34,705 33,503
D 35,205 33,717
1985 J 36,503 33,936
F 36,845 34,133
M 37,000 34,345
A 37,809 34,592
M 38,272 34,820
J 38,673 35,012
J 38,748 35,229
A 38,744 35,423
S 38,262 35,635
O 39,208 35,867
N 40,706 36,086
D 41,803 36,320
1986 J 42,011 36,524
F 43,792 36,717
M 45,203 36,938
A 45,021 37,130
M 46,493 37,312
J 47,036 37,506
J 45,602 37,701
A 47,609 37,874
S 45,430 38,045
O 46,935 38,220
N 47,703 38,369
D 47,070 38,557
1987 J 50,789 38,719
F 52,147 38,885
M 53,115 39,068
A 52,912 39,240
M 53,327 39,389
J 55,086 39,578
J 56,925 39,760
A 58,441 39,947
S 57,685 40,127
O 49,695 40,367
N 47,333 40,509
D 49,428 40,667
1988 J 50,743 40,785
F 52,280 40,972
M 51,393 41,152
A 51,824 41,342
M 52,174 41,553
J 53,765 41,756
J 53,732 41,969
A 52,733 42,217
S 54,245 42,478
O 55,302 42,738
N 54,915 42,981
D 55,673 43,252
1989 J 58,362 43,490
F 57,529 43,755
M 58,548 44,048
A 60,672 44,343
M 62,465 44,694
J 62,377 45,011
J 66,323 45,326
A 67,365 45,662
S 67,310 45,958
O 66,344 46,271
N 67,446 46,590
D 68,687 46,874
1990 J 65,533 47,142
F 66,234 47,410
M 67,578 47,714
A 66,541 48,043
M 71,214 48,370
J 70,982 48,674
J 70,955 49,005
A 66,481 49,329
S 64,314 49,625
O 64,286 49,962
N 67,252 50,247
D 68,667 50,548
1991 J 70,922 50,811
F 74,664 51,055
M 76,053 51,280
A 76,316 51,552
M 78,820 51,794
J 76,216 52,011
J 78,945 52,266
A 80,422 52,507
S 79,523 52,748
O 80,405 52,970
N 78,042 53,176
D 84,753 53,378
1992 J 83,616 53,560
F 84,486 53,710
M 83,290 53,892
A 85,196 54,065
M 85,604 54,216
J 84,717 54,390
J 87,387 54,558
A 86,078 54,700
S 86,890 54,842
O 87,176 54,969
N 89,486 55,095
D 90,453 55,249
1993 J 91,013 55,376
F 92,016 55,498
M 93,614 55,637
A 91,858 55,770
M 93,843 55,895
J 94,136 56,033
J 93,836 56,167
A 96,699 56,308
S 97,774 56,578
O 97,093 56,720
N 98,087 56,850
D 100,753 56,992
1994 J 98,615 57,112
F 95,249 57,266
M 96,281 57,421
A 97,589 57,605
M 95,734 57,783
J 98,297 57,945
J 101,558 58,159
A 99,666 58,375
S 101,566 58,596
O 98,647 58,813
N 99,883 59,072
D 102,044 59,320
1995 J 105,307 59,557
F 107,925 59,831
M 110,571 60,095
A 114,257 60,419
M 116,566 60,703
J 119,871 60,976
J 120,235 61,263
A 124,521 61,526
S 124,249 61,816
O 128,920 62,075
N 131,033 63,379
D 157,783 63,623
$62,379 Without Interest Exposed to Stock Market
(S&P 500)
[END OF GRAPHICALLY REPRESENTED DATA]
Another variation of the example in Chart 5 is to gradually transfer
principal from a fixed investment into the stock market. Chart 6 assumes that
a $20,000 fixed investment was made on January 1, 1980. For the next two
years, $540 is transferred monthly into the stock market (represented by the
S&P 500). The total investment, given this strategy, would have grown to
$167,238 in 1996. In contrast, had the principal not been transferred, the
fixed investment would have grown to $65,623. See "Notes" below.
9
<PAGE>
CHART 6
$139,695 with Principal Transfer
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PROSPECTUS]
Market Value Market Value
Month of S&P 500 If 100% in
Ending & Fixed Acct 3 Mo. T-Bill
1980 J 20540 20160
F 20702 20339
M 20770 20586
A 21068 20845
M 21425 21014
J 22000 21142
J 22149 21254
A 22394 21390
S 22623 21550
O 23406 21755
N 23372 21964
D 23246 22252
1981 J 23569 22483
F 24053 22724
M 24031 22999
A 24246 23247
M 24324 23514
J 24514 23832
J 24051 24127
A 23651 24436
S 24397 24739
O 25087 25039
N 24857 25306
D 24193 25527
1982 J 23594 25731
F 23618 25968
M 24248 26222
A 23995 26518
M 23892 26799
J 23731 27057
J 25407 27341
A 25647 27549
S 27281 27689
O 28031 27852
N 28386 28028
D 29041 28216
1983 J 29568 28410
F 30282 28587
M 31737 28767
A 31721 28971
M 32549 29171
J 32000 29366
J 32424 29584
A 32790 29808
S 32616 30035
O 33176 30263
N 33142 30475
D 33104 30698
1984 J 32544 30931
F 32969 31150
M 33202 31378
A 32246 31632
M 32767 31879
J 32593 32118
J 34841 32381
A 34959 32650
S 35133 32931
O 35058 33260
N 35692 33503
D 37434 33717
1985 J 37844 33936
F 37970 34133
M 37984 34345
A 39531 34592
M 40023 34820
J 40038 35012
J 39976 35229
A 39254 35423
S 40428 35635
O 42341 35867
N 43701 36086
D 43926 36320
1986 J 46184 36524
F 47968 36717
M 47659 36938
A 49498 37130
M 50136 37312
J 48265 37506
J 50769 37701
A 47982 37874
S 49830 38045
O 50767 38220
N 49918 38369
D 54519 38557
1987 J 56165 38719
F 57317 38885
M 57035 39068
A 57525 39240
M 59630 39389
J 61849 39578
J 63662 39760
A 62711 39947
S 52932 40127
O 50090 40367
N 52585 40509
D 54165 40667
1988 J 55951 40785
F 54862 40972
M 55344 41152
A 55720 41342
M 57582 41553
J 57509 41756
J 56280 41969
A 58018 42217
S 59225 42478
O 58749 42738
N 59588 42981
D 62695 43252
1989 J 61691 43490
F 62824 43755
M 65234 44048
A 67232 44343
M 67118 44694
J 71581 45011
J 72728 45326
A 72661 45662
S 71544 45958
O 72760 46271
N 74150 46590
D 70617 46874
1990 J 71385 47142
F 72851 47410
M 71676 47714
A 76833 48043
M 76576 48370
J 76526 48674
J 71611 49005
A 69246 49329
S 69192 49625
O 72438 49962
N 73964 50247
D 76420 50548
1991 J 80470 50811
F 81977 51055
M 82241 51280
A 84947 51552
M 82165 51794
J 85076 52011
J 86666 52266
A 85709 52507
S 86662 52748
O 84157 52970
N 91300 53176
D 90106 53378
1992 J 91047 53560
F 89770 53710
M 91798 53892
A 92244 54065
M 91302 54216
J 94130 54390
J 92765 54558
A 93626 54700
S 93940 54842
O 96377 54969
N 97388 55095
D 97994 55249
1993 J 99055 55376
F 100732 55498
M 98899 55637
A 100989 55770
M 101297 55895
J 100991 56033
J 103992 56167
A 103458 56308
S 105136 56578
O 104425 56720
N 105474 56850
D 108259 56992
1994 J 106046 57112
F 102533 57266
M 103617 57421
A 104976 57605
M 103062 57783
J 105741 57945
J 109118 58159
A 107170 58375
S 109151 58596
O 106146 58813
N 107426 59072
D 109681 59320
1995 J 113071 59557
F 115775 59831
M 118526 60095
A 122319 60419
M 124733 60703
J 128155 60967
J 128547 61263
A 132973 61526
S 132710 61816
O 137525 62075
N 139695 62379
D 167238 65623
$65,623 Without Principal Transfer
[END OF GRAPHICALLY REPRESENTED DATA]
NOTES
1. Common Stocks: Standard & Poor's (S&P) Composite Index is an unmanaged
weighted index of the stock performance of 500 industrial,
transportation, utility and financial companies. Results shown assume
reinvestment of dividends. Both market value and return on common stock
will vary.
2. U.S. Government Securities: Long-term Government Bonds are measured
using a one-bond portfolio constructed each year containing a bond with
approximately a 20-year maturity and a reasonably current coupon. U.S.
Treasury Bills are measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having
the shortest maturity not less than one month. U.S. Government
securities are guaranteed as to principal and interest, and if held to
maturity, offer a fixed rate of return. However, market value and
return on such securities will fluctuate prior to maturity.
The Accumulator can be an effective program for diversifying ongoing
investments between various asset categories. In addition, the Accumulator
offers special features which help address the risk associated with timing
the equity markets, such as dollar cost averaging. By transferring the same
dollar amount each month from the Alliance Money Market Fund to other
Investment Funds, dollar cost averaging attempts to shield your investment
from short term price fluctuations. This, however, does not assure a profit
or protect against a loss in declining markets.
THE BENEFIT OF ANNUITIZATION
An individual may shift the risk of outliving his or her principal by
electing a lifetime income annuity. See "Annuity Benefits and Payout Annuity
Options," in Part 3. Chart 7 below shows the monthly income that can be
generated under various forms of life annuities, as compared to receiving
level payments of interest only or principal and interest from the
investment. Calculations in the Chart are based on the following assumption:
a $100,000 contribution was made at one of the ages shown, annuity payments
begin immediately, and a 5% annuitization interest rate is used. For purposes
of this example, principal and interest are paid out on a level basis over 15
years. In the case of the interest only scenario, the principal is always
available and may be left to other individuals at death. Under the principal
and interest scenario, a portion of the principal will be left at death,
assuming the individual dies within the 15 year period. In contrast, under
the life annuity scenarios, there is no residual amount left.
CHART 7
MONTHLY INCOME
($100,000 CONTRIBUTION)
<TABLE>
<CAPTION>
PRINCIPAL JOINT AND SURVIVOR*
INTEREST AND ---------------------------------
ONLY INTEREST FOR SINGLE 50% TO 66.67% TO 100% TO
ANNUITANT FOR LIFE 15 YEARS LIFE SURVIVOR SURVIVOR SURVIVOR
- ----------- ---------- -------------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Male 65 $401 $785 $ 617 $560 $544 $513
Male 70 401 785 685 609 588 549
Male 75 401 785 771 674 646 598
Male 80 401 785 888 760 726 665
Male 85 401 785 1,045 878 834 757
</TABLE>
- ------------
The numbers are based on 5% interest compounded annually and the 1983
Individual Annuity Mortality Table "a" projected with modified Scale G.
Annuity purchase rates available at annuitization may vary, depending
primarily on the annuitization interest rate, which may not be less than an
annual rate of 2.5%.
* The Joint and Survivor Annuity Forms are based on male and female
Annuitants of the same age.
10
<PAGE>
PART 7 -FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society
of the United States included herein should be considered only as bearing
upon the ability of Equitable Life to meet its obligations under the
Certificates.
There are no financial statements for the Separate Account investing in Class
IB shares of HR Trust and EQ Trust as the Separate Account did not invest in
such shares prior to the date of the prospectus and SAI.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life
insurance contracts and long-lived assets in 1996, for loan impairments in 1995
and for postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly
owned life insurance subsidiary, Equitable Variable Life Insurance
Company ("EVLICO"). Effective January 1, 1997, EVLICO was merged into
Equitable Life, which will continue to conduct the Company's insurance
business. Equitable Life's investment management business, which
comprises the Investment Services segment, is conducted principally by
Alliance Capital Management L.P. ("Alliance"), Equitable Real Estate
Investment Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette,
Inc. ("DLJ"), an investment banking and brokerage affiliate. AXA-UAP
("AXA"), a French holding company for an international group of
insurance and related financial services companies, is the Holding
Company's largest shareholder, owning approximately 60.8% at December
31, 1996 (63.6% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.4% if all securities convertible into, and
options on, common stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships
and joint ventures in which Equitable Life or its subsidiaries has
control and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for
the benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which
were in force on that date. Assets were allocated to the Closed Block
in an amount which, together with anticipated revenues from policies
included in the Closed Block, was reasonably expected to be sufficient
to support such business, including provision for payment of claims,
certain expenses and taxes, and for continuation of dividend scales
payable in 1991, assuming the experience underlying such scales
continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block
assets represents the expected future post-tax contribution from the
Closed Block which would be recognized in income over the period the
policies and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and
Guaranteed Interest Contract ("GIC") lines of business. The Company
established a pre-tax provision for the estimated future losses of the
GIC line of business and a premium deficiency reserve for the Wind-Up
Annuities. Subsequent losses incurred have been charged to the two loss
provisions. Management reviews the adequacy of the allowance and
reserve each quarter. During the fourth quarter 1996 review, management
determined it was necessary to increase the allowance for expected
future losses of the GIC Segment. Management believes the loss
provisions for GIC contracts and Wind-Up Annuities at December 31, 1996
are adequate to provide for all future losses; however, the
determination of loss provisions continues to involve numerous
estimates and subjective judgments regarding the expected performance
of discontinued operations investment assets. There can be no assurance
the losses provided for will not differ from the losses ultimately
realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect
of accounting change by $19.2 million, net of Federal income taxes of
$10.3 million for 1996. The financial statements for 1995 and 1994 have
been retroactively restated for the change which resulted in an
increase (decrease) in earnings before cumulative effect of accounting
change of $15.2 million, net of Federal income taxes of $8.2 million,
and $(2.6) million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in
investment gains (losses), net. Before implementing SFAS No. 121,
valuation allowances on real estate held for the production of income
were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
The adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on
real estate to be disposed of continue to be computed using the lower
of estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal
income tax benefit of $12.4 million, due to the writedown to fair value
of building improvements relating to facilities being vacated beginning
in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans
within the scope of this statement are measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. The Company
provides for impairment of loans through an allowance for possible
losses. The adoption of this statement did not have a material effect
on the level of these allowances or on the Company's consolidated
statements of earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred
policy acquisition costs ("DAC"), amounts attributable to participating
group annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant or, alternatively, to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Companies
which elect to continue to apply APB Opinion No. 25 must provide pro
forma net income disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company accounts for stock option plans
sponsored by the Holding Company, DLJ and Alliance in accordance with
the provisions of APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of
repurchase agreements, dollar-roll, securities lending and similar
transactions. Management has not yet determined the effect of
implementing SFAS No. 125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is
adjusted for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized
on transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired
real estate is written down to fair value with the impairment loss
being included in investment gains (losses) net. Valuation allowances
on real estate available for sale are computed using the lower of
current estimated fair value or depreciated cost, net of disposition
costs. Prior to the adoption of SFAS No. 121, valuation allowances on
real estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the
equity basis of accounting and are included either with equity real
estate or other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment
gains or losses.
Unrealized investment gains and losses on fixed maturities available
for sale and equity securities held by the Company are accounted for as
a separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in
the period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of
policy issue and loss recognition testing at the end of each accounting
period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses)
is recognized with an offset to unrealized gains (losses) in
consolidated shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset
to unrealized gains (losses) in consolidated shareholder's equity as of
the balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the
basis of actuarial assumptions equal to guaranteed mortality and
dividend fund interest rates. The liability for annual dividends
represents the accrual of annual dividends earned. Terminal dividends
are accrued in proportion to gross margins over the life of the
contract.
For non-participating traditional life insurance policies, future
policy benefit liabilities are estimated using a net level premium
method on the basis of actuarial assumptions as to mortality,
persistency and interest established at policy issue. Assumptions
established at policy issue as to mortality and persistency are based
on the Insurance Group's experience which, together with interest and
expense assumptions, include a margin for adverse deviation. When the
liabilities for future policy benefits plus the present value of
expected future gross premiums for a product are insufficient to
provide for expected future policy benefits and expenses for that
product, DAC is written off and thereafter, if required, a premium
deficiency reserve is established by a charge to earnings. Benefit
liabilities for traditional annuities during the accumulation period
are equal to accumulated contractholders' fund balances and after
annuitization are equal to the present value of expected future
payments. Interest rates used in establishing such liabilities range
from 2.25% to 11.5% for life insurance liabilities and from 2.25% to
13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities
("Pension Par") was completed which included management's revised
estimate of assumptions, including expected mortality and future
investment returns. The study's results prompted management to
establish a premium deficiency reserve which decreased earnings from
continuing operations and net earnings by $47.5 million ($73.0 million
pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as
claim incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a
reasonable basis and are adequate, there can be no assurance reserves
will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6
million at December 31, 1996 and 1995, respectively (excluding $175.0
million of reserve strengthening in 1996). Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
DI and major medical policies (excluding $175.0 million of reserve
strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable
Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's
shareholder. Earnings in excess of limitations, if any, would be
accrued as policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current
Federal income taxes were charged or credited to operations based upon
amounts estimated to be payable or recoverable as a result of taxable
operations for the current year. Deferred income tax assets and
liabilities were recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as
separate captions in the consolidated balance sheets. The Insurance
Group bears the investment risk on assets held in one Separate Account,
therefore, such assets are carried on the same basis as similar assets
held in the General Account portfolio. Assets held in the other
Separate Accounts are carried at quoted market values or, where quoted
values are not available, at estimated fair values as determined by the
Insurance Group.
The investment results of Separate Accounts on which the Insurance
Group does not bear the investment risk are reflected directly in
Separate Accounts liabilities. For 1996, 1995 and 1994, investment
results of such Separate Accounts were $2,970.6 million, $1,963.2
million and $665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality,
policy administration and surrender charges on all Separate Accounts
are included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon
the assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost
of $3,915.7 million and $3,748.9 million, respectively, had estimated
fair values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or
5 (below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total
mortgage loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to
time be restructured or modified. The investment in restructured
mortgage loans on real estate, based on amortized cost, amounted to
$388.3 million and $531.5 million at December 31, 1996 and 1995,
respectively. These amounts include $1.0 million and $3.8 million of
problem mortgage loans on real estate at December 31, 1996 and 1995,
respectively. Gross interest income on restructured mortgage loans on
real estate that would have been recorded in accordance with the
original terms of such loans amounted to $35.5 million, $52.1 million
and $44.9 million in 1996, 1995 and 1994, respectively. Gross interest
income on these loans included in net investment income aggregated
$28.2 million, $37.4 million and $32.8 million in 1996, 1995 and 1994,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where
the fair value of the collateral or the net present value of the
expected future cash flows related to the loan equals or exceeds the
recorded investment. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995,
respectively, including $17.9 million and $13.4 million recognized on a
cash basis.
The Insurance Group's investment in equity real estate is through
direct ownership and through investments in real estate joint ventures.
At December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate
acquired in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally
range from 40 to 50 years. Accumulated depreciation on real estate was
$587.5 million and $662.4 million at December 31, 1996 and 1995,
respectively. Depreciation expense on real estate totaled $91.8
million, $121.7 million and $117.0 million for 1996, 1995 and 1994,
respectively. As a result of the implementation of SFAS No. 121, during
1996 no depreciation expense has been recorded on real estate available
for sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized
on these sales. The change in unrealized investment (losses) gains
related to fixed maturities classified as available for sale for 1996,
1995 and 1994 amounted to $(258.0) million, $1,077.2 million and
$(742.2) million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an
investment gain of $20.6 million as a result of the issuance of
Alliance Units in this transaction. At December 31, 1996, the Company's
ownership of Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to
third parties at prevailing market prices. The Company continues to
hold its 1% general partnership interest in Alliance. The Company
recognized an investment gain of $52.4 million as a result of these
transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in
the contribution from the Closed Block of $27.5 million, $18.8 million
and $(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively,
of restructured securities which includes problem fixed maturities of
$.3 million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified
as held to maturity were transferred to the available for sale
portfolio. All actions resulted from significant deterioration in
creditworthiness. The amortized cost of the security sold was $4.2
million. The aggregate amortized cost of the securities transferred was
$81.3 million with gross unrealized investment losses of $.1 million
transferred to equity. At December 1, 1995, $1,750.7 million of
securities classified as held to maturity were transferred to the
available for sale portfolio. As a result, unrealized gains of $88.5
million on fixed maturities were recognized, offset by DAC amortization
of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had an amortized cost of $4.3 million and $36.5 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7
million, respectively. At December 31, 1996 and 1995, the restructured
mortgage loans on real estate amount included $.7 million and $8.8
million, respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and
1995, respectively, including $4.7 million and $1.3 million recognized
on a cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of
the Closed Block operations. Operating costs and expenses outside of
the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen
the loss provisions by $129.0 million, resulting in a post-tax charge
of $83.8 million to discontinued operations' results in the fourth
quarter of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets.
There can be no assurance the losses provided for will not differ from
the losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the loss provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment.
Subsequently, the GIC Segment remitted $1,155.4 million in cash to
continuing operations in partial repayment of borrowings by the GIC
Segment. No gains or losses were recognized on these transactions.
Amounts due to continuing operations at December 31, 1996, consisted of
$1,080.0 million borrowed by the discontinued GIC Segment offset by
$83.8 million representing an obligation of continuing operations to
provide assets to fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate
and recognition of impairment losses of $69.8 million on real estate
held and used. Writedowns of fixed maturities amounted to $1.6 million,
$8.1 million and $17.8 million for 1996, 1995 and 1994, respectively
and writedowns of equity real estate subsequent to the adoption of SFAS
No. 121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had amortized costs of $7.9 million and $35.4 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction
of debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate
purposes used to support Equitable Life's liquidity needs and is
supported by Equitable Life's existing $350.0 million five-year bank
credit facility. There were no borrowings outstanding under this
program at December 31, 1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of
Alliance, is a floating rate generally based upon a defined prime rate,
a rate related to the LIBOR or the Federal Funds rate. A facility fee
is payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for
general working capital purposes. As of December 31, 1996, Alliance had
not issued any commercial paper under its $100.0 million commercial
paper program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997
totaling $174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and
securities amounting to $1,406.4 million and $1,629.7 million at
December 31, 1996 and 1995, respectively, as collateral for certain
long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings
before Federal income taxes and minority interest by the expected
Federal income tax rate of 35%. The sources of the difference and the
tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes,
by an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by
the Internal Revenue Service. As a stock life insurance company,
Equitable Life no longer is required to reduce its policyholder
dividend deduction by the differential earnings amount, but
differential earnings amounts for pre-demutualization years were still
being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary
differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. The effect of reinsurance (excluding group life
and health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard
underwriting risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994,
respectively. Ceded death and disability benefits totaled $21.2
million, $188.1 million and $235.5 million for 1996, 1995 and 1994,
respectively. Insurance liabilities ceded totaled $652.4 million and
$724.2 million at December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans
are non-contributory. Equitable Life's and EREIM's benefits are based
on a cash balance formula or years of service and final average
earnings, if greater, under certain grandfathering rules in the plans.
Alliance's benefits are based on years of credited service, average
final base salary and primary social security benefits. The Company's
funding policy is to make the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1
million, net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable
Life. Benefit payments under these contracts were approximately $34.7
million, $36.4 million and $38.1 million for 1996, 1995 and 1994,
respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of
postretirement benefits are recognized in accordance with the
provisions of SFAS No. 106. The Company continues to fund
postretirement benefits costs on a pay-as-you-go basis and, for 1996,
1995 and 1994, the Company made estimated postretirement benefits
payments of $18.9 million, $31.1 million and $29.8 million,
respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was
7.50% and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%,
the accumulated postretirement benefits obligation as of December 31,
1996 would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly
are utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996,
the cost of terminating outstanding matched swaps in a loss position
was $8.3 million and the unrealized gain on outstanding matched swaps
in a gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2)
million, respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on
interest-sensitive individual annuities contracts. The outstanding
notional amounts at December 31, 1996 of contracts purchased and sold
were $5,050.0 million and $500.0 million, respectively. The net premium
paid by Equitable Life on these contracts was $22.5 million and is
being amortized ratably over the contract periods ranging from 3 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's
involvement in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect
any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans
are limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the
appropriate duration. For durations in excess of the published index
rate, the appropriate Treasury rate is used plus a spread equal to the
longest duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair
values for single premium deferred annuities ("SPDA") are estimated
using projected cash flows discounted at current offering rates. The
estimated fair values for supplementary contracts not involving life
contingencies ("SCNILC") and annuities certain are derived using
discounted cash flows based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage
debt are determined by discounting contractual cash flows at a rate
which takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing
loan or loan commitment agreements; and to provide short-term financing
loans which at December 31, 1996 totaled $14.6 million. Management
believes the Company will not incur any material losses as a result of
these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date,
no such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance
Society of the United States was filed on January 20, 1995 in New York
County Supreme Court. The action purports to be brought on behalf of a
class of persons insured after 1983 under Lifetime Guaranteed Renewable
Major Medical Insurance Policies issued by Equitable Life (the
"policies"). The complaint alleges that premium increases for these
policies after 1983, all of which were filed with and approved by the
New York State Insurance Department and certain other state insurance
departments, breached the terms of the policies, and that statements in
the policies and elsewhere concerning premium increases constituted
fraudulent concealment, misrepresentations in violation of New York
Insurance Law Section 4226 and deceptive practices under New York
General Business Law Section 349. The complaint seeks a declaratory
judgment, injunctive relief restricting the methods by which Equitable
Life increases premiums on the policies in the future, a refund of
premiums, and punitive damages. Plaintiffs also have indicated that
they will seek damages in an unspecified amount. Equitable Life moved
to dismiss the complaint in its entirety on the grounds that it fails
to state a claim and that uncontroverted documentary evidence
establishes a complete defense to the claims. On May 29, 1996, the New
York County Supreme Court entered a judgment dismissing the complaint
with prejudice. Plaintiffs have filed a notice of appeal of that
judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved
Equitable Life's rate increases. These actions are asserted on behalf
of proposed classes of Pennsylvania issued or renewed policyholders and
Texas issued or renewed policyholders, insured under the policies. The
Pennsylvania and Texas actions seek compensatory and punitive damages
and injunctive relief restricting the methods by which Equitable Life
increases premiums in the future based on the common law and statutes
of those states. On February 9, 1996, Equitable Life removed the
Pennsylvania action, Malvin, to the United States District Court for
the Middle District of Pennsylvania. Following the decision granting
Equitable Life's motion to dismiss the New York action (Golomb), on the
consent of the parties the District Court ordered an indefinite stay of
all proceedings in the Pennsylvania action, pending either party's
right to reinstate the proceeding, and ordered that for administrative
purposes the case be deemed administratively closed. On February 2,
1996, Equitable Life removed the Texas action, Bowler, to the United
States District Court for the Northern District of Texas. On May 20,
1996, the plaintiffs in Bowler amended their complaint by adding
allegations of misrepresentation regarding premium increases on other
types of guaranteed renewable major medical insurance policies issued
by Equitable Life up to and including 1983. On July 1, 1996, Equitable
Life filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted
plaintiffs leave to file a supplemental complaint on behalf of a
proposed class of Texas policyholders claiming unfair discrimination,
breach of contract and other claims arising out of alleged differences
between premiums charged to Texas policyholders and premiums charged to
similarly situated policyholders in New York and certain other states.
Plaintiffs seek refunds of alleged overcharges, exemplary or additional
damages citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued
by Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which
Equitable Life increases premiums in the future based on various common
law claims. On June 20, 1996, Equitable Life removed the Florida action
to Federal court. Equitable Life has answered the complaint, denying
the material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment
and plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially
the same allegations concerning premium rates and premium rate
increases on guaranteed renewable policies made in the Bowler action.
The complaint alleges, among other things, that differentials between
rates charged California policyholders and policyholders in New York
and certain other states, and the methods used by Equitable Life to
calculate premium increases, breached the terms of its policies, that
Equitable Life misrepresented and concealed the facts pertaining to
such differentials and methods in violation of California law, and that
Equitable Life also misrepresented that its rate increases were
approved by the California Insurance Department. Plaintiffs seek
compensatory damages in an unspecified amount, rescission, injunctive
relief and attorneys' fees. Equitable Life removed the action to
Federal court; plaintiff has moved to remand the case to state court.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, the Company's
management believes that the ultimate resolution of the Golomb, Malvin,
Bowler, Bachman and Fletcher litigations should not have a material
adverse effect on the financial position of the Company. Due to the
early stage of such litigations, the Company's management cannot make
an estimate of loss, if any, or predict whether or not such litigations
will have a material adverse effect on the Company's results of
operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and
its wholly owned subsidiary, EOC, in New York state court, entitled
Sidney C. Cole et al. v. The Equitable Life Assurance Society of the
United States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of
action under the New York State consumer protection statute. The only
remaining causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a
motion to have this proceeding moved from Kings County Supreme Court to
New York County for joint trial or consolidation with the Cole action.
The motion was denied by the court on January 9, 1997. On January 10,
1997, plaintiffs moved for certification of a nationwide class
consisting of all persons or entities who were sold one or more life
insurance products on a "vanishing premium" basis and/or were allegedly
induced to purchase additional policies from EVLICO, using the cash
value accumulated in existing policies, from January 1, 1980 through
and including December 31, 1996. Plaintiffs further moved to have
Michael Bradley designated as the class representative. Discovery
regarding class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual
who purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly
promised by Equitable Life and EOC. The second is a "fraud class,"
consisting of all persons with an interest in policies issued by
Equitable Life and EOC at any time since October 1, 1986. Plaintiff
seeks damages in an unspecified amount, and also seeks injunctive
relief attaching Equitable Life's and EOC's profits from their alleged
sales practices. Equitable Life's and EOC's time to answer or move with
respect to the complaint has been extended until February 24, 1997.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, the Company's management
believes that the ultimate resolution of the Cole, Duncan, Bradley and
Dillon litigations should not have a material adverse effect on the
financial position of the Company. Due to the early stages of such
litigations, the Company's management cannot make an estimate of loss,
if any, or predict whether or not any such litigation will have a
material adverse effect on the Company's results of operations in any
particular period.
On January 3, 1996, an amended complaint was filed in an action
entitled Frank Franze Jr. and George Busher, individually and on behalf
of all others similarly situated v. The Equitable Life Assurance
Society of the United States, and Equitable Variable Life Insurance
Company, No. 94-2036 in the United States District Court for the
Southern District of Florida. The action was brought by two individuals
who purchased variable life insurance policies. The plaintiffs purport
to represent a nationwide class consisting of all persons who purchased
variable life insurance policies from Equitable Life and EVLICO since
September 30, 1991. The basic allegation of the amended complaint is
that Equitable Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated
v. The Equitable Life Assurance Society of the United States, and
Equitable Variable Life Insurance Company, was filed in Massachusetts
state court making claims similar to those in the Franze action and
alleging violations of the Massachusetts securities laws. The plaintiff
purports to represent all persons in Massachusetts who purchased
variable life insurance contracts from Equitable Life and EVLICO from
January 9, 1993 to the present. The Massachusetts action seeks
rescission of the contracts or compensatory damages, attorneys' fees,
expenses and injunctive relief. Although the outcome of any litigation
cannot be predicted with certainty, particularly in the early stages of
an action, the Company's management believes that the ultimate
resolution of the litigations discussed in this paragraph should not
have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigation, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S.
Department of Labor ("DOL") requesting copies of any third-party
appraisals in Equitable Life's possession relating to the ten largest
properties (by value) in the Prime Property Fund ("PPF"). PPF is an
open-end, commingled real estate separate account of Equitable Life for
pension clients. Equitable Life serves as investment manager in PPF and
has retained EREIM as advisor. In early 1995, the DOL commenced a
national investigation of commingled real estate funds with pension
investors, including PPF. The investigation now appears to be focused
principally on appraisal and valuation procedures in respect of fund
properties. The most recent request from the DOL seems to reflect, at
least in part, an interest in the relationship between the valuations
for those properties reflected in appraisals prepared for local
property tax proceedings and the valuations used by PPF for other
purposes. At no time has the DOL made any specific allegation that
Equitable Life or EREIM has acted improperly and Equitable Life and
EREIM believe that any such allegation would be without foundation.
While the outcome of this investigation cannot be predicted with
certainty, in the opinion of management, the ultimate resolution of
this matter should not have a material adverse effect on the Company's
consolidated financial position or results of operations in any
particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The
arbitration panel issued a final award in favor of Casualty and GEICO
General on June 17, 1996. Casualty and GEICO General moved in the
pending Texas state court action, with Houston General's consent, for
an order confirming the arbitration award and entering judgment
dismissing the action. The motion was granted on January 29, 1997. The
parties have also stipulated to the dismissal without prejudice of a
related Texas Federal court action brought by Houston General against
GEICO General and Equitable Life. In connection with confirmation of
the arbitration award, Houston General paid to Casualty approximately
$839,600 in settlement of certain reimbursement claims by Casualty
against Houston General.
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Complaint") was filed against the Alliance North American
Government Income Trust, Inc. (the "Fund"), Alliance and certain other
defendants affiliated with Alliance, including the Holding Company,
alleging violations of Federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint, which seeks certification of a
plaintiff class of persons who purchased or owned Class A, B or C
shares of the Fund from March 27, 1992 through December 23, 1994, seeks
an unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations of the Complaint are that the Fund
purchased debt securities issued by the Mexican and Argentine
governments in amounts that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and
warrants to purchase shares of common stock of Rickel Home Centers,
Inc. ("Rickel") filed a class action complaint against Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC") and certain other
defendants for unspecified compensatory and punitive damages in the
United States District Court for the Southern District of New York. The
suit was brought on behalf of the purchasers of 126,457 units
consisting of $126,457,000 aggregate principal amount of 13 1/2% senior
notes due 2001 and 126,457 warrants to purchase shares of common stock
of Rickel issued by Rickel in October 1994. The complaint alleges
violations of Federal securities laws and common law fraud against
DLJSC, as the underwriter of the units and as an owner of 7.3% of the
common stock of Rickel, Eos Partners, L.P., and General Electric
Capital Corporation, each as owners of 44.2% of the common stock of
Rickel, and members of the Board of Directors of Rickel, including a
DLJSC Managing Director. The complaint seeks to hold DLJSC liable for
alleged misstatements and omissions contained in the prospectus and
registration statement filed in connection with the offering of the
units, alleging that the defendants knew of financial losses and a
decline in value of Rickel in the months prior to the offering and did
not disclose such information. The complaint also alleges that Rickel
failed to pay its semi-annual interest payment due on the units on
December 15, 1995 and that Rickel filed a voluntary petition for
reorganization pursuant to Chapter 11 of the United States Bankruptcy
Code on January 10, 1996. DLJSC intends to defend itself vigorously
against all of the allegations contained in the complaint. Although
there can be no assurance, DLJ does not believe the outcome of this
litigation will have a material adverse effect on its financial
condition. Due to the early stage of this litigation, based on the
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter
11 reorganization proceedings. The class action complaint alleges that
the plan of reorganization submitted by NGC was based upon projections
by NGC and DLJSC which intentionally understated forecasts, and
provided misleading and incorrect information in order to hide NGC's
true value and that defendants breached their fiduciary duties by,
among other things, providing false, misleading or incomplete
information to deliberately understate the value of NGC. The class
action complaint seeks compensatory and punitive damages purportedly
sustained by the class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in
the complaint. Although there can be no assurance, DLJ does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on its financial condition. Due to the early stage of
such litigation, based upon the information currently available to it,
DLJ's management cannot make an estimate of loss, if any, or predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed
in the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently
available to it, DLJ's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material
adverse effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of
the actions and proceedings have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek
damages of unspecified amounts. While the ultimate outcome of such
matters cannot be predicted with certainty, in the opinion of
management no such matter is likely to have a material adverse effect
on the Company's consolidated financial position or results of
operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million,
$110.6 million, $100.3 million, $72.3 million, $59.3 million and $427.3
million thereafter. Minimum future sublease rental income on these
noncancelable leases for 1997 and the succeeding four years are $9.8
million, $6.0 million, $4.5 million, $2.4 million, $.8 million and $.1
million thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million,
$219.8 million, $194.3 million, $174.6 million and $847.1 million
thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million
writeoff of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment
of dividends to its shareholders. For 1996, 1995 and 1994, statutory
net (loss) earnings totaled $(351.1) million, $(352.4) million and
$67.5 million, respectively. No amounts are expected to be available
for dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996,
1995 and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been
restated to reflect the Company's accounting change adopted in the
fourth quarter of 1996 for long-duration participating life contracts
in accordance with the provisions prescribed by SFAS No. 120. Net
earnings for the three months ended December 31, 1996 includes a charge
of $339.3 million related to writeoffs of DAC on DI contracts of $94.3
million, reserve strengthening on DI business of $113.7 million,
pension par of $47.5 million and the discontinued GIC Segment of $83.8
million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess
of the proceeds over the book value in DLJ at the date of sale of
$340.2 million has been reflected as a capital contribution. In 1995,
DLJ completed the initial public offering ("IPO") of 10.58 million
shares of its common stock, which included 7.28 million of the Holding
Company's shares in DLJ, priced at $27 per share. Concurrent with the
IPO, the Company contributed equity securities to DLJ having a market
value of $21.2 million. Upon completion of the IPO, the Company's
ownership percentage was reduced to 36.1%. The Company's ownership
interest will be further reduced upon the issuance of common stock
after the vesting of forfeitable restricted stock units acquired by
and/or the exercise of options granted to certain DLJ employees. DLJ
restricted stock units represents forfeitable rights to receive
approximately 5.2 million shares of DLJ common stock through February
2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of
DLJ is included in investment in and loans to affiliates in the
consolidated balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method
prescribed in APB Opinion No. 25. Had compensation expense of the
Company's stock option incentive plans for options granted after
December 31, 1994 been determined based on the estimated fair value at
the grant dates for awards under those plans, the Company's pro forma
net earnings for 1996 and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as
of the date of grants using Black-Scholes option pricing models. The
option and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
INCOME MANAGER (SERVICE MARK) ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS
OF SEPARATE ACCOUNT NO. 45
<TABLE>
<CAPTION>
EQUITY SERIES
- -----------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
<S> <C> <C>
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity
T. Rowe Price Equity Income
*Available on or about September 2,
1997
----------------------------------- ---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ----------------------------------- -----------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
- ----------------------------------- ---- ---------------------------
</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 45 prospectus supplement
for the Rollover IRA, dated May 1, 1997 and the prospectus for the Rollover
IRA, dated October 17, 1996. Definitions of special terms used in the SAI are
found in the prospectus.
A copy of the prospectus is available free of charge by writing the
Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your Registered Representative.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- -------------------------------------------------------------------- --------
<S> <C>
Part 1 Minimum Distribution Withdrawals 2
- -------------------------------------------------------------------- --------
Part 2 Accumulation Unit Values 2
- -------------------------------------------------------------------- --------
Part 3 Annuity Unit Values 2
- -------------------------------------------------------------------- --------
Part 4 Custodian and Independent Accountants 3
- -------------------------------------------------------------------- --------
Part 5 Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund
Yield Information 3
- -------------------------------------------------------------------- --------
Part 6 Long-Term Market Trends 5
- -------------------------------------------------------------------- --------
Part 7 Financial Statements 7
- -------------------------------------------------------------------- --------
</TABLE>
Copyright 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
PART 1 - MINIMUM DISTRIBUTION WITHDRAWALS
If you elect Minimum Distribution Withdrawals described in Part 6 of the
prospectus, each year we calculate the Minimum Distribution Withdrawal amount
by using the value of your IRA as of December 31 of the prior calendar year.
We then calculate the minimum distribution amount based on the various
choices you make. This calculation takes into account withdrawals made during
the current calendar year but prior to the date we determine your Minimum
Distribution Withdrawal amount, except that when Minimum Distribution
Withdrawals are elected in the year in which you attain age 71 1/2, no
adjustment will be made for any withdrawals made between January 1 and April
1 in satisfaction of the minimum distribution requirement for the prior year.
An election can also be made (1) to have us recalculate your life expectancy,
or joint life expectancies, each year or (2) to have us determine your life
expectancy, or joint life expectancies, once and then subtract one year, each
year, from that amount. The joint life options are only available if the
spouse is the beneficiary. However, if you first elect Minimum Distribution
Withdrawals after April 1 of the year following the calendar year in which
you attain age 70 1/2, option (1) will apply.
PART 2 - ACCUMULATION
UNIT VALUES
Accumulation Unit Values are determined at the end of each Valuation Period
for each of the Investment Funds. Other annuity contracts and certificates
which may be offered by us will have their own accumulation unit values for
the Investment Funds which may be different from those for the Rollover IRA.
The Accumulation Unit Value for an Investment Fund for any Valuation Period
is equal to the Accumulation Unit Value for the preceding Valuation Period
multiplied by the Net Investment Factor for that Investment Fund for that
Valuation Period. The NET INVESTMENT FACTOR is (a) -c where:
b
(a) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the Valuation Period before giving effect to
any amounts allocated to or withdrawn from the Investment Fund for the
Valuation Period. For this purpose, we use the share value reported to
us by HR Trust or EQ Trust, as applicable.
(b) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the preceding Valuation Period (after any
amounts allocated or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risk charge and
asset based administrative charge relating to the Certificates, times
the number of calendar days in the Valuation Period. These daily
charges are at an effective annual rate not to exceed a total of 1.15%.
PART 3 - ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on May 1, 1995 for Certificates
with assumed base rates of net investment return of both 5% and 3 1/2% a
year. For each Valuation Period after that date, it is the annuity unit value
for the immediately preceding Valuation Period multiplied by the adjusted Net
Investment Factor under the Certificate. For each Valuation Period, the
adjusted Net Investment Factor is equal to the Net Investment Factor reduced
for each day in the Valuation Period by:
o .00013366 of the Net Investment Factor if the assumed base rate of net
investment return is 5% a year; or
o .00009425 of the Net Investment Factor if the assumed base rate of net
investment return is 3 1/2%.
Because of this adjustment, the annuity unit value rises and falls depending
on whether the actual rate of net investment return (after deduction of
charges) is higher or lower than the assumed base rate.
All Certificates have a 5% assumed base rate of net investment return, except
in states where that rate is not permitted. Annuity payments under
Certificates with an assumed base rate of 3 1/2% will at first be smaller
than those under Certificates with a 5% assumed base rate. Payments under the
3 1/2% Certificates, however, will rise more rapidly when unit values are
rising, and payments will fall more slowly when unit values are falling than
those under 5% Certificates.
2
<PAGE>
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Business Day specified on your election form,
or on such other future date as specified therein and are made on a monthly
basis. The first three payments are of equal amounts. Each of the first three
payments will be based on the amount specified in the Tables of Guaranteed
Annuity Payments in the Certificate.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period). If the annuity
involved a life contingency, the risk class and the age of the annuitants
will affect payments.
The amount of the fourth and each later payment will vary according to the
investment performance of the Alliance Common Stock Fund. Each monthly
payment will be calculated by multiplying the number of annuity units
credited by the average annuity unit value for the second calendar month
immediately preceding the due date of the payment. The number of units is
calculated by dividing the first monthly payment by the annuity unit value
for the Valuation Period which includes the due date of the first monthly
payment. The average annuity unit value is the average of the annuity unit
values for the Valuation Periods ending in that month. Variable income
annuities may also be available by separate prospectus through the Alliance
Common Stock or other Funds of other separate accounts we offer.
Illustration of Changes in Annuity Unit Values. To show how we determine
variable annuity payments from month to month, assume that the Annuity
Account Value on an Annuity Commencement Date is enough to fund an annuity
with a monthly payment of $363 and that the annuity unit value for the
Valuation Period that includes the due date of the first annuity payment is
$1.05. The number of annuity units credited under the contract would be
345.71 (363 divided by 1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the
number of units (345.71) times the average annuity unit value ($1.10), or
$380.28. If the average annuity unit value was $1 in February, the annuity
payment for April would be 345.71 times $1, or $345.71.
PART 4 - CUSTODIAN AND
INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of the HR Trust and EQ Trust owned
by the Separate Account.
The financial statements of the Separate Account for the period ended
December 31, 1996 and 1995, and the consolidated financial statements and
consolidated financial statement schedules of Equitable Life at December 31,
1996 and 1995 and for each of the three years ended December 31, 1996
included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the period ended
December 31, 1996 and 1995, and the consolidated financial statements and
consolidated financial statement schedules of Equitable Life at December 31,
1996 and 1995 and for each of the three years ended December 31, 1996
included in this SAI have been so included in reliance on the reports of
Price Waterhouse LLP, independent accountants, given on the authority of such
firm as experts in accounting and auditing.
PART 5 -ALLIANCE MONEY
MARKET FUND AND
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES
FUND YIELD INFORMATION
Alliance Money Market Fund
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
Certificate with one Accumulation Unit at the beginning of the period. To
determine the seven-day rate of return, the net change in the Accumulation
Unit Value is computed by subtracting the Accumulation Unit Value at the
beginning of the period from an Accumulation Unit Value, exclusive of capital
changes, at the end of the period.
The net change is then reduced by the average contract fee factor (explained
below). This reduction is made to recognize the deduction of the annual
contract fee, which is not reflected in the unit value. See "Annual Contract
Fee" in Part 7 of the prospectus.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Money Market Fund but do not reflect the distribution fee, the withdrawal
charge, the GMDB/GMIB charge or any charges for applicable taxes such as
state or local premium taxes.
3
<PAGE>
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This seven-day adjusted base period return is then multiplied by 365/7 to
produce an annualized seven-day current yield figure carried to the nearest
one-hundredth of one percent.
The actual dollar amount of the annual contract fee that is deducted from the
Alliance Money Market Fund will vary for each Certificate depending upon the
percentage of the Annuity Account Value allocated to the Alliance Money
Market Fund. To determine the effect of the annual contract fee on the yield,
we start with the total dollar amounts of the charges deducted from the Fund
during the 12-month period ending on the last day of the prior year. The
amount is multiplied by 7/365 to produce an average contract fee factor which
is used in all weekly yield computations for the ensuing year. The average
contract fee factor is then divided by the number of Rollover IRA Alliance
Money Market Fund Accumulation Units as of the end of the prior calendar
year, and the resulting quotient is deducted from the net change in
Accumulation Unit Value for the seven-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by adding
one to the adjusted base period return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result, i.e., effective yield
= (base period return + 1 ) 365/7 -- 1. The Alliance Money Market Fund yields
will fluctuate daily. Accordingly, yields for any given period are not
necessarily representative of future results. In addition, the value of
Accumulation Units of the Alliance Money Market Fund will fluctuate and not
remain constant.
Alliance Intermediate Government Securities Fund
The Alliance Intermediate Government Securities Fund calculates yield
information for 30-day periods. The 30-day current yield calculation is based
on a hypothetical Certificate with one Accumulation Unit at the beginning of
the period. To determine the 30-day rate of return, the net change in the
Accumulation Unit Value is computed by subtracting the Accumulation Unit
Value at the beginning of the period from an Accumulation Unit Value,
exclusive of capital changes, at the end of the period.
The net change is then reduced by the average contract fee factor (explained
below). This reduction is made to recognize the deduction of the annual
contract fee, which is not reflected in the unit value. See "Annual Contract
Fee" in Part 7 of the prospectus.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities Fund but do not reflect the distribution
fee, the withdrawal charge, the GMDB/GMIB charge or any charges for
applicable taxes such as state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This 30-day adjusted base period return is then multiplied by 365/30 to
produce an annualized 30-day current yield figure carried to the nearest
one-hundredth of one percent.
The actual dollar amount of the annual contract fee that is deducted from the
Alliance Intermediate Government Securities Fund will vary for each
Certificate depending upon the percentage of the Annuity Account Value
allocated to the Alliance Intermediate Government Securities Fund. To
determine the effect of the annual contract fee on the yield, we start with
the total dollar amounts of the charges deducted from the Fund during the
12-month period ending on the last day of the prior year. The amount is
multiplied by 30/365 to produce an average contract fee factor which is used
in all 30-day yield computations for the ensuing year. The average contract
fee is then divided by the number of Rollover IRA Alliance Intermediate
Government Securities Fund Accumulation Units as of the end of the prior
calendar year, and the resulting quotient is deducted from the net change in
Accumulation Unit Value for the 30-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Intermediate Government Securities
Fund's investments, as follows: the unannualized adjusted base period return
is compounded by adding one to the adjusted base period return, raising the
sum to a power equal to 365 divided by 30, and subtracting one from the
result, i.e., effective yield = (base period return + 1) 365/30 -- 1.
Alliance Intermediate Government Securities Fund yields will fluctuate daily.
Accordingly, yields for any given period are not necessarily representative
of future results. In addition, the
4
<PAGE>
value of Accumulation Units of the Alliance Intermediate Government
Securities Fund will fluctuate and not remain constant.
Alliance Money Market Fund and Alliance Intermediate Government Securities
Fund Yield Information
The Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund yields reflect charges that are not normally reflected in the
yields of other investments and therefore may be lower when compared with
yields of other investments. Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund yields should not be compared to the
return on fixed rate investments which guarantee rates of interest for
specified periods, such as the Guarantee Periods. Nor should the yield be
compared to the yield of money market funds or government securities funds
made available to the general public.
The seven-day current yield for the Alliance Money Market Fund was 4.03% for
the period ended December 31, 1996. The effective yield for that period was
4.11%.
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 4.41% for the period ended December 31, 1996. The effective yield
for that period was 4.50%.
Because the above yields reflect the deduction of Separate Account expenses,
including the annual contract fee, they are lower than the corresponding
yield figures for the Alliance Money Market Portfolio and Alliance
Intermediate Government Securities Portfolio which reflect only the deduction
of HR Trust-level expenses.
PART 6 - LONG-TERM MARKET TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return
trends for various types of securities. The information presented, while not
directly related to the performance of the Investment Funds, helps to provide
a perspective on the potential returns of different asset classes over
different periods of time. By combining this information with knowledge of
your own financial needs (e.g., the length of time until you retire, your
financial requirements at retirement), you may be able to better determine
how you wish to allocate contributions among the Investment Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long-or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus
is on long-term growth potential and protection against inflation, there may
be advantages to allocating some or all of their Annuity Account Value to
those Investment Funds that invest in stocks.
Growth of $1 Invested on January 1, 1956
(Values are as of last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED
AREA GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
TOTAL U.S.
RETURN INFLATION
- ------------------------------------------
INDEX VALUE
- ------------------------------------------
Dec 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
- ------------------------------------------
[END OF GRAPHICALLY REPRESENTED DATA]
[BLACK] Common Stock [WHITE] Inflation
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart on next page.
Over shorter periods of time, however, common stocks tend to be subject to
more dramatic changes in value than fixed income (debt) securities. Investors
who are nearing retirement age, or who have a need to limit short-term risk,
may find it preferable to allocate a smaller percentage of their Annuity
Account Value to those Investment Funds that invest in common stocks. The
following graph illustrates the monthly fluctuations in value of $1 based on
monthly returns of the Standard & Poor's 500 during 1990, a year that
represents more typical volatility than 1996.
5
<PAGE>
Growth of $1 Invested on January 1, 1990
(Values are as of last business date)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
U.S. IT TOTAL
GVT TR RETURN
- ------------------------------------------
INDEX INDEX
- ------------------------------------------
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
Common Stock Intermediate-Term Govt. Bonds
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1996 for different
types of securities: common stocks, long-term government bonds, long-term
corporate bonds, intermediate-term govern-ment bonds and U.S. Treasury Bills.
For comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated
with deferred annuity products, are reflected.
The information presented is merely a summary of past experience for
unmanaged groups of securities and is neither an estimate nor guarantee of
future performance. Any invest ment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated
in the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the trusts and Separate Account charges), see the supplement
to the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
Yearbook(Trademark), Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)--Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS--Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1996, represented by the
Salomon Brothers Long-term, High-Grade Corporate Bond Index; for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1996; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent
coupon and a twenty year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS--Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five year
maturity.
U. S. TREASURY BILLS--Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
INFLATION--Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
6
<PAGE>
PART 7 - FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society
of the United States included herein should be considered only as bearing
upon the ability of Equitable Life to meet its obligations under the
Certificates. There are no financial statements for the Investment Funds of
the Separate Account investing in the Alliance Small Cap Growth and Alliance
High Yield Portfolios of HR Trust and Class IB shares of EQ Trust as the
Separate Account did not invest in such shares prior to the date of the
prospectus supplement and SAI.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 45
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market Fund,
Intermediate Government Securities Fund, Growth & Income Fund, Common Stock
Fund, Global Fund, International Fund, Aggressive Stock Fund, Conservative
Investors Fund and Growth Investors Fund, separate investment funds of The
Equitable Life Assurance Society of the United States ("Equitable Life")
Separate Account No. 45 at December 31, 1996, the results of each of their
operations and changes in each of their net assets for the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Equitable Life's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of shares in The Hudson River Trust at December 31, 1996 with
the transfer agent, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
February 10, 1997
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT GROWTH & COMMON
MARKET SECURITIES INCOME STOCK
FUND FUND FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $32,590,855 ........ $32,392,955
3,570,593 ......... $3,533,879
14,345,718......... $15,109,954
74,352,777......... $75,709,230
15,256,959.........
8,620,079..........
43,176,986.........
7,918,815..........
24,267,019.........
Receivable for policy related
transactions .................. 919,631 2,352 217,813 812,700
----------- ------------ ----------- -----------
Total Assets ................... 33,312,586 3,536,231 15,327,767 76,521,930
----------- ------------ ----------- -----------
LIABILITIES
Payable for The Hudson River
Trust shares purchased ........ 934,835 4,273 224,654 853,808
Amount retained by Equitable
Life in Separate Account 45
(Note 4) ...................... 80,961 55,974 77,185 161,327
----------- ------------ ----------- -----------
Total Liabilities .............. 1,015,796 60,247 301,839 1,015,135
----------- ------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS................ $32,296,790 $3,475,984 $15,025,928 $75,506,795
=========== ============ =========== ===========
Units Outstanding at December
31, 1996 (Note 5) ............. 1,301,724 252,426 1,055,829 493,651
=========== ============ =========== ===========
Unit Value at December 31,
1996........................... $ 24.81 $ 13.77 $ 14.23 $ 152.96
=========== ============ =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS INVESTORS
FUND FUND FUND FUND FUND
----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $32,590,855 ........
3,570,593 .........
14,345,718 ........
74,352,777 ........
15,256,959......... $15,456,443
8,620,079.......... $8,651,467
43,176,986......... $41,011,800
7,918,815.......... $7,923,466
24,267,019......... $24,108,242
Receivable for policy related
transactions .................. 206,778 39,027 528,494 190,991 255,852
----------- ------------- ----------- ------------ -----------
Total Assets ................... 15,663,221 8,690,494 41,540,294 8,114,457 24,364,094
----------- ------------- ----------- ------------ -----------
LIABILITIES
Payable for The Hudson River
Trust shares purchased ........ 213,416 43,221 549,556 195,199 269,698
Amount retained by Equitable
Life in Separate Account 45
(Note 4) ...................... 73,501 63,269 103,486 60,976 86,001
----------- ------------- ----------- ------------ -----------
Total Liabilities .............. 286,917 106,490 653,042 256,175 355,699
----------- ------------- ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS................ $15,376,304 $8,584,004 $40,887,252 $7,858,282 $24,008,395
=========== ============= =========== ============ ===========
Units Outstanding at December
31, 1996 (Note 5) ............. 608,877 716,759 620,080 456,627 914,232
=========== ============= =========== ============ ===========
Unit Value at December 31,
1996........................... $ 25.25 $ 11.98 $ 65.94 $ 17.21 $ 26.26
=========== ============= =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT GROWTH & COMMON
MARKET SECURITIES INCOME STOCK
FUND FUND FUND FUND
--------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ....... $ 973,287 $169,012 $ 140,078 $ 307,270
Expenses (Note 3):
Mortality and expense risk charges ............ 182,124 30,204 75,795 350,135
--------- ------------ ---------- ----------
NET INVESTMENT INCOME .......................... 791,163 138,808 64,283 (42,865)
--------- ------------ ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ........... 19,803 (21,067) 30,281 249,329
Realized gain distribution from
The Hudson River Trust ....................... -- -- 663,496 5,761,725
--------- ------------ ---------- ----------
Net Realized Gain (Loss) ..................... 19,803 (21,067) 693,777 6,011,054
--------- ------------ ---------- ----------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ........................... (32,003) 4,810 65,829 (147,558)
End of period ................................. (197,900) (36,714) 764,236 1,356,453
--------- ------------ ---------- ----------
Change in unrealized
appreciation/(depreciation) during the period (165,897) (41,524) 698,407 1,504,011
--------- ------------ ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................... (146,094) (62,591) 1,392,184 7,515,065
--------- ------------ ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 645,069 $ 76,217 $1,456,467 $7,472,200
========= ============ ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS INVESTORS
FUND FUND FUND FUND FUND
-------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ....... $159,750 $100,654 $ 48,668 $249,730 $ 364,945
Expenses (Note 3):
Mortality and expense risk charges ............ 71,437 47,321 170,068 56,301 146,920
-------- ------------- ----------- ------------ ---------
NET INVESTMENT INCOME .......................... 88,313 53,333 (121,400) 193,429 218,025
-------- ------------- ----------- ------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ........... 68,368 106,050 179,807 1,003 35,624
Realized gain distribution from
The Hudson River Trust ....................... 474,848 128,244 3,900,528 153,963 1,566,277
-------- ------------- ----------- ------------ ---------
Net Realized Gain (Loss) ..................... 543,216 234,294 4,080,335 154,966 1,601,901
-------- ------------- ----------- ------------ ---------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ........................... 15,112 15,034 (169,970) 16,872 39,211
End of period ................................. 199,484 31,388 (2,165,186) 4,651 (158,777)
-------- ------------- ----------- ------------ ---------
Change in unrealized
appreciation/(depreciation) during the period 184,372 16,354 (1,995,216) (12,221) (197,988)
-------- ------------- ----------- ------------ ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................... 727,588 250,648 2,085,119 142,745 1,403,913
-------- ------------- ----------- ------------ ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $815,901 $303,981 $ 1,963,719 $336,174 $1,621,938
======== ============= =========== ============ =========
</TABLE>
- ------------
See Notes to Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
MONEY MARKET FUND SECURITIES FUND
------------------------ ----------------------
1996 1995* 1996 1995*
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income .........$ 791,163 $ 84,034 $ 138,808 $ 26,602
Net realized gain (loss) ..... 19,803 (9,249) (21,067) 691
Change in unrealized
appreciation/depreciation on
investments .................. (165,897) (32,003) (41,524) 4,810
------------ ----------- ----------- ----------
Net increase in net assets
from operations .............. 645,069 42,782 76,217 32,103
------------ ----------- ----------- ----------
FROM CONTRACT OWNER
TRANSACTIONS:
Contributions and Transfers:
Contributions ................ 95,681,367 11,156,359 1,798,660 1,629,203
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1) ............ 19,687,669 59,949 8,533,013 513,895
------------ ----------- ----------- ----------
Total ....................... 115,369,036 11,216,308 10,331,673 2,143,098
------------ ----------- ----------- ----------
Benefit & other policy
transaction................... 198,356 -- 15,968 --
Withdrawals and Transfers:
Withdrawal and administrative
charges . .......... 514,843 -- 77,637 --
Transfers to other Funds and
Guaranteed Interest Rate
Account (Note 1) ............ 87,121,388 7,122,265 8,982,626 20,000
------------ ----------- ----------- ----------
Total ....................... 87,834,587 7,122,265 9,076,231 20,000
------------ ----------- ----------- ----------
Net increase in net assets
from Contract Owner
transactions ................. 27,534,449 4,094,043 1,255,442 2,123,098
------------ ----------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE
ACCOUNT 45 (NOTE 4)........... (17,582) (1,971) (6,709) (4,167)
------------ ----------- ----------- ----------
INCREASE IN NET ASSETS
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 28,161,936 4,134,854 1,324,950 2,151,034
NET ASSETS, BEGINNING OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 4,134,854 -- 2,151,034 --
------------ ----------- ----------- ----------
NET ASSETS, END OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................$ 32,296,790 $ 4,134,854 $ 3,475,984 $2,151,034
============ =========== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
GROWTH &
INCOME FUND COMMON STOCK FUND GLOBAL FUND
---------------------- ----------------------- ----------------------
1996 1995* 1996 1995* 1996 1995*
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income ......... $ 64,283 $ 13,604 $ (42,865) $ 18,811 $ 88,313 $ 4,015
Net realized gain (loss) ..... 693,777 -- 6,011,054 366,599 543,216 32,515
Change in unrealized
appreciation/depreciation on
investments .................. 698,407 65,829 1,504,011 (147,558) 184,372 15,112
----------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets
from operations .............. 1,456,467 79,433 7,472,200 237,852 815,901 51,642
----------- ---------- ----------- ----------- ----------- ----------
FROM CONTRACT OWNER
TRANSACTIONS:
Contributions and Transfers:
Contributions ................ 6,251,620 1,306,253 36,558,323 3,944,181 9,199,245 818,158
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1) ............ 6,040,990 432,486 34,378,499 2,697,390 6,255,073 233,534
----------- ---------- ----------- ----------- ----------- ----------
Total ....................... 12,292,610 1,738,739 70,936,822 6,641,571 15,454,318 1,051,692
----------- ---------- ----------- ----------- ----------- ----------
Benefit & other policy
transaction................... 130,199 -- 427,323 -- 70,774 --
Withdrawals and Transfers:
Withdrawal and administrative
charges . .......... 31,991 703 290,642 14,649 36,757 1,379
Transfers to other Funds and
Guaranteed Interest Rate
Account (Note 1) ............ 342,494 -- 8,933,676 18,685 1,836,433 26,094
----------- ---------- ----------- ----------- ----------- ----------
Total ....................... 504,684 703 9,651,641 33,334 1,943,964 27,473
----------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets
from Contract Owner
transactions ................. 11,787,926 1,738,036 61,285,181 6,608,237 13,510,354 1,024,219
----------- ---------- ----------- ----------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE
ACCOUNT 45 (NOTE 4)........... (27,565) (8,369) (85,006) (11,669) (18,054) (7,758)
----------- ---------- ----------- ----------- ----------- ----------
INCREASE IN NET ASSETS
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 13,216,828 1,809,100 68,672,375 6,834,420 14,308,201 1,068,103
NET ASSETS, BEGINNING OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 1,809,100 -- 6,834,420 -- 1,068,103 --
----------- ---------- ----------- ----------- ----------- ----------
NET ASSETS, END OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ $15,025,928 $1,809,100 $75,506,795 $6,834,420 $15,376,304 $1,068,103
=========== ========== =========== =========== =========== ==========
</TABLE>
* Commencement of operations on May 1, 1995 for all funds.
See Notes to Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
AGGRESSIVE
INTERNATIONAL FUND STOCK FUND
--------------------- ------------------------
1996 1995* 1996 1995*
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................... $ 53,333 $ 8,748 $ (121,400) $ (3,345)
Net realized gain ............................... 234,294 5,969 4,080,335 324,801
Change in unrealized appreciation/depreciation
on investments ................................. 16,354 15,034 (1,995,216) (169,970)
---------- -------- ----------- ----------
Net increase in net assets from operations ..... 303,981 29,751 1,963,719 151,486
---------- -------- ----------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions .................................. 3,782,377 549,641 22,776,845 2,114,597
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 5,791,839 236,742 20,452,746 930,163
---------- -------- ----------- ----------
Total ......................................... 9,574,216 786,383 43,229,591 3,044,760
---------- -------- ----------- ----------
Benefit & other policy transaction............... 38,451 -- 245,070 --
Withdrawals and Transfers:
Withdrawal and administrative charges ......... 75,353 691 90,356 14,649
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 1,979,003 -- 7,099,325 6,689
---------- -------- ----------- ----------
Total ......................................... 2,092,807 691 7,434,751 21,338
---------- -------- ----------- ----------
Net increase in net assets from Contract Owner
transactions ................................... 7,481,409 785,692 35,794,840 3,023,422
---------- -------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 45 (NOTE 4) .. (11,874) (4,955) (33,503) (12,712)
---------- -------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACT
OWNERS .......................................... 7,773,516 810,488 37,725,056 3,162,196
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. 810,488 -- 3,162,196 --
---------- -------- ----------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. $8,584,004 $810,488 $40,887,252 $3,162,196
========== ======== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CONSERVATIVE GROWTH
INVESTORS FUND INVESTORS FUND
----------------------- -----------------------
1996 1995* 1996 1995*
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................... $ 193,429 $ 24,367 $ 218,025 $ 31,399
Net realized gain ............................... 154,966 11,297 1,601,901 54,116
Change in unrealized appreciation/depreciation
on investments ................................. (12,221) 16,872 (197,988) 39,211
---------- ---------- ----------- ----------
Net increase in net assets from operations ..... 336,174 52,536 1,621,938 124,726
---------- ---------- ----------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions .................................. 3,977,495 977,433 11,004,121 1,950,052
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 2,837,790 698,465 9,331,901 1,712,951
---------- ---------- ----------- ----------
Total ......................................... 6,815,285 1,675,898 20,336,022 3,663,003
---------- ---------- ----------- ----------
Benefit & other policy transaction............... 60,271 -- 206,468 --
Withdrawals and Transfers:
Withdrawal and administrative charges ......... 100,314 -- 228,021 24,866
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 814,338 27,054 1,177,040 59,290
---------- ---------- ----------- ----------
Total ......................................... 974,923 27,054 1,611,529 84,156
---------- ---------- ----------- ----------
Net increase in net assets from Contract Owner
transactions ................................... 5,840,362 1,648,844 18,724,493 3,578,847
---------- ---------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 45 (NOTE 4) .. (12,633) (7,001) (32,214) (9,395)
---------- ---------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACT
OWNERS .......................................... 6,163,903 1,694,379 20,314,217 3,694,178
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. 1,694,379 -- 3,694,178 --
---------- ---------- ----------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. $7,858,282 $1,694,379 $24,008,395 $3,694,178
========== ========== =========== ==========
</TABLE>
- --------------------
* Commencement of operations on May 1, 1995 for all funds.
See Notes to Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 45 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The
Account consists of nine investment funds (Funds): the Money Market Fund,
the Intermediate Government Securities Fund, the Growth & Income Fund, the
Common Stock Fund, the Global Fund, the International Fund, the Aggressive
Stock Fund, the Conservative Investors Fund and the Growth Investors Fund.
The assets in each Fund are invested in Class IA shares of a corresponding
portfolio (Portfolio) of a mutual fund, The Hudson River Trust (the
Trust). The Trust is an open-end, diversified, management investment
company that invests the assets of separate accounts of insurance
companies. Each Portfolio has separate investment objectives.
The Account is used to fund benefits for the Income Manager Accumulator, a
non-qualified deferred variable annuity, which combines the Portfolios in
the Account with guaranteed fixed rate options, and the Income Manager
Rollover IRA, which offers the same investment options as the Accumulator
for the qualified market. The Income Manager Accumulator and the Income
Manager Rollover IRA, collectively referred to as the Contracts, are
offered under group and individual variable deferred annuity forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Contract owners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate
of the contract owners' accounts allocated to that Fund. Additional assets
are set aside in Equitable Life's General Account to provide for other
policy benefits, as required under the state insurance law.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net
asset values per share of the respective Portfolios. The net asset value
is determined by the Trust using the market or fair value of the
underlying assets of the Portfolio.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
Dividends are recorded at the end of each quarter on the ex-dividend date.
Capital gains are distributed by the Trust at the end of each year.
No Federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code
and no Federal income tax payable by Equitable Life is expected to affect
the unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required.
F-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life deducts mortality and expense risks
at an annual rate of 0.90%. In addition, asset based administrative
charges are also deducted from the net assets at an annual rate of 0.25%.
The charges may be retained in the Account by Equitable Life and, to the
extent retained, participate in the net investment results of the trust
ratably with assets attributable to the Contracts. The aggregate of these
charges may not exceed a total effective annual rate of 1.15%.
4. Amounts retained by Equitable Life in Separate Account No. 45
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and asset based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at
any time by Equitable Life to its General Account.
The following table shows the net surplus contributions (withdrawals) by
Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
INVESTMENT FUND 1996 1995*
- ----------------------------------- ------------ ---------
<S> <C> <C>
Money Market ....................... $(125,000) $ 50,000
Intermediate Government Securities (25,000) 50,000
Growth & Income .................... (60,000) 50,000
Common Stock ....................... (223,000) 50,000
Global ............................. (52,000) 50,000
International ...................... (35,000) 50,000
Aggressive Stock ................... (110,000) 50,000
Conservative Investors ............. (45,000) 50,000
Growth Investors ................... (105,000) 50,000
------------ ---------
$(780,000) $450,000
============ =========
</TABLE>
- ------------
*Commencement of operations on May 1, 1995 for all funds.
F-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Continued)
5. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
MAY 1(A)
TO
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
MONEY MARKET FUND
- ------------------------
Unit value, beginning of
period ................. $ 23.83 $ 23.15
Unit value, end of
period ................. $ 24.81 $ 23.83
Number of units
outstanding,
end of period (000's) . 1,302 174
INTERMEDIATE GOVERNMENT
SECURITIES FUND
- ------------------------
Unit value, beginning of
period ................. $ 13.42 $ 12.50
Unit value, end of
period ................. $ 13.77 $ 13.42
Number of units
outstanding,
end of period (000's) . 252 160
GROWTH & INCOME
- ------------------------
Unit value, beginning of
period ................. $ 11.99 $ 10.38
Unit value, end of
period ................. $ 14.23 $ 11.99
Number of units
outstanding,
end of period (000's) . 1,056 151
COMMON STOCK FUND
- ------------------------
Unit value, beginning of
period ................. $124.52 $102.34
Unit value, end of
period ................. $152.96 $124.52
Number of units
outstanding,
end of period (000's) . 494 55
GLOBAL FUND
- ------------------------
Unit value, beginning of
period ................. $ 22.29 $ 19.48
Unit value, end of
period ................. $ 25.25 $ 22.29
Number of units
outstanding,
end of period (000's) . 609 48
</TABLE>
<TABLE>
<CAPTION>
MAY 1(A)
TO
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<C> <C> <C>
INTERNATIONAL FUND
------------------------
Unit value, beginning of
period ................. $11.03 $10.13
Unit value, end of
period ................. $11.98 $11.03
Number of units
outstanding,
end of period (000's) . 717 73
AGGRESSIVE STOCK FUND
------------------------
Unit value, beginning of
period ................. $54.59 $44.03
Unit value, end of
period ................. $65.94 $54.59
Number of units
outstanding,
end of period (000's) . 620 58
CONSERVATIVE INVESTORS FUND
------------------------
Unit value, beginning of
period ................. $16.55 $14.65
Unit value, end of
period ................. $17.21 $16.55
Number of units
outstanding,
end of period (000's) . 457 102
GROWTH INVESTORS FUND
------------------------
Unit value, beginning of
period ................. $23.59 $20.07
Unit value, end of
period ................. $26.26 $23.59
Number of units
outstanding,
end of period (000's) . 914 157
</TABLE>
- ------------
(a) Date on which units were made available for sale.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life
insurance contracts and long-lived assets in 1996, for loan impairments in 1995
and for postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly
owned life insurance subsidiary, Equitable Variable Life Insurance
Company ("EVLICO"). Effective January 1, 1997, EVLICO was merged into
Equitable Life, which will continue to conduct the Company's insurance
business. Equitable Life's investment management business, which
comprises the Investment Services segment, is conducted principally by
Alliance Capital Management L.P. ("Alliance"), Equitable Real Estate
Investment Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette,
Inc. ("DLJ"), an investment banking and brokerage affiliate. AXA-UAP
("AXA"), a French holding company for an international group of
insurance and related financial services companies, is the Holding
Company's largest shareholder, owning approximately 60.8% at December
31, 1996 (63.6% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.4% if all securities convertible into, and
options on, common stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships
and joint ventures in which Equitable Life or its subsidiaries has
control and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for
the benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which
were in force on that date. Assets were allocated to the Closed Block
in an amount which, together with anticipated revenues from policies
included in the Closed Block, was reasonably expected to be sufficient
to support such business, including provision for payment of claims,
certain expenses and taxes, and for continuation of dividend scales
payable in 1991, assuming the experience underlying such scales
continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block
assets represents the expected future post-tax contribution from the
Closed Block which would be recognized in income over the period the
policies and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and
Guaranteed Interest Contract ("GIC") lines of business. The Company
established a pre-tax provision for the estimated future losses of the
GIC line of business and a premium deficiency reserve for the Wind-Up
Annuities. Subsequent losses incurred have been charged to the two loss
provisions. Management reviews the adequacy of the allowance and
reserve each quarter. During the fourth quarter 1996 review, management
determined it was necessary to increase the allowance for expected
future losses of the GIC Segment. Management believes the loss
provisions for GIC contracts and Wind-Up Annuities at December 31, 1996
are adequate to provide for all future losses; however, the
determination of loss provisions continues to involve numerous
estimates and subjective judgments regarding the expected performance
of discontinued operations investment assets. There can be no assurance
the losses provided for will not differ from the losses ultimately
realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect
of accounting change by $19.2 million, net of Federal income taxes of
$10.3 million for 1996. The financial statements for 1995 and 1994 have
been retroactively restated for the change which resulted in an
increase (decrease) in earnings before cumulative effect of accounting
change of $15.2 million, net of Federal income taxes of $8.2 million,
and $(2.6) million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in
investment gains (losses), net. Before implementing SFAS No. 121,
valuation allowances on real estate held for the production of income
were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
The adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on
real estate to be disposed of continue to be computed using the lower
of estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal
income tax benefit of $12.4 million, due to the writedown to fair value
of building improvements relating to facilities being vacated beginning
in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans
within the scope of this statement are measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. The Company
provides for impairment of loans through an allowance for possible
losses. The adoption of this statement did not have a material effect
on the level of these allowances or on the Company's consolidated
statements of earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred
policy acquisition costs ("DAC"), amounts attributable to participating
group annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant or, alternatively, to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Companies
which elect to continue to apply APB Opinion No. 25 must provide pro
forma net income disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company accounts for stock option plans
sponsored by the Holding Company, DLJ and Alliance in accordance with
the provisions of APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of
repurchase agreements, dollar-roll, securities lending and similar
transactions. Management has not yet determined the effect of
implementing SFAS No. 125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is
adjusted for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized
on transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired
real estate is written down to fair value with the impairment loss
being included in investment gains (losses) net. Valuation allowances
on real estate available for sale are computed using the lower of
current estimated fair value or depreciated cost, net of disposition
costs. Prior to the adoption of SFAS No. 121, valuation allowances on
real estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the
equity basis of accounting and are included either with equity real
estate or other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment
gains or losses.
Unrealized investment gains and losses on fixed maturities available
for sale and equity securities held by the Company are accounted for as
a separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in
the period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of
policy issue and loss recognition testing at the end of each accounting
period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses)
is recognized with an offset to unrealized gains (losses) in
consolidated shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset
to unrealized gains (losses) in consolidated shareholder's equity as of
the balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the
basis of actuarial assumptions equal to guaranteed mortality and
dividend fund interest rates. The liability for annual dividends
represents the accrual of annual dividends earned. Terminal dividends
are accrued in proportion to gross margins over the life of the
contract.
For non-participating traditional life insurance policies, future
policy benefit liabilities are estimated using a net level premium
method on the basis of actuarial assumptions as to mortality,
persistency and interest established at policy issue. Assumptions
established at policy issue as to mortality and persistency are based
on the Insurance Group's experience which, together with interest and
expense assumptions, include a margin for adverse deviation. When the
liabilities for future policy benefits plus the present value of
expected future gross premiums for a product are insufficient to
provide for expected future policy benefits and expenses for that
product, DAC is written off and thereafter, if required, a premium
deficiency reserve is established by a charge to earnings. Benefit
liabilities for traditional annuities during the accumulation period
are equal to accumulated contractholders' fund balances and after
annuitization are equal to the present value of expected future
payments. Interest rates used in establishing such liabilities range
from 2.25% to 11.5% for life insurance liabilities and from 2.25% to
13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities
("Pension Par") was completed which included management's revised
estimate of assumptions, including expected mortality and future
investment returns. The study's results prompted management to
establish a premium deficiency reserve which decreased earnings from
continuing operations and net earnings by $47.5 million ($73.0 million
pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as
claim incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a
reasonable basis and are adequate, there can be no assurance reserves
will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6
million at December 31, 1996 and 1995, respectively (excluding $175.0
million of reserve strengthening in 1996). Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
DI and major medical policies (excluding $175.0 million of reserve
strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable
Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's
shareholder. Earnings in excess of limitations, if any, would be
accrued as policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current
Federal income taxes were charged or credited to operations based upon
amounts estimated to be payable or recoverable as a result of taxable
operations for the current year. Deferred income tax assets and
liabilities were recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as
separate captions in the consolidated balance sheets. The Insurance
Group bears the investment risk on assets held in one Separate Account,
therefore, such assets are carried on the same basis as similar assets
held in the General Account portfolio. Assets held in the other
Separate Accounts are carried at quoted market values or, where quoted
values are not available, at estimated fair values as determined by the
Insurance Group.
The investment results of Separate Accounts on which the Insurance
Group does not bear the investment risk are reflected directly in
Separate Accounts liabilities. For 1996, 1995 and 1994, investment
results of such Separate Accounts were $2,970.6 million, $1,963.2
million and $665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality,
policy administration and surrender charges on all Separate Accounts
are included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon
the assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost
of $3,915.7 million and $3,748.9 million, respectively, had estimated
fair values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or
5 (below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total
mortgage loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to
time be restructured or modified. The investment in restructured
mortgage loans on real estate, based on amortized cost, amounted to
$388.3 million and $531.5 million at December 31, 1996 and 1995,
respectively. These amounts include $1.0 million and $3.8 million of
problem mortgage loans on real estate at December 31, 1996 and 1995,
respectively. Gross interest income on restructured mortgage loans on
real estate that would have been recorded in accordance with the
original terms of such loans amounted to $35.5 million, $52.1 million
and $44.9 million in 1996, 1995 and 1994, respectively. Gross interest
income on these loans included in net investment income aggregated
$28.2 million, $37.4 million and $32.8 million in 1996, 1995 and 1994,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where
the fair value of the collateral or the net present value of the
expected future cash flows related to the loan equals or exceeds the
recorded investment. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995,
respectively, including $17.9 million and $13.4 million recognized on a
cash basis.
The Insurance Group's investment in equity real estate is through
direct ownership and through investments in real estate joint ventures.
At December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate
acquired in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally
range from 40 to 50 years. Accumulated depreciation on real estate was
$587.5 million and $662.4 million at December 31, 1996 and 1995,
respectively. Depreciation expense on real estate totaled $91.8
million, $121.7 million and $117.0 million for 1996, 1995 and 1994,
respectively. As a result of the implementation of SFAS No. 121, during
1996 no depreciation expense has been recorded on real estate available
for sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized
on these sales. The change in unrealized investment (losses) gains
related to fixed maturities classified as available for sale for 1996,
1995 and 1994 amounted to $(258.0) million, $1,077.2 million and
$(742.2) million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an
investment gain of $20.6 million as a result of the issuance of
Alliance Units in this transaction. At December 31, 1996, the Company's
ownership of Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to
third parties at prevailing market prices. The Company continues to
hold its 1% general partnership interest in Alliance. The Company
recognized an investment gain of $52.4 million as a result of these
transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in
the contribution from the Closed Block of $27.5 million, $18.8 million
and $(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively,
of restructured securities which includes problem fixed maturities of
$.3 million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified
as held to maturity were transferred to the available for sale
portfolio. All actions resulted from significant deterioration in
creditworthiness. The amortized cost of the security sold was $4.2
million. The aggregate amortized cost of the securities transferred was
$81.3 million with gross unrealized investment losses of $.1 million
transferred to equity. At December 1, 1995, $1,750.7 million of
securities classified as held to maturity were transferred to the
available for sale portfolio. As a result, unrealized gains of $88.5
million on fixed maturities were recognized, offset by DAC amortization
of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had an amortized cost of $4.3 million and $36.5 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7
million, respectively. At December 31, 1996 and 1995, the restructured
mortgage loans on real estate amount included $.7 million and $8.8
million, respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and
1995, respectively, including $4.7 million and $1.3 million recognized
on a cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of
the Closed Block operations. Operating costs and expenses outside of
the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen
the loss provisions by $129.0 million, resulting in a post-tax charge
of $83.8 million to discontinued operations' results in the fourth
quarter of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets.
There can be no assurance the losses provided for will not differ from
the losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the loss provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment.
Subsequently, the GIC Segment remitted $1,155.4 million in cash to
continuing operations in partial repayment of borrowings by the GIC
Segment. No gains or losses were recognized on these transactions.
Amounts due to continuing operations at December 31, 1996, consisted of
$1,080.0 million borrowed by the discontinued GIC Segment offset by
$83.8 million representing an obligation of continuing operations to
provide assets to fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate
and recognition of impairment losses of $69.8 million on real estate
held and used. Writedowns of fixed maturities amounted to $1.6 million,
$8.1 million and $17.8 million for 1996, 1995 and 1994, respectively
and writedowns of equity real estate subsequent to the adoption of SFAS
No. 121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had amortized costs of $7.9 million and $35.4 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction
of debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate
purposes used to support Equitable Life's liquidity needs and is
supported by Equitable Life's existing $350.0 million five-year bank
credit facility. There were no borrowings outstanding under this
program at December 31, 1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of
Alliance, is a floating rate generally based upon a defined prime rate,
a rate related to the LIBOR or the Federal Funds rate. A facility fee
is payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for
general working capital purposes. As of December 31, 1996, Alliance had
not issued any commercial paper under its $100.0 million commercial
paper program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997
totaling $174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and
securities amounting to $1,406.4 million and $1,629.7 million at
December 31, 1996 and 1995, respectively, as collateral for certain
long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings
before Federal income taxes and minority interest by the expected
Federal income tax rate of 35%. The sources of the difference and the
tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes,
by an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by
the Internal Revenue Service. As a stock life insurance company,
Equitable Life no longer is required to reduce its policyholder
dividend deduction by the differential earnings amount, but
differential earnings amounts for pre-demutualization years were still
being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary
differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. The effect of reinsurance (excluding group life
and health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard
underwriting risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994,
respectively. Ceded death and disability benefits totaled $21.2
million, $188.1 million and $235.5 million for 1996, 1995 and 1994,
respectively. Insurance liabilities ceded totaled $652.4 million and
$724.2 million at December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans
are non-contributory. Equitable Life's and EREIM's benefits are based
on a cash balance formula or years of service and final average
earnings, if greater, under certain grandfathering rules in the plans.
Alliance's benefits are based on years of credited service, average
final base salary and primary social security benefits. The Company's
funding policy is to make the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1
million, net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable
Life. Benefit payments under these contracts were approximately $34.7
million, $36.4 million and $38.1 million for 1996, 1995 and 1994,
respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of
postretirement benefits are recognized in accordance with the
provisions of SFAS No. 106. The Company continues to fund
postretirement benefits costs on a pay-as-you-go basis and, for 1996,
1995 and 1994, the Company made estimated postretirement benefits
payments of $18.9 million, $31.1 million and $29.8 million,
respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was
7.50% and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%,
the accumulated postretirement benefits obligation as of December 31,
1996 would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly
are utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996,
the cost of terminating outstanding matched swaps in a loss position
was $8.3 million and the unrealized gain on outstanding matched swaps
in a gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2)
million, respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on
interest-sensitive individual annuities contracts. The outstanding
notional amounts at December 31, 1996 of contracts purchased and sold
were $5,050.0 million and $500.0 million, respectively. The net premium
paid by Equitable Life on these contracts was $22.5 million and is
being amortized ratably over the contract periods ranging from 3 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's
involvement in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect
any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans
are limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the
appropriate duration. For durations in excess of the published index
rate, the appropriate Treasury rate is used plus a spread equal to the
longest duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair
values for single premium deferred annuities ("SPDA") are estimated
using projected cash flows discounted at current offering rates. The
estimated fair values for supplementary contracts not involving life
contingencies ("SCNILC") and annuities certain are derived using
discounted cash flows based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage
debt are determined by discounting contractual cash flows at a rate
which takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing
loan or loan commitment agreements; and to provide short-term financing
loans which at December 31, 1996 totaled $14.6 million. Management
believes the Company will not incur any material losses as a result of
these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date,
no such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance
Society of the United States was filed on January 20, 1995 in New York
County Supreme Court. The action purports to be brought on behalf of a
class of persons insured after 1983 under Lifetime Guaranteed Renewable
Major Medical Insurance Policies issued by Equitable Life (the
"policies"). The complaint alleges that premium increases for these
policies after 1983, all of which were filed with and approved by the
New York State Insurance Department and certain other state insurance
departments, breached the terms of the policies, and that statements in
the policies and elsewhere concerning premium increases constituted
fraudulent concealment, misrepresentations in violation of New York
Insurance Law Section 4226 and deceptive practices under New York
General Business Law Section 349. The complaint seeks a declaratory
judgment, injunctive relief restricting the methods by which Equitable
Life increases premiums on the policies in the future, a refund of
premiums, and punitive damages. Plaintiffs also have indicated that
they will seek damages in an unspecified amount. Equitable Life moved
to dismiss the complaint in its entirety on the grounds that it fails
to state a claim and that uncontroverted documentary evidence
establishes a complete defense to the claims. On May 29, 1996, the New
York County Supreme Court entered a judgment dismissing the complaint
with prejudice. Plaintiffs have filed a notice of appeal of that
judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved
Equitable Life's rate increases. These actions are asserted on behalf
of proposed classes of Pennsylvania issued or renewed policyholders and
Texas issued or renewed policyholders, insured under the policies. The
Pennsylvania and Texas actions seek compensatory and punitive damages
and injunctive relief restricting the methods by which Equitable Life
increases premiums in the future based on the common law and statutes
of those states. On February 9, 1996, Equitable Life removed the
Pennsylvania action, Malvin, to the United States District Court for
the Middle District of Pennsylvania. Following the decision granting
Equitable Life's motion to dismiss the New York action (Golomb), on the
consent of the parties the District Court ordered an indefinite stay of
all proceedings in the Pennsylvania action, pending either party's
right to reinstate the proceeding, and ordered that for administrative
purposes the case be deemed administratively closed. On February 2,
1996, Equitable Life removed the Texas action, Bowler, to the United
States District Court for the Northern District of Texas. On May 20,
1996, the plaintiffs in Bowler amended their complaint by adding
allegations of misrepresentation regarding premium increases on other
types of guaranteed renewable major medical insurance policies issued
by Equitable Life up to and including 1983. On July 1, 1996, Equitable
Life filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted
plaintiffs leave to file a supplemental complaint on behalf of a
proposed class of Texas policyholders claiming unfair discrimination,
breach of contract and other claims arising out of alleged differences
between premiums charged to Texas policyholders and premiums charged to
similarly situated policyholders in New York and certain other states.
Plaintiffs seek refunds of alleged overcharges, exemplary or additional
damages citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued
by Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which
Equitable Life increases premiums in the future based on various common
law claims. On June 20, 1996, Equitable Life removed the Florida action
to Federal court. Equitable Life has answered the complaint, denying
the material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment
and plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially
the same allegations concerning premium rates and premium rate
increases on guaranteed renewable policies made in the Bowler action.
The complaint alleges, among other things, that differentials between
rates charged California policyholders and policyholders in New York
and certain other states, and the methods used by Equitable Life to
calculate premium increases, breached the terms of its policies, that
Equitable Life misrepresented and concealed the facts pertaining to
such differentials and methods in violation of California law, and that
Equitable Life also misrepresented that its rate increases were
approved by the California Insurance Department. Plaintiffs seek
compensatory damages in an unspecified amount, rescission, injunctive
relief and attorneys' fees. Equitable Life removed the action to
Federal court; plaintiff has moved to remand the case to state court.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, the Company's
management believes that the ultimate resolution of the Golomb, Malvin,
Bowler, Bachman and Fletcher litigations should not have a material
adverse effect on the financial position of the Company. Due to the
early stage of such litigations, the Company's management cannot make
an estimate of loss, if any, or predict whether or not such litigations
will have a material adverse effect on the Company's results of
operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and
its wholly owned subsidiary, EOC, in New York state court, entitled
Sidney C. Cole et al. v. The Equitable Life Assurance Society of the
United States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of
action under the New York State consumer protection statute. The only
remaining causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a
motion to have this proceeding moved from Kings County Supreme Court to
New York County for joint trial or consolidation with the Cole action.
The motion was denied by the court on January 9, 1997. On January 10,
1997, plaintiffs moved for certification of a nationwide class
consisting of all persons or entities who were sold one or more life
insurance products on a "vanishing premium" basis and/or were allegedly
induced to purchase additional policies from EVLICO, using the cash
value accumulated in existing policies, from January 1, 1980 through
and including December 31, 1996. Plaintiffs further moved to have
Michael Bradley designated as the class representative. Discovery
regarding class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual
who purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly
promised by Equitable Life and EOC. The second is a "fraud class,"
consisting of all persons with an interest in policies issued by
Equitable Life and EOC at any time since October 1, 1986. Plaintiff
seeks damages in an unspecified amount, and also seeks injunctive
relief attaching Equitable Life's and EOC's profits from their alleged
sales practices. Equitable Life's and EOC's time to answer or move with
respect to the complaint has been extended until February 24, 1997.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, the Company's management
believes that the ultimate resolution of the Cole, Duncan, Bradley and
Dillon litigations should not have a material adverse effect on the
financial position of the Company. Due to the early stages of such
litigations, the Company's management cannot make an estimate of loss,
if any, or predict whether or not any such litigation will have a
material adverse effect on the Company's results of operations in any
particular period.
On January 3, 1996, an amended complaint was filed in an action
entitled Frank Franze Jr. and George Busher, individually and on behalf
of all others similarly situated v. The Equitable Life Assurance
Society of the United States, and Equitable Variable Life Insurance
Company, No. 94-2036 in the United States District Court for the
Southern District of Florida. The action was brought by two individuals
who purchased variable life insurance policies. The plaintiffs purport
to represent a nationwide class consisting of all persons who purchased
variable life insurance policies from Equitable Life and EVLICO since
September 30, 1991. The basic allegation of the amended complaint is
that Equitable Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated
v. The Equitable Life Assurance Society of the United States, and
Equitable Variable Life Insurance Company, was filed in Massachusetts
state court making claims similar to those in the Franze action and
alleging violations of the Massachusetts securities laws. The plaintiff
purports to represent all persons in Massachusetts who purchased
variable life insurance contracts from Equitable Life and EVLICO from
January 9, 1993 to the present. The Massachusetts action seeks
rescission of the contracts or compensatory damages, attorneys' fees,
expenses and injunctive relief. Although the outcome of any litigation
cannot be predicted with certainty, particularly in the early stages of
an action, the Company's management believes that the ultimate
resolution of the litigations discussed in this paragraph should not
have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigation, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S.
Department of Labor ("DOL") requesting copies of any third-party
appraisals in Equitable Life's possession relating to the ten largest
properties (by value) in the Prime Property Fund ("PPF"). PPF is an
open-end, commingled real estate separate account of Equitable Life for
pension clients. Equitable Life serves as investment manager in PPF and
has retained EREIM as advisor. In early 1995, the DOL commenced a
national investigation of commingled real estate funds with pension
investors, including PPF. The investigation now appears to be focused
principally on appraisal and valuation procedures in respect of fund
properties. The most recent request from the DOL seems to reflect, at
least in part, an interest in the relationship between the valuations
for those properties reflected in appraisals prepared for local
property tax proceedings and the valuations used by PPF for other
purposes. At no time has the DOL made any specific allegation that
Equitable Life or EREIM has acted improperly and Equitable Life and
EREIM believe that any such allegation would be without foundation.
While the outcome of this investigation cannot be predicted with
certainty, in the opinion of management, the ultimate resolution of
this matter should not have a material adverse effect on the Company's
consolidated financial position or results of operations in any
particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The
arbitration panel issued a final award in favor of Casualty and GEICO
General on June 17, 1996. Casualty and GEICO General moved in the
pending Texas state court action, with Houston General's consent, for
an order confirming the arbitration award and entering judgment
dismissing the action. The motion was granted on January 29, 1997. The
parties have also stipulated to the dismissal without prejudice of a
related Texas Federal court action brought by Houston General against
GEICO General and Equitable Life. In connection with confirmation of
the arbitration award, Houston General paid to Casualty approximately
$839,600 in settlement of certain reimbursement claims by Casualty
against Houston General.
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Complaint") was filed against the Alliance North American
Government Income Trust, Inc. (the "Fund"), Alliance and certain other
defendants affiliated with Alliance, including the Holding Company,
alleging violations of Federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint, which seeks certification of a
plaintiff class of persons who purchased or owned Class A, B or C
shares of the Fund from March 27, 1992 through December 23, 1994, seeks
an unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations of the Complaint are that the Fund
purchased debt securities issued by the Mexican and Argentine
governments in amounts that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and
warrants to purchase shares of common stock of Rickel Home Centers,
Inc. ("Rickel") filed a class action complaint against Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC") and certain other
defendants for unspecified compensatory and punitive damages in the
United States District Court for the Southern District of New York. The
suit was brought on behalf of the purchasers of 126,457 units
consisting of $126,457,000 aggregate principal amount of 13 1/2% senior
notes due 2001 and 126,457 warrants to purchase shares of common stock
of Rickel issued by Rickel in October 1994. The complaint alleges
violations of Federal securities laws and common law fraud against
DLJSC, as the underwriter of the units and as an owner of 7.3% of the
common stock of Rickel, Eos Partners, L.P., and General Electric
Capital Corporation, each as owners of 44.2% of the common stock of
Rickel, and members of the Board of Directors of Rickel, including a
DLJSC Managing Director. The complaint seeks to hold DLJSC liable for
alleged misstatements and omissions contained in the prospectus and
registration statement filed in connection with the offering of the
units, alleging that the defendants knew of financial losses and a
decline in value of Rickel in the months prior to the offering and did
not disclose such information. The complaint also alleges that Rickel
failed to pay its semi-annual interest payment due on the units on
December 15, 1995 and that Rickel filed a voluntary petition for
reorganization pursuant to Chapter 11 of the United States Bankruptcy
Code on January 10, 1996. DLJSC intends to defend itself vigorously
against all of the allegations contained in the complaint. Although
there can be no assurance, DLJ does not believe the outcome of this
litigation will have a material adverse effect on its financial
condition. Due to the early stage of this litigation, based on the
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter
11 reorganization proceedings. The class action complaint alleges that
the plan of reorganization submitted by NGC was based upon projections
by NGC and DLJSC which intentionally understated forecasts, and
provided misleading and incorrect information in order to hide NGC's
true value and that defendants breached their fiduciary duties by,
among other things, providing false, misleading or incomplete
information to deliberately understate the value of NGC. The class
action complaint seeks compensatory and punitive damages purportedly
sustained by the class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in
the complaint. Although there can be no assurance, DLJ does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on its financial condition. Due to the early stage of
such litigation, based upon the information currently available to it,
DLJ's management cannot make an estimate of loss, if any, or predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed
in the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently
available to it, DLJ's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material
adverse effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of
the actions and proceedings have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek
damages of unspecified amounts. While the ultimate outcome of such
matters cannot be predicted with certainty, in the opinion of
management no such matter is likely to have a material adverse effect
on the Company's consolidated financial position or results of
operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million,
$110.6 million, $100.3 million, $72.3 million, $59.3 million and $427.3
million thereafter. Minimum future sublease rental income on these
noncancelable leases for 1997 and the succeeding four years are $9.8
million, $6.0 million, $4.5 million, $2.4 million, $.8 million and $.1
million thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million,
$219.8 million, $194.3 million, $174.6 million and $847.1 million
thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million
writeoff of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment
of dividends to its shareholders. For 1996, 1995 and 1994, statutory
net (loss) earnings totaled $(351.1) million, $(352.4) million and
$67.5 million, respectively. No amounts are expected to be available
for dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996,
1995 and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been
restated to reflect the Company's accounting change adopted in the
fourth quarter of 1996 for long-duration participating life contracts
in accordance with the provisions prescribed by SFAS No. 120. Net
earnings for the three months ended December 31, 1996 includes a charge
of $339.3 million related to writeoffs of DAC on DI contracts of $94.3
million, reserve strengthening on DI business of $113.7 million,
pension par of $47.5 million and the discontinued GIC Segment of $83.8
million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess
of the proceeds over the book value in DLJ at the date of sale of
$340.2 million has been reflected as a capital contribution. In 1995,
DLJ completed the initial public offering ("IPO") of 10.58 million
shares of its common stock, which included 7.28 million of the Holding
Company's shares in DLJ, priced at $27 per share. Concurrent with the
IPO, the Company contributed equity securities to DLJ having a market
value of $21.2 million. Upon completion of the IPO, the Company's
ownership percentage was reduced to 36.1%. The Company's ownership
interest will be further reduced upon the issuance of common stock
after the vesting of forfeitable restricted stock units acquired by
and/or the exercise of options granted to certain DLJ employees. DLJ
restricted stock units represents forfeitable rights to receive
approximately 5.2 million shares of DLJ common stock through February
2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of
DLJ is included in investment in and loans to affiliates in the
consolidated balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method
prescribed in APB Opinion No. 25. Had compensation expense of the
Company's stock option incentive plans for options granted after
December 31, 1994 been determined based on the estimated fair value at
the grant dates for awards under those plans, the Company's pro forma
net earnings for 1996 and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as
of the date of grants using Black-Scholes option pricing models. The
option and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
INCOME MANAGER (SERVICE MARK) ACCUMULATOR
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS
OF SEPARATE ACCOUNT NO. 45
<TABLE>
<CAPTION>
EQUITY SERIES
- --------------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
<S> <C> <C>
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
Morgan Stanley Emerging Markets
EQ/Putnam Growth & Income Value Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity
T. Rowe Price Equity Income
*Available on or about September 2, 1997
----------------------------------- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
<S> <C> <C>
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
--------------------------------- ----------------------------------------------------------------------------------
</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 45 prospectus supplement
for the Accumulator, dated May 1, 1997 and the prospectus for the
Accumulator, dated October 17, 1996. Definitions of special terms used in the
SAI are found in the prospectus.
A copy of the prospectus is available free of charge by writing the
Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your Registered Representative.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------------
<S> <C>
Part 1 Accumulation Unit Values 2
- ----------------------------------------------------------------------------
Part 2 Annuity Unit Values 2
- ----------------------------------------------------------------------------
Part 3 Custodian and Independent Accountants 3
- ----------------------------------------------------------------------------
Part 4 Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund
Yield Information 3
- ----------------------------------------------------------------------------
Part 5 Long-Term Market Trends 5
- ----------------------------------------------------------------------------
Part 6 Financial Statements 7
- ----------------------------------------------------------------------------
</TABLE>
Copyright 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
PART 1 - ACCUMULATION UNIT VALUES
Accumulation Unit Values are determined at the end of each Valuation Period
for each of the Investment Funds. Other annuity contracts and certificates
which may be offered by us will have their own accumulation unit values for
the Investment Funds which may be different from those for the Accumulator.
The Accumulation Unit Value for an Investment Fund for any Valuation Period
is equal to the Accumulation Unit Value for the preceding Valuation Period
multiplied by the Net Investment Factor for that Investment Fund for that
Valuation Period. The NET INVESTMENT FACTOR is (a) -c where:
b
(a) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the Valuation Period before giving effect to
any amounts allocated to or withdrawn from the Investment Fund for the
Valuation Period. For this purpose, we use the share value reported to
us by HR Trust or EQ Trust, as applicable.
(b) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the preceding Valuation Period (after any
amounts allocated or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risk charge and
asset based administrative charge relating to the Certificates, times
the number of calendar days in the Valuation Period. These daily
charges are at an effective annual rate not to exceed a total of 1.15%.
PART 2 -ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on May 1, 1995 for Certificates
with assumed base rates of net investment return of both 5% and 3 1/2% a
year. For each Valuation Period after that date, it is the annuity unit value
for the immediately preceding Valuation Period multiplied by the adjusted Net
Investment Factor under the Certificate. For each Valuation Period, the
adjusted Net Investment Factor is equal to the Net Investment Factor reduced
for each day in the Valuation Period by:
o .00013366 of the Net Investment Factor if the assumed base rate of net
investment return is 5% a year; or
o .00009425 of the Net Investment Factor if the assumed base rate of net
investment return is 3 1/2%.
Because of this adjustment, the annuity unit value rises and falls depending
on whether the actual rate of net investment return (after deduction of
charges) is higher or lower than the assumed base rate.
All Certificates have a 5% assumed base rate of net investment return, except
in states where that rate is not permitted. Annuity payments under
Certificates with an assumed base rate of 3 1/2% will at first be smaller
than those under Certificates with a 5% assumed base rate. Payments under the
3 1/2% Certificates, however, will rise more rapidly when unit values are
rising, and payments will fall more slowly when unit values are falling than
those under 5% Certificates.
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Business Day specified on your election form,
or on such other future date as specified therein and are made on a monthly
basis. The first three payments are of equal amounts. Each of the first three
payments will be based on the amount specified in the Tables of Guaranteed
Annuity Payments in the Certificate.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period). If the annuity
involved a life contingency, the risk class and the age of the annuitants
will affect payments.
The amount of the fourth and each later payment will vary according to the
investment performance of the Alliance Common Stock Fund. Each monthly
payment will be calculated by multiplying the number of annuity units
credited by the average annuity unit value for the second calendar month
immediately preceding the due date of the payment. The number of units is
calculated by dividing the first monthly payment by the annuity unit value
for the Valuation Period which includes the due date of the first monthly
payment. The average annuity unit value is the average of the annuity unit
values for the Valuation Periods ending in that month. Variable income
annuities may also be available by separate prospectus through the Alliance
Common Stock or other Funds of other separate accounts we offer.
Illustration of Changes in Annuity Unit Values.
To show how we determine variable annuity payments from month to month,
assume that the Annuity Account Value on an Annuity Commencement Date is
enough to fund an annuity with a monthly payment of $363 and that the
2
<PAGE>
annuity unit value for the Valuation Period that includes the due date of the
first annuity payment is $1.05. The number of annuity units credited under
the contract would be 345.71 (363 divided by 1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the
number of units (345.71) times the average annuity unit value ($1.10), or
$380.28. If the average annuity unit value was $1 in February, the annuity
payment for April would be 345.71 times $1, or $345.71.
PART 3 - CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of the HR Trust and EQ Trust owned
by the Separate Account.
The financial statements of the Separate Account for the period ended
December 31, 1996 and 1995, and the consolidated financial statements and
consolidated financial statement schedules of Equitable Life at December 31,
1996 and 1995 and for each of the three years ended December 31, 1996
included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the period ended
December 31, 1996 and 1995, and the consolidated financial statements and
consolidated financial statement schedules of Equitable Life for the years
ended December 31, 1996 and 1995 and for each of the three years ended
December 31, 1996 included in this SAI have been so included in reliance on
the reports of Price Waterhouse LLP, independent accountants, given on the
authority of such firm as experts in accounting and auditing.
PART 4 -ALLIANCE MONEY
MARKET FUND AND ALLIANCE
INTERMEDIATE GOVERNMENT
SECURITIES FUND YIELD
INFORMATION
Alliance Money Market Fund
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
Certificate with one Accumulation Unit at the beginning of the period. To
determine the seven-day rate of return, the net change in the Accumulation
Unit Value is computed by subtracting the Accumulation Unit Value at the
beginning of the period from an Accumulation Unit Value, exclusive of capital
changes, at the end of the period.
The net change is then reduced by the average contract fee factor (explained
below). This reduction is made to recognize the deduction of the annual
contract fee, which is not reflected in the unit value. See "Annual Contract
Fee" in Part 6 of the prospectus.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Money Market Fund but do not reflect the distribution fee the withdrawal
charge, the GMDB/GMIB charge or any charges for applicable taxes such as
state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This seven-day adjusted base period return is then multiplied by 365/7 to
produce an annualized seven-day current yield figure carried to the nearest
one-hundredth of one percent.
The actual dollar amount of the annual contract fee that is deducted from the
Alliance Money Market Fund will vary for each Certificate depending upon the
percentage of the Annuity Account Value allocated to the Alliance Money
Market Fund. To determine the effect of the annual contract fee on the yield,
we start with the total dollar amounts of the charges deducted from the Fund
during the 12-month period ending on the last day of the prior year. The
amount is multiplied by 7/365 to produce an average contract fee factor which
is used in all weekly yield computations for the ensuing year. The average
contract fee factor is then divided by the number of Accumulator Alliance
Money Market Fund Accumulation Units as of the end of the prior calendar
year, and the resulting quotient is deducted from the net change in
Accumulation Unit Value for the seven-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by adding
one to the adjusted base period return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result, i.e., effective yield
= (base period return + 1 ) 365/7 -1. The Alliance Money Market Fund yields
will fluctuate daily. Accordingly, yields for any given period are not
necessarily representative of future results. In addition, the value of
Accumulation Units of the Alliance Money Market Fund will fluctuate and not
remain constant.
3
<PAGE>
Alliance Intermediate Government Securities Fund
The Alliance Intermediate Government Securities Fund calculates yield
information for 30-day periods. The 30-day current yield calculation is based
on a hypothetical Certificate with one Accumulation Unit at the beginning of
the period. To determine the 30-day rate of return, the net change in the
Accumulation Unit Value is computed by subtracting the Accumulation Unit
Value at the beginning of the period from an Accumulation Unit Value,
exclusive of capital changes, at the end of the period.
The net change is then reduced by the average contract fee factor (explained
below). This reduction is made to recognize the deduction of the annual
contract fee, which is not reflected in the unit value. See "Annual Contract
Fee" in Part 6 of the prospectus.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities Fund but do not reflect the distribution
fee, the withdrawal charge, the GMDB/GMIB charge or any charges for
applicable taxes such as state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This 30-day adjusted base period return is then multiplied by 365/30 to
produce an annualized 30-day current yield figure carried to the nearest
one-hundredth of one percent.
The actual dollar amount of the annual contract fee that is deducted from the
Alliance Intermediate Government Securities Fund will vary for each
Certificate depending upon the percentage of the Annuity Account Value
allocated to the Alliance Intermediate Government Securities Fund. To
determine the effect of the annual contract fee on the yield, we start with
the total dollar amounts of the charges deducted from the Fund during the
12-month period ending on the last day of the prior year. The amount is
multiplied by 30/365 to produce an average contract fee factor which is used
in all 30-day yield computations for the ensuing year. The average contract
fee is then divided by the number of Accumulator Alliance Intermediate
Government Securities Fund Accumulation Units as of the end of the prior
calendar year, and the resulting quotient is deducted from the net change in
Accumulation Unit Value for the 30-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Intermediate Government Securities
Fund's investments, as follows: the unannualized adjusted base period return
is compounded by adding one to the adjusted base period return, raising the
sum to a power equal to 365 divided by 30, and subtracting one from the
result, i.e., effective yield = (base period return + 1) 365/30 -1. Alliance
Intermediate Government Securities Fund yields will fluctuate daily.
Accordingly, yields for any given period are not necessarily representative
of future results. In addition, the value of the Accumulation Units of the
Alliance Intermediate Government Securities Fund will fluctuate and not
remain constant.
Alliance Money Market Fund and Alliance Intermediate Government Securities
Fund Yield Information
Alliance Money Market Fund and the Alliance Intermediate Government
Securities Fund yields reflect charges that are not normally reflected in the
yields of other investments and therefore may be lower when compared with
yields of other investments. Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund yields should not be compared to the
return on fixed rate investments which guarantee rates of interest for
specified periods, such as the Guarantee Periods. Nor should the yield be
compared to the yield of money market funds or government securities funds
made available to the general public.
The seven-day current yield for the Alliance Money Market Fund was 4.03% for
the period ended December 31, 1996. The effective yield for that period was
4.11%.
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 4.41% for the period ended December 31, 1996. The effective yield
for that period was 4.50%.
Because the above yields reflect the deduction of Separate Account expenses,
including the annual contract fee, they are lower than the corresponding
yield figures for the Alliance Money Market Portfolio and Alliance
Intermediate Government Securities Portfolio which reflect only the deduction
of HR Trust-level expenses.
4
<PAGE>
PART 5 - LONG-TERM MARKET TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return
trends for various types of securities. The information presented, while not
directly related to the performance of the Investment Funds, helps to provide
a perspective on the potential returns of different asset classes over
different periods of time. By combining this information with knowledge of
personal financial needs (e.g., the length of time until you retire, your
financial requirements at retirement), you may be able to better determine
how you wish to allocate contributions among the Investment Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long-or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus
is on long-term growth potential and protection against inflation, there may
be advantages to allocating some or all of their Annuity Account Value to
those Investment Funds that invest in stocks.
Growth of $1 Invested on January 1, 1996
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED
AREA GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
TOTAL U.S.
RETURN INFLATION
- ------------------------------------------
INDEX VALUE
- ------------------------------------------
Dec 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
- ------------------------------------------
[END OF GRAPHICALLY REPRESENTED DATA]
[BLACK] Common Stock [WHITE] Inflation
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart on next page.
Over shorter periods of time, however, common stocks tend to be subject to
more dramatic changes in value than fixed income (debt) securities. Investors
who are nearing retirement age, or who have a need to limit short-term risk,
may find it preferable to allocate a smaller percentage of their Annuity
Account Value to those Investment Funds that invest in common stocks. The
following graph illustrates the monthly fluctuations in value of $1 based on
monthly returns of the Standard & Poor's 500 during 1990, a year that
represents more typical volatility than 1996.
Growth of $1 Invested on January 1, 1990
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
U.S. IT TOTAL
GVT TR RETURN
- ------------------------------------------
INDEX INDEX
- ------------------------------------------
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
Common Stock Intermediate-Term Govt. Bonds
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion aond information preceding
and following chart.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1996 for different
types of securities: common stocks, long-term government bonds, long-term
corporate bonds, intermediate-term government bonds and U.S. Treasury Bills.
For comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated
with deferred annuity products, are reflected.
The information presented is merely a summary of past experience for
unmanaged groups of securities and is neither an estimate or guarantee of
future performance. Any investment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
5
<PAGE>
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated
in the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the trusts and Separate Account charges), see the supplement
to the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
Yearbook(Trademark), Ibbotson Associates Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)--Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS--Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1996, represented by the
Salomon Brothers Long-term, High-Grade Corporate Bond Index for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1996; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent
coupon and a twenty year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS--Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five year
maturity.
U. S. TREASURY BILLS--Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
INFLATION--Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
6
<PAGE>
PART 6 - FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society
of the United States included herein should be considered only as bearing
upon the ability of Equitable Life to meet its obligations under the
Certificates. There are no financial statements for the Investment Funds of
the Separate Account investing in the Alliance Small Cap Growth and Alliance
High Yield Portfolios of HR Trust and Class IB shares of EQ Trust as the
Separate Account did not invest in such shares prior to the date of the
prospectus supplement and SAI.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 45
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market Fund,
Intermediate Government Securities Fund, Growth & Income Fund, Common Stock
Fund, Global Fund, International Fund, Aggressive Stock Fund, Conservative
Investors Fund and Growth Investors Fund, separate investment funds of The
Equitable Life Assurance Society of the United States ("Equitable Life")
Separate Account No. 45 at December 31, 1996, the results of each of their
operations and changes in each of their net assets for the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Equitable Life's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of shares in The Hudson River Trust at December 31, 1996 with
the transfer agent, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
February 10, 1997
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT GROWTH & COMMON
MARKET SECURITIES INCOME STOCK
FUND FUND FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $32,590,855 ........ $32,392,955
3,570,593 ......... $3,533,879
14,345,718......... $15,109,954
74,352,777......... $75,709,230
15,256,959.........
8,620,079..........
43,176,986.........
7,918,815..........
24,267,019.........
Receivable for policy related
transactions .................. 919,631 2,352 217,813 812,700
----------- ------------ ----------- -----------
Total Assets ................... 33,312,586 3,536,231 15,327,767 76,521,930
----------- ------------ ----------- -----------
LIABILITIES
Payable for The Hudson River
Trust shares purchased ........ 934,835 4,273 224,654 853,808
Amount retained by Equitable
Life in Separate Account 45
(Note 4) ...................... 80,961 55,974 77,185 161,327
----------- ------------ ----------- -----------
Total Liabilities .............. 1,015,796 60,247 301,839 1,015,135
----------- ------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS................ $32,296,790 $3,475,984 $15,025,928 $75,506,795
=========== ============ =========== ===========
Units Outstanding at December
31, 1996 (Note 5) ............. 1,301,724 252,426 1,055,829 493,651
=========== ============ =========== ===========
Unit Value at December 31,
1996........................... $ 24.81 $ 13.77 $ 14.23 $ 152.96
=========== ============ =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS INVESTORS
FUND FUND FUND FUND FUND
----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $32,590,855 ........
3,570,593 .........
14,345,718 ........
74,352,777 ........
15,256,959......... $15,456,443
8,620,079.......... $8,651,467
43,176,986......... $41,011,800
7,918,815.......... $7,923,466
24,267,019......... $24,108,242
Receivable for policy related
transactions .................. 206,778 39,027 528,494 190,991 255,852
----------- ------------- ----------- ------------ -----------
Total Assets ................... 15,663,221 8,690,494 41,540,294 8,114,457 24,364,094
----------- ------------- ----------- ------------ -----------
LIABILITIES
Payable for The Hudson River
Trust shares purchased ........ 213,416 43,221 549,556 195,199 269,698
Amount retained by Equitable
Life in Separate Account 45
(Note 4) ...................... 73,501 63,269 103,486 60,976 86,001
----------- ------------- ----------- ------------ -----------
Total Liabilities .............. 286,917 106,490 653,042 256,175 355,699
----------- ------------- ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS................ $15,376,304 $8,584,004 $40,887,252 $7,858,282 $24,008,395
=========== ============= =========== ============ ===========
Units Outstanding at December
31, 1996 (Note 5) ............. 608,877 716,759 620,080 456,627 914,232
=========== ============= =========== ============ ===========
Unit Value at December 31,
1996........................... $ 25.25 $ 11.98 $ 65.94 $ 17.21 $ 26.26
=========== ============= =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT GROWTH & COMMON
MARKET SECURITIES INCOME STOCK
FUND FUND FUND FUND
--------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ....... $ 973,287 $169,012 $ 140,078 $ 307,270
Expenses (Note 3):
Mortality and expense risk charges ............ 182,124 30,204 75,795 350,135
--------- ------------ ---------- ----------
NET INVESTMENT INCOME .......................... 791,163 138,808 64,283 (42,865)
--------- ------------ ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ........... 19,803 (21,067) 30,281 249,329
Realized gain distribution from
The Hudson River Trust ....................... -- -- 663,496 5,761,725
--------- ------------ ---------- ----------
Net Realized Gain (Loss) ..................... 19,803 (21,067) 693,777 6,011,054
--------- ------------ ---------- ----------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ........................... (32,003) 4,810 65,829 (147,558)
End of period ................................. (197,900) (36,714) 764,236 1,356,453
--------- ------------ ---------- ----------
Change in unrealized
appreciation/(depreciation) during the period (165,897) (41,524) 698,407 1,504,011
--------- ------------ ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................... (146,094) (62,591) 1,392,184 7,515,065
--------- ------------ ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 645,069 $ 76,217 $1,456,467 $7,472,200
========= ============ ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS INVESTORS
FUND FUND FUND FUND FUND
-------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ....... $159,750 $100,654 $ 48,668 $249,730 $ 364,945
Expenses (Note 3):
Mortality and expense risk charges ............ 71,437 47,321 170,068 56,301 146,920
-------- ------------- ----------- ------------ ---------
NET INVESTMENT INCOME .......................... 88,313 53,333 (121,400) 193,429 218,025
-------- ------------- ----------- ------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ........... 68,368 106,050 179,807 1,003 35,624
Realized gain distribution from
The Hudson River Trust ....................... 474,848 128,244 3,900,528 153,963 1,566,277
-------- ------------- ----------- ------------ ---------
Net Realized Gain (Loss) ..................... 543,216 234,294 4,080,335 154,966 1,601,901
-------- ------------- ----------- ------------ ---------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ........................... 15,112 15,034 (169,970) 16,872 39,211
End of period ................................. 199,484 31,388 (2,165,186) 4,651 (158,777)
-------- ------------- ----------- ------------ ---------
Change in unrealized
appreciation/(depreciation) during the period 184,372 16,354 (1,995,216) (12,221) (197,988)
-------- ------------- ----------- ------------ ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................... 727,588 250,648 2,085,119 142,745 1,403,913
-------- ------------- ----------- ------------ ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $815,901 $303,981 $ 1,963,719 $336,174 $1,621,938
======== ============= =========== ============ =========
</TABLE>
- ------------
See Notes to Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
MONEY MARKET FUND SECURITIES FUND
------------------------ ----------------------
1996 1995* 1996 1995*
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income .........$ 791,163 $ 84,034 $ 138,808 $ 26,602
Net realized gain (loss) ..... 19,803 (9,249) (21,067) 691
Change in unrealized
appreciation/depreciation on
investments .................. (165,897) (32,003) (41,524) 4,810
------------ ----------- ----------- ----------
Net increase in net assets
from operations .............. 645,069 42,782 76,217 32,103
------------ ----------- ----------- ----------
FROM CONTRACT OWNER
TRANSACTIONS:
Contributions and Transfers:
Contributions ................ 95,681,367 11,156,359 1,798,660 1,629,203
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1) ............ 19,687,669 59,949 8,533,013 513,895
------------ ----------- ----------- ----------
Total ....................... 115,369,036 11,216,308 10,331,673 2,143,098
------------ ----------- ----------- ----------
Benefit & other policy
transaction................... 198,356 -- 15,968 --
Withdrawals and Transfers:
Withdrawal and administrative
charges . .......... 514,843 -- 77,637 --
Transfers to other Funds and
Guaranteed Interest Rate
Account (Note 1) ............ 87,121,388 7,122,265 8,982,626 20,000
------------ ----------- ----------- ----------
Total ....................... 87,834,587 7,122,265 9,076,231 20,000
------------ ----------- ----------- ----------
Net increase in net assets
from Contract Owner
transactions ................. 27,534,449 4,094,043 1,255,442 2,123,098
------------ ----------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE
ACCOUNT 45 (NOTE 4)........... (17,582) (1,971) (6,709) (4,167)
------------ ----------- ----------- ----------
INCREASE IN NET ASSETS
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 28,161,936 4,134,854 1,324,950 2,151,034
NET ASSETS, BEGINNING OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 4,134,854 -- 2,151,034 --
------------ ----------- ----------- ----------
NET ASSETS, END OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................$ 32,296,790 $ 4,134,854 $ 3,475,984 $2,151,034
============ =========== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
GROWTH &
INCOME FUND COMMON STOCK FUND GLOBAL FUND
---------------------- ----------------------- ----------------------
1996 1995* 1996 1995* 1996 1995*
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income ......... $ 64,283 $ 13,604 $ (42,865) $ 18,811 $ 88,313 $ 4,015
Net realized gain (loss) ..... 693,777 -- 6,011,054 366,599 543,216 32,515
Change in unrealized
appreciation/depreciation on
investments .................. 698,407 65,829 1,504,011 (147,558) 184,372 15,112
----------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets
from operations .............. 1,456,467 79,433 7,472,200 237,852 815,901 51,642
----------- ---------- ----------- ----------- ----------- ----------
FROM CONTRACT OWNER
TRANSACTIONS:
Contributions and Transfers:
Contributions ................ 6,251,620 1,306,253 36,558,323 3,944,181 9,199,245 818,158
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1) ............ 6,040,990 432,486 34,378,499 2,697,390 6,255,073 233,534
----------- ---------- ----------- ----------- ----------- ----------
Total ....................... 12,292,610 1,738,739 70,936,822 6,641,571 15,454,318 1,051,692
----------- ---------- ----------- ----------- ----------- ----------
Benefit & other policy
transaction................... 130,199 -- 427,323 -- 70,774 --
Withdrawals and Transfers:
Withdrawal and administrative
charges . .......... 31,991 703 290,642 14,649 36,757 1,379
Transfers to other Funds and
Guaranteed Interest Rate
Account (Note 1) ............ 342,494 -- 8,933,676 18,685 1,836,433 26,094
----------- ---------- ----------- ----------- ----------- ----------
Total ....................... 504,684 703 9,651,641 33,334 1,943,964 27,473
----------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets
from Contract Owner
transactions ................. 11,787,926 1,738,036 61,285,181 6,608,237 13,510,354 1,024,219
----------- ---------- ----------- ----------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE
ACCOUNT 45 (NOTE 4)........... (27,565) (8,369) (85,006) (11,669) (18,054) (7,758)
----------- ---------- ----------- ----------- ----------- ----------
INCREASE IN NET ASSETS
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 13,216,828 1,809,100 68,672,375 6,834,420 14,308,201 1,068,103
NET ASSETS, BEGINNING OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 1,809,100 -- 6,834,420 -- 1,068,103 --
----------- ---------- ----------- ----------- ----------- ----------
NET ASSETS, END OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ $15,025,928 $1,809,100 $75,506,795 $6,834,420 $15,376,304 $1,068,103
=========== ========== =========== =========== =========== ==========
</TABLE>
* Commencement of operations on May 1, 1995 for all funds.
See Notes to Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
AGGRESSIVE
INTERNATIONAL FUND STOCK FUND
--------------------- ------------------------
1996 1995* 1996 1995*
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................... $ 53,333 $ 8,748 $ (121,400) $ (3,345)
Net realized gain ............................... 234,294 5,969 4,080,335 324,801
Change in unrealized appreciation/depreciation
on investments ................................. 16,354 15,034 (1,995,216) (169,970)
---------- -------- ----------- ----------
Net increase in net assets from operations ..... 303,981 29,751 1,963,719 151,486
---------- -------- ----------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions .................................. 3,782,377 549,641 22,776,845 2,114,597
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 5,791,839 236,742 20,452,746 930,163
---------- -------- ----------- ----------
Total ......................................... 9,574,216 786,383 43,229,591 3,044,760
---------- -------- ----------- ----------
Benefit & other policy transaction............... 38,451 -- 245,070 --
Withdrawals and Transfers:
Withdrawal and administrative charges ......... 75,353 691 90,356 14,649
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 1,979,003 -- 7,099,325 6,689
---------- -------- ----------- ----------
Total ......................................... 2,092,807 691 7,434,751 21,338
---------- -------- ----------- ----------
Net increase in net assets from Contract Owner
transactions ................................... 7,481,409 785,692 35,794,840 3,023,422
---------- -------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 45 (NOTE 4) .. (11,874) (4,955) (33,503) (12,712)
---------- -------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACT
OWNERS .......................................... 7,773,516 810,488 37,725,056 3,162,196
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. 810,488 -- 3,162,196 --
---------- -------- ----------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. $8,584,004 $810,488 $40,887,252 $3,162,196
========== ======== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CONSERVATIVE GROWTH
INVESTORS FUND INVESTORS FUND
----------------------- -----------------------
1996 1995* 1996 1995*
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................... $ 193,429 $ 24,367 $ 218,025 $ 31,399
Net realized gain ............................... 154,966 11,297 1,601,901 54,116
Change in unrealized appreciation/depreciation
on investments ................................. (12,221) 16,872 (197,988) 39,211
---------- ---------- ----------- ----------
Net increase in net assets from operations ..... 336,174 52,536 1,621,938 124,726
---------- ---------- ----------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions .................................. 3,977,495 977,433 11,004,121 1,950,052
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 2,837,790 698,465 9,331,901 1,712,951
---------- ---------- ----------- ----------
Total ......................................... 6,815,285 1,675,898 20,336,022 3,663,003
---------- ---------- ----------- ----------
Benefit & other policy transaction............... 60,271 -- 206,468 --
Withdrawals and Transfers:
Withdrawal and administrative charges ......... 100,314 -- 228,021 24,866
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 814,338 27,054 1,177,040 59,290
---------- ---------- ----------- ----------
Total ......................................... 974,923 27,054 1,611,529 84,156
---------- ---------- ----------- ----------
Net increase in net assets from Contract Owner
transactions ................................... 5,840,362 1,648,844 18,724,493 3,578,847
---------- ---------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 45 (NOTE 4) .. (12,633) (7,001) (32,214) (9,395)
---------- ---------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACT
OWNERS .......................................... 6,163,903 1,694,379 20,314,217 3,694,178
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. 1,694,379 -- 3,694,178 --
---------- ---------- ----------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. $7,858,282 $1,694,379 $24,008,395 $3,694,178
========== ========== =========== ==========
</TABLE>
- --------------------
* Commencement of operations on May 1, 1995 for all funds.
See Notes to Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 45 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The
Account consists of nine investment funds (Funds): the Money Market Fund,
the Intermediate Government Securities Fund, the Growth & Income Fund, the
Common Stock Fund, the Global Fund, the International Fund, the Aggressive
Stock Fund, the Conservative Investors Fund and the Growth Investors Fund.
The assets in each Fund are invested in Class IA shares of a corresponding
portfolio (Portfolio) of a mutual fund, The Hudson River Trust (the
Trust). The Trust is an open-end, diversified, management investment
company that invests the assets of separate accounts of insurance
companies. Each Portfolio has separate investment objectives.
The Account is used to fund benefits for the Income Manager Accumulator, a
non-qualified deferred variable annuity, which combines the Portfolios in
the Account with guaranteed fixed rate options, and the Income Manager
Rollover IRA, which offers the same investment options as the Accumulator
for the qualified market. The Income Manager Accumulator and the Income
Manager Rollover IRA, collectively referred to as the Contracts, are
offered under group and individual variable deferred annuity forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Contract owners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate
of the contract owners' accounts allocated to that Fund. Additional assets
are set aside in Equitable Life's General Account to provide for other
policy benefits, as required under the state insurance law.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net
asset values per share of the respective Portfolios. The net asset value
is determined by the Trust using the market or fair value of the
underlying assets of the Portfolio.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
Dividends are recorded at the end of each quarter on the ex-dividend date.
Capital gains are distributed by the Trust at the end of each year.
No Federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code
and no Federal income tax payable by Equitable Life is expected to affect
the unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required.
F-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life deducts mortality and expense risks
at an annual rate of 0.90%. In addition, asset based administrative
charges are also deducted from the net assets at an annual rate of 0.25%.
The charges may be retained in the Account by Equitable Life and, to the
extent retained, participate in the net investment results of the trust
ratably with assets attributable to the Contracts. The aggregate of these
charges may not exceed a total effective annual rate of 1.15%.
4. Amounts retained by Equitable Life in Separate Account No. 45
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and asset based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at
any time by Equitable Life to its General Account.
The following table shows the net surplus contributions (withdrawals) by
Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
INVESTMENT FUND 1996 1995*
- ----------------------------------- ------------ ---------
<S> <C> <C>
Money Market ....................... $(125,000) $ 50,000
Intermediate Government Securities (25,000) 50,000
Growth & Income .................... (60,000) 50,000
Common Stock ....................... (223,000) 50,000
Global ............................. (52,000) 50,000
International ...................... (35,000) 50,000
Aggressive Stock ................... (110,000) 50,000
Conservative Investors ............. (45,000) 50,000
Growth Investors ................... (105,000) 50,000
------------ ---------
$(780,000) $450,000
============ =========
</TABLE>
- ------------
*Commencement of operations on May 1, 1995 for all funds.
F-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Continued)
5. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
MAY 1(A)
TO
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
MONEY MARKET FUND
- ------------------------
Unit value, beginning of
period ................. $ 23.83 $ 23.15
Unit value, end of
period ................. $ 24.81 $ 23.83
Number of units
outstanding,
end of period (000's) . 1,302 174
INTERMEDIATE GOVERNMENT
SECURITIES FUND
- ------------------------
Unit value, beginning of
period ................. $ 13.42 $ 12.50
Unit value, end of
period ................. $ 13.77 $ 13.42
Number of units
outstanding,
end of period (000's) . 252 160
GROWTH & INCOME
- ------------------------
Unit value, beginning of
period ................. $ 11.99 $ 10.38
Unit value, end of
period ................. $ 14.23 $ 11.99
Number of units
outstanding,
end of period (000's) . 1,056 151
COMMON STOCK FUND
- ------------------------
Unit value, beginning of
period ................. $124.52 $102.34
Unit value, end of
period ................. $152.96 $124.52
Number of units
outstanding,
end of period (000's) . 494 55
GLOBAL FUND
- ------------------------
Unit value, beginning of
period ................. $ 22.29 $ 19.48
Unit value, end of
period ................. $ 25.25 $ 22.29
Number of units
outstanding,
end of period (000's) . 609 48
</TABLE>
<TABLE>
<CAPTION>
MAY 1(A)
TO
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<C> <C> <C>
INTERNATIONAL FUND
------------------------
Unit value, beginning of
period ................. $11.03 $10.13
Unit value, end of
period ................. $11.98 $11.03
Number of units
outstanding,
end of period (000's) . 717 73
AGGRESSIVE STOCK FUND
------------------------
Unit value, beginning of
period ................. $54.59 $44.03
Unit value, end of
period ................. $65.94 $54.59
Number of units
outstanding,
end of period (000's) . 620 58
CONSERVATIVE INVESTORS FUND
------------------------
Unit value, beginning of
period ................. $16.55 $14.65
Unit value, end of
period ................. $17.21 $16.55
Number of units
outstanding,
end of period (000's) . 457 102
GROWTH INVESTORS FUND
------------------------
Unit value, beginning of
period ................. $23.59 $20.07
Unit value, end of
period ................. $26.26 $23.59
Number of units
outstanding,
end of period (000's) . 914 157
</TABLE>
- ------------
(a) Date on which units were made available for sale.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life
insurance contracts and long-lived assets in 1996, for loan impairments in 1995
and for postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly
owned life insurance subsidiary, Equitable Variable Life Insurance
Company ("EVLICO"). Effective January 1, 1997, EVLICO was merged into
Equitable Life, which will continue to conduct the Company's insurance
business. Equitable Life's investment management business, which
comprises the Investment Services segment, is conducted principally by
Alliance Capital Management L.P. ("Alliance"), Equitable Real Estate
Investment Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette,
Inc. ("DLJ"), an investment banking and brokerage affiliate. AXA-UAP
("AXA"), a French holding company for an international group of
insurance and related financial services companies, is the Holding
Company's largest shareholder, owning approximately 60.8% at December
31, 1996 (63.6% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.4% if all securities convertible into, and
options on, common stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships
and joint ventures in which Equitable Life or its subsidiaries has
control and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for
the benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which
were in force on that date. Assets were allocated to the Closed Block
in an amount which, together with anticipated revenues from policies
included in the Closed Block, was reasonably expected to be sufficient
to support such business, including provision for payment of claims,
certain expenses and taxes, and for continuation of dividend scales
payable in 1991, assuming the experience underlying such scales
continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block
assets represents the expected future post-tax contribution from the
Closed Block which would be recognized in income over the period the
policies and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and
Guaranteed Interest Contract ("GIC") lines of business. The Company
established a pre-tax provision for the estimated future losses of the
GIC line of business and a premium deficiency reserve for the Wind-Up
Annuities. Subsequent losses incurred have been charged to the two loss
provisions. Management reviews the adequacy of the allowance and
reserve each quarter. During the fourth quarter 1996 review, management
determined it was necessary to increase the allowance for expected
future losses of the GIC Segment. Management believes the loss
provisions for GIC contracts and Wind-Up Annuities at December 31, 1996
are adequate to provide for all future losses; however, the
determination of loss provisions continues to involve numerous
estimates and subjective judgments regarding the expected performance
of discontinued operations investment assets. There can be no assurance
the losses provided for will not differ from the losses ultimately
realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect
of accounting change by $19.2 million, net of Federal income taxes of
$10.3 million for 1996. The financial statements for 1995 and 1994 have
been retroactively restated for the change which resulted in an
increase (decrease) in earnings before cumulative effect of accounting
change of $15.2 million, net of Federal income taxes of $8.2 million,
and $(2.6) million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in
investment gains (losses), net. Before implementing SFAS No. 121,
valuation allowances on real estate held for the production of income
were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
The adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on
real estate to be disposed of continue to be computed using the lower
of estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal
income tax benefit of $12.4 million, due to the writedown to fair value
of building improvements relating to facilities being vacated beginning
in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans
within the scope of this statement are measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. The Company
provides for impairment of loans through an allowance for possible
losses. The adoption of this statement did not have a material effect
on the level of these allowances or on the Company's consolidated
statements of earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred
policy acquisition costs ("DAC"), amounts attributable to participating
group annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant or, alternatively, to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Companies
which elect to continue to apply APB Opinion No. 25 must provide pro
forma net income disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company accounts for stock option plans
sponsored by the Holding Company, DLJ and Alliance in accordance with
the provisions of APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of
repurchase agreements, dollar-roll, securities lending and similar
transactions. Management has not yet determined the effect of
implementing SFAS No. 125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is
adjusted for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized
on transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired
real estate is written down to fair value with the impairment loss
being included in investment gains (losses) net. Valuation allowances
on real estate available for sale are computed using the lower of
current estimated fair value or depreciated cost, net of disposition
costs. Prior to the adoption of SFAS No. 121, valuation allowances on
real estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the
equity basis of accounting and are included either with equity real
estate or other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment
gains or losses.
Unrealized investment gains and losses on fixed maturities available
for sale and equity securities held by the Company are accounted for as
a separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in
the period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of
policy issue and loss recognition testing at the end of each accounting
period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses)
is recognized with an offset to unrealized gains (losses) in
consolidated shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset
to unrealized gains (losses) in consolidated shareholder's equity as of
the balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the
basis of actuarial assumptions equal to guaranteed mortality and
dividend fund interest rates. The liability for annual dividends
represents the accrual of annual dividends earned. Terminal dividends
are accrued in proportion to gross margins over the life of the
contract.
For non-participating traditional life insurance policies, future
policy benefit liabilities are estimated using a net level premium
method on the basis of actuarial assumptions as to mortality,
persistency and interest established at policy issue. Assumptions
established at policy issue as to mortality and persistency are based
on the Insurance Group's experience which, together with interest and
expense assumptions, include a margin for adverse deviation. When the
liabilities for future policy benefits plus the present value of
expected future gross premiums for a product are insufficient to
provide for expected future policy benefits and expenses for that
product, DAC is written off and thereafter, if required, a premium
deficiency reserve is established by a charge to earnings. Benefit
liabilities for traditional annuities during the accumulation period
are equal to accumulated contractholders' fund balances and after
annuitization are equal to the present value of expected future
payments. Interest rates used in establishing such liabilities range
from 2.25% to 11.5% for life insurance liabilities and from 2.25% to
13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities
("Pension Par") was completed which included management's revised
estimate of assumptions, including expected mortality and future
investment returns. The study's results prompted management to
establish a premium deficiency reserve which decreased earnings from
continuing operations and net earnings by $47.5 million ($73.0 million
pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as
claim incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a
reasonable basis and are adequate, there can be no assurance reserves
will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6
million at December 31, 1996 and 1995, respectively (excluding $175.0
million of reserve strengthening in 1996). Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
DI and major medical policies (excluding $175.0 million of reserve
strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable
Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's
shareholder. Earnings in excess of limitations, if any, would be
accrued as policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current
Federal income taxes were charged or credited to operations based upon
amounts estimated to be payable or recoverable as a result of taxable
operations for the current year. Deferred income tax assets and
liabilities were recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as
separate captions in the consolidated balance sheets. The Insurance
Group bears the investment risk on assets held in one Separate Account,
therefore, such assets are carried on the same basis as similar assets
held in the General Account portfolio. Assets held in the other
Separate Accounts are carried at quoted market values or, where quoted
values are not available, at estimated fair values as determined by the
Insurance Group.
The investment results of Separate Accounts on which the Insurance
Group does not bear the investment risk are reflected directly in
Separate Accounts liabilities. For 1996, 1995 and 1994, investment
results of such Separate Accounts were $2,970.6 million, $1,963.2
million and $665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality,
policy administration and surrender charges on all Separate Accounts
are included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon
the assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost
of $3,915.7 million and $3,748.9 million, respectively, had estimated
fair values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or
5 (below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total
mortgage loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to
time be restructured or modified. The investment in restructured
mortgage loans on real estate, based on amortized cost, amounted to
$388.3 million and $531.5 million at December 31, 1996 and 1995,
respectively. These amounts include $1.0 million and $3.8 million of
problem mortgage loans on real estate at December 31, 1996 and 1995,
respectively. Gross interest income on restructured mortgage loans on
real estate that would have been recorded in accordance with the
original terms of such loans amounted to $35.5 million, $52.1 million
and $44.9 million in 1996, 1995 and 1994, respectively. Gross interest
income on these loans included in net investment income aggregated
$28.2 million, $37.4 million and $32.8 million in 1996, 1995 and 1994,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where
the fair value of the collateral or the net present value of the
expected future cash flows related to the loan equals or exceeds the
recorded investment. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995,
respectively, including $17.9 million and $13.4 million recognized on a
cash basis.
The Insurance Group's investment in equity real estate is through
direct ownership and through investments in real estate joint ventures.
At December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate
acquired in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally
range from 40 to 50 years. Accumulated depreciation on real estate was
$587.5 million and $662.4 million at December 31, 1996 and 1995,
respectively. Depreciation expense on real estate totaled $91.8
million, $121.7 million and $117.0 million for 1996, 1995 and 1994,
respectively. As a result of the implementation of SFAS No. 121, during
1996 no depreciation expense has been recorded on real estate available
for sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized
on these sales. The change in unrealized investment (losses) gains
related to fixed maturities classified as available for sale for 1996,
1995 and 1994 amounted to $(258.0) million, $1,077.2 million and
$(742.2) million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an
investment gain of $20.6 million as a result of the issuance of
Alliance Units in this transaction. At December 31, 1996, the Company's
ownership of Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to
third parties at prevailing market prices. The Company continues to
hold its 1% general partnership interest in Alliance. The Company
recognized an investment gain of $52.4 million as a result of these
transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in
the contribution from the Closed Block of $27.5 million, $18.8 million
and $(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively,
of restructured securities which includes problem fixed maturities of
$.3 million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified
as held to maturity were transferred to the available for sale
portfolio. All actions resulted from significant deterioration in
creditworthiness. The amortized cost of the security sold was $4.2
million. The aggregate amortized cost of the securities transferred was
$81.3 million with gross unrealized investment losses of $.1 million
transferred to equity. At December 1, 1995, $1,750.7 million of
securities classified as held to maturity were transferred to the
available for sale portfolio. As a result, unrealized gains of $88.5
million on fixed maturities were recognized, offset by DAC amortization
of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had an amortized cost of $4.3 million and $36.5 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7
million, respectively. At December 31, 1996 and 1995, the restructured
mortgage loans on real estate amount included $.7 million and $8.8
million, respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and
1995, respectively, including $4.7 million and $1.3 million recognized
on a cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of
the Closed Block operations. Operating costs and expenses outside of
the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen
the loss provisions by $129.0 million, resulting in a post-tax charge
of $83.8 million to discontinued operations' results in the fourth
quarter of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets.
There can be no assurance the losses provided for will not differ from
the losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the loss provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment.
Subsequently, the GIC Segment remitted $1,155.4 million in cash to
continuing operations in partial repayment of borrowings by the GIC
Segment. No gains or losses were recognized on these transactions.
Amounts due to continuing operations at December 31, 1996, consisted of
$1,080.0 million borrowed by the discontinued GIC Segment offset by
$83.8 million representing an obligation of continuing operations to
provide assets to fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate
and recognition of impairment losses of $69.8 million on real estate
held and used. Writedowns of fixed maturities amounted to $1.6 million,
$8.1 million and $17.8 million for 1996, 1995 and 1994, respectively
and writedowns of equity real estate subsequent to the adoption of SFAS
No. 121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had amortized costs of $7.9 million and $35.4 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction
of debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate
purposes used to support Equitable Life's liquidity needs and is
supported by Equitable Life's existing $350.0 million five-year bank
credit facility. There were no borrowings outstanding under this
program at December 31, 1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of
Alliance, is a floating rate generally based upon a defined prime rate,
a rate related to the LIBOR or the Federal Funds rate. A facility fee
is payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for
general working capital purposes. As of December 31, 1996, Alliance had
not issued any commercial paper under its $100.0 million commercial
paper program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997
totaling $174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and
securities amounting to $1,406.4 million and $1,629.7 million at
December 31, 1996 and 1995, respectively, as collateral for certain
long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings
before Federal income taxes and minority interest by the expected
Federal income tax rate of 35%. The sources of the difference and the
tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes,
by an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by
the Internal Revenue Service. As a stock life insurance company,
Equitable Life no longer is required to reduce its policyholder
dividend deduction by the differential earnings amount, but
differential earnings amounts for pre-demutualization years were still
being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary
differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. The effect of reinsurance (excluding group life
and health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard
underwriting risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994,
respectively. Ceded death and disability benefits totaled $21.2
million, $188.1 million and $235.5 million for 1996, 1995 and 1994,
respectively. Insurance liabilities ceded totaled $652.4 million and
$724.2 million at December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans
are non-contributory. Equitable Life's and EREIM's benefits are based
on a cash balance formula or years of service and final average
earnings, if greater, under certain grandfathering rules in the plans.
Alliance's benefits are based on years of credited service, average
final base salary and primary social security benefits. The Company's
funding policy is to make the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1
million, net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable
Life. Benefit payments under these contracts were approximately $34.7
million, $36.4 million and $38.1 million for 1996, 1995 and 1994,
respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of
postretirement benefits are recognized in accordance with the
provisions of SFAS No. 106. The Company continues to fund
postretirement benefits costs on a pay-as-you-go basis and, for 1996,
1995 and 1994, the Company made estimated postretirement benefits
payments of $18.9 million, $31.1 million and $29.8 million,
respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was
7.50% and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%,
the accumulated postretirement benefits obligation as of December 31,
1996 would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly
are utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996,
the cost of terminating outstanding matched swaps in a loss position
was $8.3 million and the unrealized gain on outstanding matched swaps
in a gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2)
million, respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on
interest-sensitive individual annuities contracts. The outstanding
notional amounts at December 31, 1996 of contracts purchased and sold
were $5,050.0 million and $500.0 million, respectively. The net premium
paid by Equitable Life on these contracts was $22.5 million and is
being amortized ratably over the contract periods ranging from 3 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's
involvement in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect
any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans
are limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the
appropriate duration. For durations in excess of the published index
rate, the appropriate Treasury rate is used plus a spread equal to the
longest duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair
values for single premium deferred annuities ("SPDA") are estimated
using projected cash flows discounted at current offering rates. The
estimated fair values for supplementary contracts not involving life
contingencies ("SCNILC") and annuities certain are derived using
discounted cash flows based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage
debt are determined by discounting contractual cash flows at a rate
which takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing
loan or loan commitment agreements; and to provide short-term financing
loans which at December 31, 1996 totaled $14.6 million. Management
believes the Company will not incur any material losses as a result of
these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date,
no such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance
Society of the United States was filed on January 20, 1995 in New York
County Supreme Court. The action purports to be brought on behalf of a
class of persons insured after 1983 under Lifetime Guaranteed Renewable
Major Medical Insurance Policies issued by Equitable Life (the
"policies"). The complaint alleges that premium increases for these
policies after 1983, all of which were filed with and approved by the
New York State Insurance Department and certain other state insurance
departments, breached the terms of the policies, and that statements in
the policies and elsewhere concerning premium increases constituted
fraudulent concealment, misrepresentations in violation of New York
Insurance Law Section 4226 and deceptive practices under New York
General Business Law Section 349. The complaint seeks a declaratory
judgment, injunctive relief restricting the methods by which Equitable
Life increases premiums on the policies in the future, a refund of
premiums, and punitive damages. Plaintiffs also have indicated that
they will seek damages in an unspecified amount. Equitable Life moved
to dismiss the complaint in its entirety on the grounds that it fails
to state a claim and that uncontroverted documentary evidence
establishes a complete defense to the claims. On May 29, 1996, the New
York County Supreme Court entered a judgment dismissing the complaint
with prejudice. Plaintiffs have filed a notice of appeal of that
judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved
Equitable Life's rate increases. These actions are asserted on behalf
of proposed classes of Pennsylvania issued or renewed policyholders and
Texas issued or renewed policyholders, insured under the policies. The
Pennsylvania and Texas actions seek compensatory and punitive damages
and injunctive relief restricting the methods by which Equitable Life
increases premiums in the future based on the common law and statutes
of those states. On February 9, 1996, Equitable Life removed the
Pennsylvania action, Malvin, to the United States District Court for
the Middle District of Pennsylvania. Following the decision granting
Equitable Life's motion to dismiss the New York action (Golomb), on the
consent of the parties the District Court ordered an indefinite stay of
all proceedings in the Pennsylvania action, pending either party's
right to reinstate the proceeding, and ordered that for administrative
purposes the case be deemed administratively closed. On February 2,
1996, Equitable Life removed the Texas action, Bowler, to the United
States District Court for the Northern District of Texas. On May 20,
1996, the plaintiffs in Bowler amended their complaint by adding
allegations of misrepresentation regarding premium increases on other
types of guaranteed renewable major medical insurance policies issued
by Equitable Life up to and including 1983. On July 1, 1996, Equitable
Life filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted
plaintiffs leave to file a supplemental complaint on behalf of a
proposed class of Texas policyholders claiming unfair discrimination,
breach of contract and other claims arising out of alleged differences
between premiums charged to Texas policyholders and premiums charged to
similarly situated policyholders in New York and certain other states.
Plaintiffs seek refunds of alleged overcharges, exemplary or additional
damages citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued
by Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which
Equitable Life increases premiums in the future based on various common
law claims. On June 20, 1996, Equitable Life removed the Florida action
to Federal court. Equitable Life has answered the complaint, denying
the material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment
and plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially
the same allegations concerning premium rates and premium rate
increases on guaranteed renewable policies made in the Bowler action.
The complaint alleges, among other things, that differentials between
rates charged California policyholders and policyholders in New York
and certain other states, and the methods used by Equitable Life to
calculate premium increases, breached the terms of its policies, that
Equitable Life misrepresented and concealed the facts pertaining to
such differentials and methods in violation of California law, and that
Equitable Life also misrepresented that its rate increases were
approved by the California Insurance Department. Plaintiffs seek
compensatory damages in an unspecified amount, rescission, injunctive
relief and attorneys' fees. Equitable Life removed the action to
Federal court; plaintiff has moved to remand the case to state court.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, the Company's
management believes that the ultimate resolution of the Golomb, Malvin,
Bowler, Bachman and Fletcher litigations should not have a material
adverse effect on the financial position of the Company. Due to the
early stage of such litigations, the Company's management cannot make
an estimate of loss, if any, or predict whether or not such litigations
will have a material adverse effect on the Company's results of
operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and
its wholly owned subsidiary, EOC, in New York state court, entitled
Sidney C. Cole et al. v. The Equitable Life Assurance Society of the
United States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of
action under the New York State consumer protection statute. The only
remaining causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a
motion to have this proceeding moved from Kings County Supreme Court to
New York County for joint trial or consolidation with the Cole action.
The motion was denied by the court on January 9, 1997. On January 10,
1997, plaintiffs moved for certification of a nationwide class
consisting of all persons or entities who were sold one or more life
insurance products on a "vanishing premium" basis and/or were allegedly
induced to purchase additional policies from EVLICO, using the cash
value accumulated in existing policies, from January 1, 1980 through
and including December 31, 1996. Plaintiffs further moved to have
Michael Bradley designated as the class representative. Discovery
regarding class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual
who purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly
promised by Equitable Life and EOC. The second is a "fraud class,"
consisting of all persons with an interest in policies issued by
Equitable Life and EOC at any time since October 1, 1986. Plaintiff
seeks damages in an unspecified amount, and also seeks injunctive
relief attaching Equitable Life's and EOC's profits from their alleged
sales practices. Equitable Life's and EOC's time to answer or move with
respect to the complaint has been extended until February 24, 1997.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, the Company's management
believes that the ultimate resolution of the Cole, Duncan, Bradley and
Dillon litigations should not have a material adverse effect on the
financial position of the Company. Due to the early stages of such
litigations, the Company's management cannot make an estimate of loss,
if any, or predict whether or not any such litigation will have a
material adverse effect on the Company's results of operations in any
particular period.
On January 3, 1996, an amended complaint was filed in an action
entitled Frank Franze Jr. and George Busher, individually and on behalf
of all others similarly situated v. The Equitable Life Assurance
Society of the United States, and Equitable Variable Life Insurance
Company, No. 94-2036 in the United States District Court for the
Southern District of Florida. The action was brought by two individuals
who purchased variable life insurance policies. The plaintiffs purport
to represent a nationwide class consisting of all persons who purchased
variable life insurance policies from Equitable Life and EVLICO since
September 30, 1991. The basic allegation of the amended complaint is
that Equitable Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated
v. The Equitable Life Assurance Society of the United States, and
Equitable Variable Life Insurance Company, was filed in Massachusetts
state court making claims similar to those in the Franze action and
alleging violations of the Massachusetts securities laws. The plaintiff
purports to represent all persons in Massachusetts who purchased
variable life insurance contracts from Equitable Life and EVLICO from
January 9, 1993 to the present. The Massachusetts action seeks
rescission of the contracts or compensatory damages, attorneys' fees,
expenses and injunctive relief. Although the outcome of any litigation
cannot be predicted with certainty, particularly in the early stages of
an action, the Company's management believes that the ultimate
resolution of the litigations discussed in this paragraph should not
have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigation, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S.
Department of Labor ("DOL") requesting copies of any third-party
appraisals in Equitable Life's possession relating to the ten largest
properties (by value) in the Prime Property Fund ("PPF"). PPF is an
open-end, commingled real estate separate account of Equitable Life for
pension clients. Equitable Life serves as investment manager in PPF and
has retained EREIM as advisor. In early 1995, the DOL commenced a
national investigation of commingled real estate funds with pension
investors, including PPF. The investigation now appears to be focused
principally on appraisal and valuation procedures in respect of fund
properties. The most recent request from the DOL seems to reflect, at
least in part, an interest in the relationship between the valuations
for those properties reflected in appraisals prepared for local
property tax proceedings and the valuations used by PPF for other
purposes. At no time has the DOL made any specific allegation that
Equitable Life or EREIM has acted improperly and Equitable Life and
EREIM believe that any such allegation would be without foundation.
While the outcome of this investigation cannot be predicted with
certainty, in the opinion of management, the ultimate resolution of
this matter should not have a material adverse effect on the Company's
consolidated financial position or results of operations in any
particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The
arbitration panel issued a final award in favor of Casualty and GEICO
General on June 17, 1996. Casualty and GEICO General moved in the
pending Texas state court action, with Houston General's consent, for
an order confirming the arbitration award and entering judgment
dismissing the action. The motion was granted on January 29, 1997. The
parties have also stipulated to the dismissal without prejudice of a
related Texas Federal court action brought by Houston General against
GEICO General and Equitable Life. In connection with confirmation of
the arbitration award, Houston General paid to Casualty approximately
$839,600 in settlement of certain reimbursement claims by Casualty
against Houston General.
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Complaint") was filed against the Alliance North American
Government Income Trust, Inc. (the "Fund"), Alliance and certain other
defendants affiliated with Alliance, including the Holding Company,
alleging violations of Federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint, which seeks certification of a
plaintiff class of persons who purchased or owned Class A, B or C
shares of the Fund from March 27, 1992 through December 23, 1994, seeks
an unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations of the Complaint are that the Fund
purchased debt securities issued by the Mexican and Argentine
governments in amounts that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and
warrants to purchase shares of common stock of Rickel Home Centers,
Inc. ("Rickel") filed a class action complaint against Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC") and certain other
defendants for unspecified compensatory and punitive damages in the
United States District Court for the Southern District of New York. The
suit was brought on behalf of the purchasers of 126,457 units
consisting of $126,457,000 aggregate principal amount of 13 1/2% senior
notes due 2001 and 126,457 warrants to purchase shares of common stock
of Rickel issued by Rickel in October 1994. The complaint alleges
violations of Federal securities laws and common law fraud against
DLJSC, as the underwriter of the units and as an owner of 7.3% of the
common stock of Rickel, Eos Partners, L.P., and General Electric
Capital Corporation, each as owners of 44.2% of the common stock of
Rickel, and members of the Board of Directors of Rickel, including a
DLJSC Managing Director. The complaint seeks to hold DLJSC liable for
alleged misstatements and omissions contained in the prospectus and
registration statement filed in connection with the offering of the
units, alleging that the defendants knew of financial losses and a
decline in value of Rickel in the months prior to the offering and did
not disclose such information. The complaint also alleges that Rickel
failed to pay its semi-annual interest payment due on the units on
December 15, 1995 and that Rickel filed a voluntary petition for
reorganization pursuant to Chapter 11 of the United States Bankruptcy
Code on January 10, 1996. DLJSC intends to defend itself vigorously
against all of the allegations contained in the complaint. Although
there can be no assurance, DLJ does not believe the outcome of this
litigation will have a material adverse effect on its financial
condition. Due to the early stage of this litigation, based on the
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter
11 reorganization proceedings. The class action complaint alleges that
the plan of reorganization submitted by NGC was based upon projections
by NGC and DLJSC which intentionally understated forecasts, and
provided misleading and incorrect information in order to hide NGC's
true value and that defendants breached their fiduciary duties by,
among other things, providing false, misleading or incomplete
information to deliberately understate the value of NGC. The class
action complaint seeks compensatory and punitive damages purportedly
sustained by the class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in
the complaint. Although there can be no assurance, DLJ does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on its financial condition. Due to the early stage of
such litigation, based upon the information currently available to it,
DLJ's management cannot make an estimate of loss, if any, or predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed
in the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently
available to it, DLJ's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material
adverse effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of
the actions and proceedings have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek
damages of unspecified amounts. While the ultimate outcome of such
matters cannot be predicted with certainty, in the opinion of
management no such matter is likely to have a material adverse effect
on the Company's consolidated financial position or results of
operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million,
$110.6 million, $100.3 million, $72.3 million, $59.3 million and $427.3
million thereafter. Minimum future sublease rental income on these
noncancelable leases for 1997 and the succeeding four years are $9.8
million, $6.0 million, $4.5 million, $2.4 million, $.8 million and $.1
million thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million,
$219.8 million, $194.3 million, $174.6 million and $847.1 million
thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million
writeoff of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment
of dividends to its shareholders. For 1996, 1995 and 1994, statutory
net (loss) earnings totaled $(351.1) million, $(352.4) million and
$67.5 million, respectively. No amounts are expected to be available
for dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996,
1995 and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been
restated to reflect the Company's accounting change adopted in the
fourth quarter of 1996 for long-duration participating life contracts
in accordance with the provisions prescribed by SFAS No. 120. Net
earnings for the three months ended December 31, 1996 includes a charge
of $339.3 million related to writeoffs of DAC on DI contracts of $94.3
million, reserve strengthening on DI business of $113.7 million,
pension par of $47.5 million and the discontinued GIC Segment of $83.8
million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess
of the proceeds over the book value in DLJ at the date of sale of
$340.2 million has been reflected as a capital contribution. In 1995,
DLJ completed the initial public offering ("IPO") of 10.58 million
shares of its common stock, which included 7.28 million of the Holding
Company's shares in DLJ, priced at $27 per share. Concurrent with the
IPO, the Company contributed equity securities to DLJ having a market
value of $21.2 million. Upon completion of the IPO, the Company's
ownership percentage was reduced to 36.1%. The Company's ownership
interest will be further reduced upon the issuance of common stock
after the vesting of forfeitable restricted stock units acquired by
and/or the exercise of options granted to certain DLJ employees. DLJ
restricted stock units represents forfeitable rights to receive
approximately 5.2 million shares of DLJ common stock through February
2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of
DLJ is included in investment in and loans to affiliates in the
consolidated balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method
prescribed in APB Opinion No. 25. Had compensation expense of the
Company's stock option incentive plans for options granted after
December 31, 1994 been determined based on the estimated fair value at
the grant dates for awards under those plans, the Company's pro forma
net earnings for 1996 and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as
of the date of grants using Black-Scholes option pricing models. The
option and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
INCOME MANAGER(SM) ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS
OF SEPARATE ACCOUNT NO. 45
<TABLE>
<CAPTION>
EQUITY SERIES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity
T. Rowe Price Equity Income * Available on or about September 2, 1997.
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- ----------------------------------- -----------------------------------------------------------------------------------
<S> <C> <C>
ALLIANCE CONSERVATIVE INVESTORS AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
- ----------------------------------- -----------------------------------------------------------------------------------
</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 45 prospectus supplement
for the Rollover IRA, dated May 1, 1997 and the prospectus for the Rollover
IRA, dated May 1, 1996. Definitions of special terms used in the SAI are
found in the prospectus.
A copy of the prospectus is available free of charge by writing the
Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your Registered Representative.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------------------------- --------
<S> <C>
Part 1 Minimum Distribution Withdrawals 2
- ----------------------------------------------------------------------------------------- --------
Part 2 Accumulation Unit Values 2
- ----------------------------------------------------------------------------------------- --------
Part 3 Annuity Unit Values 2
- ----------------------------------------------------------------------------------------- --------
Part 4 Custodian and Independent Accountants 3
- ----------------------------------------------------------------------------------------- --------
Part 5 Alliance Money Market Fund and Alliance Intermediate Government Securities Fund
Yield Information 3
- ----------------------------------------------------------------------------------------- --------
Part 6 Long-Term Market Trends 5
- ----------------------------------------------------------------------------------------- --------
Part 7 Financial Statements 7
- ----------------------------------------------------------------------------------------- --------
</TABLE>
Copyright 1997. The Equitable Life Assurance Society of the United States,
New York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
PART 1 -MINIMUM DISTRIBUTION WITHDRAWALS
If you elect Minimum Distribution Withdrawals described in Part 6 of the
prospectus, each year we calculate the Minimum Distribution Withdrawal amount
by using the value of your IRA as of December 31 of the prior calendar year.
We then calculate the minimum distribution amount based on the various
choices you make. This calculation takes into account withdrawals made during
the current calendar year but prior to the date we determine your Minimum
Distribution Withdrawal amount, except that when Minimum Distribution
Withdrawals are elected in the year in which you attain age 71 1/2, no
adjustment will be made for any withdrawals made between January 1 and April
1 in satisfaction of the minimum distribution requirement for the prior year.
An election can also be made (1) to have us recalculate your life expectancy,
or joint life expectancies, each year or (2) to have us determine your life
expectancy, or joint life expectancies, once and then subtract one year, each
year, from that amount. The joint life options are only available if the
spouse is the beneficiary. However, if you first elect Minimum Distribution
Withdrawals after April 1 of the year following the calendar year in which
you attain age 70 1/2, option (1) will apply.
PART 2 -ACCUMULATION UNIT VALUES
Accumulation Unit Values are determined at the end of each Valuation Period
for each of the Investment Funds. Other annuity contracts and certificates
which may be offered by us will have their own accumulation unit values for
the Investment Funds which may be different from those for the Rollover IRA.
The Accumulation Unit Value for an Investment Fund for any Valuation Period
is equal to the Accumulation Unit Value for the preceding Valuation Period
multiplied by the Net Investment Factor for that Investment Fund for that
Valuation Period. The NET INVESTMENT FACTOR is (a/b) - c where:
(a) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the Valuation Period before giving effect to
any amounts allocated to or withdrawn from the Investment Fund for the
Valuation Period. For this purpose, we use the share value reported to
us by HR Trust or EQ Trust, as applicable.
(b) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the preceding Valuation Period (after any
amounts allocated or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risk charge and
asset based administrative charge relating to the Certificates, times
the number of calendar days in the Valuation Period. These daily
charges are at an effective annual rate not to exceed a total of 1.15%.
PART 3 -ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on May 1, 1995 for Certificates
with assumed base rates of net investment return of both 5% and 3 1/2% a
year. For each Valuation Period after that date, it is the annuity unit value
for the immediately preceding Valuation Period multiplied by the adjusted Net
Investment Factor under the Certificate. For each Valuation Period, the
adjusted Net Investment Factor is equal to the Net Investment Factor reduced
for each day in the Valuation Period by:
o .00013366 of the Net Investment Factor if the assumed base rate of net
investment return is 5% a year; or
o .00009425 of the Net Investment Factor if the assumed base rate of net
investment return is 3 1/2%.
Because of this adjustment, the annuity unit value rises and falls depending
on whether the actual rate of net investment return (after deduction of
charges) is higher or lower than the assumed base rate.
All Certificates have a 5% assumed base rate of net investment return, except
in states where that rate is not permitted. Annuity payments under
Certificates with an assumed base rate of 3 1/2% will at first be smaller
than those under Certificates with a 5% assumed base rate. Payments under the
3 1/2% Certificates, however, will rise more rapidly when unit values are
rising, and payments will fall more slowly when unit values are falling than
those under 5% Certificates.
2
<PAGE>
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Business Day specified on your election form,
or on such other future date as specified therein and are made on a monthly
basis. The first three payments are of equal amounts. Each of the first three
payments will be based on the amount specified in the Tables of Guaranteed
Annuity Payments in the Certificate.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period). If the annuity
involved a life contingency, the risk class and the age of the annuitants
will affect payments.
The amount of the fourth and each later payment will vary according to the
investment performance of the Alliance Common Stock Fund. Each monthly
payment will be calculated by multiplying the number of annuity units
credited by the average annuity unit value for the second calendar month
immediately preceding the due date of the payment. The number of units is
calculated by dividing the first monthly payment by the annuity unit value
for the Valuation Period which includes the due date of the first monthly
payment. The average annuity unit value is the average of the annuity unit
values for the Valuation Periods ending in that month. Variable income
annuities may also be available by separate prospectus through the Alliance
Common Stock or other Funds of other separate accounts we offer.
Illustration of Changes in Annuity Unit Values. To show how we determine
variable annuity payments from month to month, assume that the Annuity
Account Value on an Annuity Commencement Date is enough to fund an annuity
with a monthly payment of $363 and that the annuity unit value for the
Valuation Period that includes the due date of the first annuity payment is
$1.05. The number of annuity units credited under the contract would be
345.71 (363 divided by 1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the
number of units (345.71) times the average annuity unit value ($1.10), or
$380.28. If the average annuity unit value was $1 in February, the annuity
payment for April would be 345.71 times $1, or $345.71.
PART 4 -CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of the HR Trust and EQ Trust owned
by the Separate Account.
The financial statements of the Separate Account for the period ended
December 31, 1996 and 1995, and the consolidated financial statements and
consolidated financial statement schedules of Equitable Life at December 31,
1996 and 1995 and for each of the three years ended December 31, 1996
included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the period ended
December 31, 1996 and 1995, and the consolidated financial statements and
consolidated financial statement schedules of Equitable Life at December 31,
1996 and 1995 and for each of the three years ended December 31, 1996
included in this SAI have been so included in reliance on the reports of
Price Waterhouse LLP, independent accountants, given on the authority of such
firm as experts in accounting and auditing.
PART 5 -ALLIANCE MONEY MARKET FUND AND ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES FUND YIELD INFORMATION
Alliance Money Market Fund
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
Certificate with one Accumulation Unit at the beginning of the period. To
determine the seven-day rate of return, the net change in the Accumulation
Unit Value is computed by subtracting the Accumulation Unit Value at the
beginning of the period from an Accumulation Unit Value, exclusive of capital
changes, at the end of the period.
The net change is then reduced by the average contract fee factor (explained
below). This reduction is made to recognize the deduction of the annual
contract fee, which is not reflected in the unit value. See "Annual Contract
Fee" in Part 7 of the prospectus.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Money Market Fund but do not reflect the distribution fee, the withdrawal
charge, the guaranteed minimum death benefit charge or any charges for
applicable taxes such as state or local premium taxes.
3
<PAGE>
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This seven-day adjusted base period return is then multiplied by 365/7 to
produce an annualized seven-day current yield figure carried to the nearest
one-hundredth of one percent.
The actual dollar amount of the annual contract fee that is deducted from the
Alliance Money Market Fund will vary for each Certificate depending upon the
percentage of the Annuity Account Value allocated to the Alliance Money
Market Fund. To determine the effect of the annual contract fee on the yield,
we start with the total dollar amounts of the charges deducted from the Fund
during the 12-month period ending on the last day of the prior year. The
amount is multiplied by 7/365 to produce an average contract fee factor which
is used in all weekly yield computations for the ensuing year. The average
contract fee factor is then divided by the number of Rollover IRA Alliance
Money Market Fund Accumulation Units as of the end of the prior calendar
year, and the resulting quotient is deducted from the net change in
Accumulation Unit Value for the seven-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by adding
one to the adjusted base period return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result, i.e., effective yield
= (base period return + 1 ) 365/7 -- 1. The Alliance Money Market Fund yields
will fluctuate daily. Accordingly, yields for any given period are not
necessarily representative of future results. In addition, the value of
Accumulation Units of the Alliance Money Market Fund will fluctuate and not
remain constant.
Alliance Intermediate Government Securities Fund
The Alliance Intermediate Government Securities Fund calculates yield
information for 30-day periods. The 30-day current yield calculation is based
on a hypothetical Certificate with one Accumulation Unit at the beginning of
the period. To determine the 30-day rate of return, the net change in the
Accumulation Unit Value is computed by subtracting the Accumulation Unit
Value at the beginning of the period from an Accumulation Unit Value,
exclusive of capital changes, at the end of the period.
The net change is then reduced by the average contract fee factor (explained
below). This reduction is made to recognize the deduction of the annual
contract fee, which is not reflected in the unit value. See "Annual Contract
Fee" in Part 7 of the prospectus.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities Fund but do not reflect the distribution
fee, the withdrawal charge, the guaranteed minimum death benefit charge or
any charges for applicable taxes such as state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This 30-day adjusted base period return is then multiplied by 365/30 to
produce an annualized 30-day current yield figure carried to the nearest
one-hundredth of one percent.
The actual dollar amount of the annual contract fee that is deducted from the
Alliance Intermediate Government Securities Fund will vary for each
Certificate depending upon the percentage of the Annuity Account Value
allocated to the Alliance Intermediate Government Securities Fund. To
determine the effect of the annual contract fee on the yield, we start with
the total dollar amounts of the charges deducted from the Fund during the
12-month period ending on the last day of the prior year. The amount is
multiplied by 30/365 to produce an average contract fee factor which is used
in all 30-day yield computations for the ensuing year. The average contract
fee is then divided by the number of Rollover IRA Alliance Intermediate
Government Securities Fund Accumulation Units as of the end of the prior
calendar year, and the resulting quotient is deducted from the net change in
Accumulation Unit Value for the 30-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Intermediate Government Securities
Fund's investments, as follows: the unannualized adjusted base period return
is compounded by adding one to the adjusted base period return, raising the
sum to a power equal to 365 divided by 30, and subtracting one from the
result, i.e., effective yield = (base period return + 1) 365/30 -- 1.
Alliance Intermediate Government Securities Fund yields will fluctuate daily.
Accordingly, yields for any given period are not necessarily representative
of future results. In addition, the
4
<PAGE>
value of Accumulation Units of the Alliance Intermediate Government
Securities Fund will fluctuate and not remain constant.
Alliance Money Market Fund and Alliance Intermediate Government Securities
Fund Yield Information
The Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund yields reflect charges that are not normally reflected in the
yields of other investments and therefore may be lower when compared with
yields of other investments. Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund yields should not be compared to the
return on fixed rate investments which guarantee rates of interest for
specified periods, such as the Guarantee Periods. Nor should the yield be
compared to the yield of money market funds or government securities funds
made available to the general public.
The seven-day current yield for the Alliance Money Market Fund was 4.03% for
the period ended December 31, 1996. The effective yield for that period was
4.11%.
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 4.41% for the period ended December 31, 1996. The effective yield
for that period was 4.50%.
Because the above yields reflect the deduction of Separate Account expenses,
including the annual contract fee, they are lower than the corresponding
yield figures for the Alliance Money Market Portfolio and Alliance
Intermediate Government Securities Portfolio which reflect only the deduction
of HR Trust-level expenses.
PART 6 -LONG-TERM MARKET TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return
trends for various types of securities. The information presented, while not
directly related to the performance of the Investment Funds, helps to provide
a perspective on the potential returns of different asset classes over
different periods of time. By combining this information with knowledge of
your own financial needs (e.g., the length of time until you retire, your
financial requirements at retirement), you may be able to better determine
how you wish to allocate contributions among the Investment Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long-or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus
is on long-term growth potential and protection against inflation, there may
be advantages to allocating some or all of their Annuity Account Value to
those Investment Funds that invest in stocks.
<TABLE>
Growth of $1 Invested on January 1, 1956
(Values are as of last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED AREA GRAPH IN THE PROSPECTUS]
- ------------------------------------------ ------------------------------------------
S&P 500 S&P 500
TOTAL U.S. TOTAL U.S.
RETURN INFLATION RETURN INFLATION
- ------------------------------------------ ------------------------------------------
INDEX VALUE INDEX VALUE
- ------------------------------------------ ------------------------------------------
<S> <C> <C> <S> <C> <C>
Dec 1956 1.07 1.03 Dec 1976 4.88 2.17
Dec 1957 0.95 1.06 Dec 1977 4.53 2.31
Dec 1958 1.36 1.08 Dec 1978 4.83 2.52
Dec 1959 1.53 1.09 Dec 1979 5.72 2.86
Dec 1960 1.53 1.11 Dec 1980 7.57 3.21
Dec 1961 1.95 1.12 Dec 1981 7.20 3.50
Dec 1962 1.78 1.13 Dec 1982 8.74 3.64
Dec 1963 2.18 1.15 Dec 1983 10.71 3.77
Dec 1964 2.54 1.16 Dec 1984 11.38 3.92
Dec 1965 2.86 1.19 Dec 1985 15.04 4.07
Dec 1966 2.57 1.23 Dec 1986 17.81 4.12
Dec 1967 3.18 1.26 Dec 1987 18.75 4.30
Dec 1968 3.34 1.32 Dec 1988 21.90 4.49
Dec 1969 3.24 1.40 Dec 1989 28.79 4.70
Dec 1970 3.37 1.48 Dec 1990 27.88 4.99
Dec 1971 3.85 1.53 Dec 1991 36.40 5.14
Dec 1972 4.58 1.58 Dec 1992 39.19 5.29
Dec 1973 3.91 1.72 Dec 1993 43.10 5.43
Dec 1974 2.87 1.83 Dec 1994 43.67 5.58
Dec 1975 3.94 2.07 Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
- ------------------------------------------
[BLACK] Common Stock [WHITE] Inflation
Source: Ibbotson Associates, Inc. See discussion and information preceding and following
chart on next page.
</TABLE>
Over shorter periods of time, however, common stocks tend to be subject to
more dramatic changes in value than fixed income (debt) securities. Investors
who are nearing retirement age, or who have a need to limit short-term risk,
may find it preferable to allocate a smaller percentage of their Annuity
Account Value to those Investment Funds that invest in common stocks. The
following graph illustrates the monthly fluctuations in value of $1 based on
monthly returns of the Standard & Poor's 500 during 1990, a year that
represents more typical volatility than 1996.
5
<PAGE>
Growth of $1 Invested on January 1, 1990
(Values are as of last business date)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
U.S. IT TOTAL
GVT TR RETURN
- ------------------------------------------
INDEX INDEX
- ------------------------------------------
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
Common Stock Intermediate-Term Govt. Bonds
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1996 for different
types of securities: common stocks, long-term government bonds, long-term
corporate bonds, intermediate-term govern-ment bonds and U.S. Treasury Bills.
For comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated
with deferred annuity products, are reflected.
The information presented is merely a summary of past experience for
unmanaged groups of securities and is neither an estimate nor guarantee of
future performance. Any invest ment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated
in the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the trusts, and Separate Account charges), see the supplement
to the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
Yearbook(Trademark), Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)--Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS--Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1996, represented by the
Salomon Brothers Long-term, High-Grade Corporate Bond Index; for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1996; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent
coupon and a twenty year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS--Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five year
maturity.
U. S. TREASURY BILLS--Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
INFLATION--Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
6
<PAGE>
PART 7 -FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society
of the United States included herein should be considered only as bearing
upon the ability of Equitable Life to meet its obligations under the Certifi-
cates. There are no financial statements for the Investment Funds of the
Separate Account investing in the Alliance Small Cap Growth and Alliance High
Yield Portfolios of HR Trust and Class IB shares of EQ Trust as the Separate
Account did not invest in such shares prior to the date of the prospectus
supplement and SAI.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 45
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market Fund,
Intermediate Government Securities Fund, Growth & Income Fund, Common Stock
Fund, Global Fund, International Fund, Aggressive Stock Fund, Conservative
Investors Fund and Growth Investors Fund, separate investment funds of The
Equitable Life Assurance Society of the United States ("Equitable Life")
Separate Account No. 45 at December 31, 1996, the results of each of their
operations and changes in each of their net assets for the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Equitable Life's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of shares in The Hudson River Trust at December 31, 1996 with
the transfer agent, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
February 10, 1997
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT GROWTH & COMMON
MARKET SECURITIES INCOME STOCK
FUND FUND FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $32,590,855 ........ $32,392,955
3,570,593 ......... $3,533,879
14,345,718......... $15,109,954
74,352,777......... $75,709,230
15,256,959.........
8,620,079..........
43,176,986.........
7,918,815..........
24,267,019.........
Receivable for policy related
transactions .................. 919,631 2,352 217,813 812,700
----------- ------------ ----------- -----------
Total Assets ................... 33,312,586 3,536,231 15,327,767 76,521,930
----------- ------------ ----------- -----------
LIABILITIES
Payable for The Hudson River
Trust shares purchased ........ 934,835 4,273 224,654 853,808
Amount retained by Equitable
Life in Separate Account 45
(Note 4) ...................... 80,961 55,974 77,185 161,327
----------- ------------ ----------- -----------
Total Liabilities .............. 1,015,796 60,247 301,839 1,015,135
----------- ------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS................ $32,296,790 $3,475,984 $15,025,928 $75,506,795
=========== ============ =========== ===========
Units Outstanding at December
31, 1996 (Note 5) ............. 1,301,724 252,426 1,055,829 493,651
=========== ============ =========== ===========
Unit Value at December 31,
1996........................... $ 24.81 $ 13.77 $ 14.23 $ 152.96
=========== ============ =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS INVESTORS
FUND FUND FUND FUND FUND
----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $32,590,855 ........
3,570,593 .........
14,345,718 ........
74,352,777 ........
15,256,959......... $15,456,443
8,620,079.......... $8,651,467
43,176,986......... $41,011,800
7,918,815.......... $7,923,466
24,267,019......... $24,108,242
Receivable for policy related
transactions .................. 206,778 39,027 528,494 190,991 255,852
----------- ------------- ----------- ------------ -----------
Total Assets ................... 15,663,221 8,690,494 41,540,294 8,114,457 24,364,094
----------- ------------- ----------- ------------ -----------
LIABILITIES
Payable for The Hudson River
Trust shares purchased ........ 213,416 43,221 549,556 195,199 269,698
Amount retained by Equitable
Life in Separate Account 45
(Note 4) ...................... 73,501 63,269 103,486 60,976 86,001
----------- ------------- ----------- ------------ -----------
Total Liabilities .............. 286,917 106,490 653,042 256,175 355,699
----------- ------------- ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS................ $15,376,304 $8,584,004 $40,887,252 $7,858,282 $24,008,395
=========== ============= =========== ============ ===========
Units Outstanding at December
31, 1996 (Note 5) ............. 608,877 716,759 620,080 456,627 914,232
=========== ============= =========== ============ ===========
Unit Value at December 31,
1996........................... $ 25.25 $ 11.98 $ 65.94 $ 17.21 $ 26.26
=========== ============= =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT GROWTH & COMMON
MARKET SECURITIES INCOME STOCK
FUND FUND FUND FUND
--------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ....... $ 973,287 $169,012 $ 140,078 $ 307,270
Expenses (Note 3):
Mortality and expense risk charges ............ 182,124 30,204 75,795 350,135
--------- ------------ ---------- ----------
NET INVESTMENT INCOME .......................... 791,163 138,808 64,283 (42,865)
--------- ------------ ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ........... 19,803 (21,067) 30,281 249,329
Realized gain distribution from
The Hudson River Trust ....................... -- -- 663,496 5,761,725
--------- ------------ ---------- ----------
Net Realized Gain (Loss) ..................... 19,803 (21,067) 693,777 6,011,054
--------- ------------ ---------- ----------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ........................... (32,003) 4,810 65,829 (147,558)
End of period ................................. (197,900) (36,714) 764,236 1,356,453
--------- ------------ ---------- ----------
Change in unrealized
appreciation/(depreciation) during the period (165,897) (41,524) 698,407 1,504,011
--------- ------------ ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................... (146,094) (62,591) 1,392,184 7,515,065
--------- ------------ ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 645,069 $ 76,217 $1,456,467 $7,472,200
========= ============ ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS INVESTORS
FUND FUND FUND FUND FUND
-------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ....... $159,750 $100,654 $ 48,668 $249,730 $ 364,945
Expenses (Note 3):
Mortality and expense risk charges ............ 71,437 47,321 170,068 56,301 146,920
-------- ------------- ----------- ------------ ---------
NET INVESTMENT INCOME .......................... 88,313 53,333 (121,400) 193,429 218,025
-------- ------------- ----------- ------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ........... 68,368 106,050 179,807 1,003 35,624
Realized gain distribution from
The Hudson River Trust ....................... 474,848 128,244 3,900,528 153,963 1,566,277
-------- ------------- ----------- ------------ ---------
Net Realized Gain (Loss) ..................... 543,216 234,294 4,080,335 154,966 1,601,901
-------- ------------- ----------- ------------ ---------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ........................... 15,112 15,034 (169,970) 16,872 39,211
End of period ................................. 199,484 31,388 (2,165,186) 4,651 (158,777)
-------- ------------- ----------- ------------ ---------
Change in unrealized
appreciation/(depreciation) during the period 184,372 16,354 (1,995,216) (12,221) (197,988)
-------- ------------- ----------- ------------ ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................... 727,588 250,648 2,085,119 142,745 1,403,913
-------- ------------- ----------- ------------ ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $815,901 $303,981 $ 1,963,719 $336,174 $1,621,938
======== ============= =========== ============ =========
</TABLE>
- ------------
See Notes to Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
MONEY MARKET FUND SECURITIES FUND
------------------------ ----------------------
1996 1995* 1996 1995*
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income .........$ 791,163 $ 84,034 $ 138,808 $ 26,602
Net realized gain (loss) ..... 19,803 (9,249) (21,067) 691
Change in unrealized
appreciation/depreciation on
investments .................. (165,897) (32,003) (41,524) 4,810
------------ ----------- ----------- ----------
Net increase in net assets
from operations .............. 645,069 42,782 76,217 32,103
------------ ----------- ----------- ----------
FROM CONTRACT OWNER
TRANSACTIONS:
Contributions and Transfers:
Contributions ................ 95,681,367 11,156,359 1,798,660 1,629,203
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1) ............ 19,687,669 59,949 8,533,013 513,895
------------ ----------- ----------- ----------
Total ....................... 115,369,036 11,216,308 10,331,673 2,143,098
------------ ----------- ----------- ----------
Benefit & other policy
transaction................... 198,356 -- 15,968 --
Withdrawals and Transfers:
Withdrawal and administrative
charges . .......... 514,843 -- 77,637 --
Transfers to other Funds and
Guaranteed Interest Rate
Account (Note 1) ............ 87,121,388 7,122,265 8,982,626 20,000
------------ ----------- ----------- ----------
Total ....................... 87,834,587 7,122,265 9,076,231 20,000
------------ ----------- ----------- ----------
Net increase in net assets
from Contract Owner
transactions ................. 27,534,449 4,094,043 1,255,442 2,123,098
------------ ----------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE
ACCOUNT 45 (NOTE 4)........... (17,582) (1,971) (6,709) (4,167)
------------ ----------- ----------- ----------
INCREASE IN NET ASSETS
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 28,161,936 4,134,854 1,324,950 2,151,034
NET ASSETS, BEGINNING OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 4,134,854 -- 2,151,034 --
------------ ----------- ----------- ----------
NET ASSETS, END OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................$ 32,296,790 $ 4,134,854 $ 3,475,984 $2,151,034
============ =========== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
GROWTH &
INCOME FUND COMMON STOCK FUND GLOBAL FUND
---------------------- ----------------------- ----------------------
1996 1995* 1996 1995* 1996 1995*
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income ......... $ 64,283 $ 13,604 $ (42,865) $ 18,811 $ 88,313 $ 4,015
Net realized gain (loss) ..... 693,777 -- 6,011,054 366,599 543,216 32,515
Change in unrealized
appreciation/depreciation on
investments .................. 698,407 65,829 1,504,011 (147,558) 184,372 15,112
----------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets
from operations .............. 1,456,467 79,433 7,472,200 237,852 815,901 51,642
----------- ---------- ----------- ----------- ----------- ----------
FROM CONTRACT OWNER
TRANSACTIONS:
Contributions and Transfers:
Contributions ................ 6,251,620 1,306,253 36,558,323 3,944,181 9,199,245 818,158
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1) ............ 6,040,990 432,486 34,378,499 2,697,390 6,255,073 233,534
----------- ---------- ----------- ----------- ----------- ----------
Total ....................... 12,292,610 1,738,739 70,936,822 6,641,571 15,454,318 1,051,692
----------- ---------- ----------- ----------- ----------- ----------
Benefit & other policy
transaction................... 130,199 -- 427,323 -- 70,774 --
Withdrawals and Transfers:
Withdrawal and administrative
charges . .......... 31,991 703 290,642 14,649 36,757 1,379
Transfers to other Funds and
Guaranteed Interest Rate
Account (Note 1) ............ 342,494 -- 8,933,676 18,685 1,836,433 26,094
----------- ---------- ----------- ----------- ----------- ----------
Total ....................... 504,684 703 9,651,641 33,334 1,943,964 27,473
----------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets
from Contract Owner
transactions ................. 11,787,926 1,738,036 61,285,181 6,608,237 13,510,354 1,024,219
----------- ---------- ----------- ----------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE
ACCOUNT 45 (NOTE 4)........... (27,565) (8,369) (85,006) (11,669) (18,054) (7,758)
----------- ---------- ----------- ----------- ----------- ----------
INCREASE IN NET ASSETS
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 13,216,828 1,809,100 68,672,375 6,834,420 14,308,201 1,068,103
NET ASSETS, BEGINNING OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 1,809,100 -- 6,834,420 -- 1,068,103 --
----------- ---------- ----------- ----------- ----------- ----------
NET ASSETS, END OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ $15,025,928 $1,809,100 $75,506,795 $6,834,420 $15,376,304 $1,068,103
=========== ========== =========== =========== =========== ==========
</TABLE>
* Commencement of operations on May 1, 1995 for all funds.
See Notes to Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
AGGRESSIVE
INTERNATIONAL FUND STOCK FUND
--------------------- ------------------------
1996 1995* 1996 1995*
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................... $ 53,333 $ 8,748 $ (121,400) $ (3,345)
Net realized gain ............................... 234,294 5,969 4,080,335 324,801
Change in unrealized appreciation/depreciation
on investments ................................. 16,354 15,034 (1,995,216) (169,970)
---------- -------- ----------- ----------
Net increase in net assets from operations ..... 303,981 29,751 1,963,719 151,486
---------- -------- ----------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions .................................. 3,782,377 549,641 22,776,845 2,114,597
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 5,791,839 236,742 20,452,746 930,163
---------- -------- ----------- ----------
Total ......................................... 9,574,216 786,383 43,229,591 3,044,760
---------- -------- ----------- ----------
Benefit & other policy transaction............... 38,451 -- 245,070 --
Withdrawals and Transfers:
Withdrawal and administrative charges ......... 75,353 691 90,356 14,649
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 1,979,003 -- 7,099,325 6,689
---------- -------- ----------- ----------
Total ......................................... 2,092,807 691 7,434,751 21,338
---------- -------- ----------- ----------
Net increase in net assets from Contract Owner
transactions ................................... 7,481,409 785,692 35,794,840 3,023,422
---------- -------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 45 (NOTE 4) .. (11,874) (4,955) (33,503) (12,712)
---------- -------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACT
OWNERS .......................................... 7,773,516 810,488 37,725,056 3,162,196
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. 810,488 -- 3,162,196 --
---------- -------- ----------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. $8,584,004 $810,488 $40,887,252 $3,162,196
========== ======== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CONSERVATIVE GROWTH
INVESTORS FUND INVESTORS FUND
----------------------- -----------------------
1996 1995* 1996 1995*
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................... $ 193,429 $ 24,367 $ 218,025 $ 31,399
Net realized gain ............................... 154,966 11,297 1,601,901 54,116
Change in unrealized appreciation/depreciation
on investments ................................. (12,221) 16,872 (197,988) 39,211
---------- ---------- ----------- ----------
Net increase in net assets from operations ..... 336,174 52,536 1,621,938 124,726
---------- ---------- ----------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions .................................. 3,977,495 977,433 11,004,121 1,950,052
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 2,837,790 698,465 9,331,901 1,712,951
---------- ---------- ----------- ----------
Total ......................................... 6,815,285 1,675,898 20,336,022 3,663,003
---------- ---------- ----------- ----------
Benefit & other policy transaction............... 60,271 -- 206,468 --
Withdrawals and Transfers:
Withdrawal and administrative charges ......... 100,314 -- 228,021 24,866
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 814,338 27,054 1,177,040 59,290
---------- ---------- ----------- ----------
Total ......................................... 974,923 27,054 1,611,529 84,156
---------- ---------- ----------- ----------
Net increase in net assets from Contract Owner
transactions ................................... 5,840,362 1,648,844 18,724,493 3,578,847
---------- ---------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 45 (NOTE 4) .. (12,633) (7,001) (32,214) (9,395)
---------- ---------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACT
OWNERS .......................................... 6,163,903 1,694,379 20,314,217 3,694,178
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. 1,694,379 -- 3,694,178 --
---------- ---------- ----------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. $7,858,282 $1,694,379 $24,008,395 $3,694,178
========== ========== =========== ==========
</TABLE>
- --------------------
* Commencement of operations on May 1, 1995 for all funds.
See Notes to Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 45 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The
Account consists of nine investment funds (Funds): the Money Market Fund,
the Intermediate Government Securities Fund, the Growth & Income Fund, the
Common Stock Fund, the Global Fund, the International Fund, the Aggressive
Stock Fund, the Conservative Investors Fund and the Growth Investors Fund.
The assets in each Fund are invested in Class IA shares of a corresponding
portfolio (Portfolio) of a mutual fund, The Hudson River Trust (the
Trust). The Trust is an open-end, diversified, management investment
company that invests the assets of separate accounts of insurance
companies. Each Portfolio has separate investment objectives.
The Account is used to fund benefits for the Income Manager Accumulator, a
non-qualified deferred variable annuity, which combines the Portfolios in
the Account with guaranteed fixed rate options, and the Income Manager
Rollover IRA, which offers the same investment options as the Accumulator
for the qualified market. The Income Manager Accumulator and the Income
Manager Rollover IRA, collectively referred to as the Contracts, are
offered under group and individual variable deferred annuity forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Contract owners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate
of the contract owners' accounts allocated to that Fund. Additional assets
are set aside in Equitable Life's General Account to provide for other
policy benefits, as required under the state insurance law.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net
asset values per share of the respective Portfolios. The net asset value
is determined by the Trust using the market or fair value of the
underlying assets of the Portfolio.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
Dividends are recorded at the end of each quarter on the ex-dividend date.
Capital gains are distributed by the Trust at the end of each year.
No Federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code
and no Federal income tax payable by Equitable Life is expected to affect
the unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required.
F-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life deducts mortality and expense risks
at an annual rate of 0.90%. In addition, asset based administrative
charges are also deducted from the net assets at an annual rate of 0.25%.
The charges may be retained in the Account by Equitable Life and, to the
extent retained, participate in the net investment results of the trust
ratably with assets attributable to the Contracts. The aggregate of these
charges may not exceed a total effective annual rate of 1.15%.
4. Amounts retained by Equitable Life in Separate Account No. 45
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and asset based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at
any time by Equitable Life to its General Account.
The following table shows the net surplus contributions (withdrawals) by
Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
INVESTMENT FUND 1996 1995*
- ----------------------------------- ------------ ---------
<S> <C> <C>
Money Market ....................... $(125,000) $ 50,000
Intermediate Government Securities (25,000) 50,000
Growth & Income .................... (60,000) 50,000
Common Stock ....................... (223,000) 50,000
Global ............................. (52,000) 50,000
International ...................... (35,000) 50,000
Aggressive Stock ................... (110,000) 50,000
Conservative Investors ............. (45,000) 50,000
Growth Investors ................... (105,000) 50,000
------------ ---------
$(780,000) $450,000
============ =========
</TABLE>
- ------------
*Commencement of operations on May 1, 1995 for all funds.
F-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Continued)
5. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
MAY 1(A)
TO
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
MONEY MARKET FUND
- ------------------------
Unit value, beginning of
period ................. $ 23.83 $ 23.15
Unit value, end of
period ................. $ 24.81 $ 23.83
Number of units
outstanding,
end of period (000's) . 1,302 174
INTERMEDIATE GOVERNMENT
SECURITIES FUND
- ------------------------
Unit value, beginning of
period ................. $ 13.42 $ 12.50
Unit value, end of
period ................. $ 13.77 $ 13.42
Number of units
outstanding,
end of period (000's) . 252 160
GROWTH & INCOME
- ------------------------
Unit value, beginning of
period ................. $ 11.99 $ 10.38
Unit value, end of
period ................. $ 14.23 $ 11.99
Number of units
outstanding,
end of period (000's) . 1,056 151
COMMON STOCK FUND
- ------------------------
Unit value, beginning of
period ................. $124.52 $102.34
Unit value, end of
period ................. $152.96 $124.52
Number of units
outstanding,
end of period (000's) . 494 55
GLOBAL FUND
- ------------------------
Unit value, beginning of
period ................. $ 22.29 $ 19.48
Unit value, end of
period ................. $ 25.25 $ 22.29
Number of units
outstanding,
end of period (000's) . 609 48
</TABLE>
<TABLE>
<CAPTION>
MAY 1(A)
TO
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<C> <C> <C>
INTERNATIONAL FUND
------------------------
Unit value, beginning of
period ................. $11.03 $10.13
Unit value, end of
period ................. $11.98 $11.03
Number of units
outstanding,
end of period (000's) . 717 73
AGGRESSIVE STOCK FUND
------------------------
Unit value, beginning of
period ................. $54.59 $44.03
Unit value, end of
period ................. $65.94 $54.59
Number of units
outstanding,
end of period (000's) . 620 58
CONSERVATIVE INVESTORS FUND
------------------------
Unit value, beginning of
period ................. $16.55 $14.65
Unit value, end of
period ................. $17.21 $16.55
Number of units
outstanding,
end of period (000's) . 457 102
GROWTH INVESTORS FUND
------------------------
Unit value, beginning of
period ................. $23.59 $20.07
Unit value, end of
period ................. $26.26 $23.59
Number of units
outstanding,
end of period (000's) . 914 157
</TABLE>
- ------------
(a) Date on which units were made available for sale.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life
insurance contracts and long-lived assets in 1996, for loan impairments in 1995
and for postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly
owned life insurance subsidiary, Equitable Variable Life Insurance
Company ("EVLICO"). Effective January 1, 1997, EVLICO was merged into
Equitable Life, which will continue to conduct the Company's insurance
business. Equitable Life's investment management business, which
comprises the Investment Services segment, is conducted principally by
Alliance Capital Management L.P. ("Alliance"), Equitable Real Estate
Investment Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette,
Inc. ("DLJ"), an investment banking and brokerage affiliate. AXA-UAP
("AXA"), a French holding company for an international group of
insurance and related financial services companies, is the Holding
Company's largest shareholder, owning approximately 60.8% at December
31, 1996 (63.6% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.4% if all securities convertible into, and
options on, common stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships
and joint ventures in which Equitable Life or its subsidiaries has
control and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for
the benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which
were in force on that date. Assets were allocated to the Closed Block
in an amount which, together with anticipated revenues from policies
included in the Closed Block, was reasonably expected to be sufficient
to support such business, including provision for payment of claims,
certain expenses and taxes, and for continuation of dividend scales
payable in 1991, assuming the experience underlying such scales
continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block
assets represents the expected future post-tax contribution from the
Closed Block which would be recognized in income over the period the
policies and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and
Guaranteed Interest Contract ("GIC") lines of business. The Company
established a pre-tax provision for the estimated future losses of the
GIC line of business and a premium deficiency reserve for the Wind-Up
Annuities. Subsequent losses incurred have been charged to the two loss
provisions. Management reviews the adequacy of the allowance and
reserve each quarter. During the fourth quarter 1996 review, management
determined it was necessary to increase the allowance for expected
future losses of the GIC Segment. Management believes the loss
provisions for GIC contracts and Wind-Up Annuities at December 31, 1996
are adequate to provide for all future losses; however, the
determination of loss provisions continues to involve numerous
estimates and subjective judgments regarding the expected performance
of discontinued operations investment assets. There can be no assurance
the losses provided for will not differ from the losses ultimately
realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect
of accounting change by $19.2 million, net of Federal income taxes of
$10.3 million for 1996. The financial statements for 1995 and 1994 have
been retroactively restated for the change which resulted in an
increase (decrease) in earnings before cumulative effect of accounting
change of $15.2 million, net of Federal income taxes of $8.2 million,
and $(2.6) million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in
investment gains (losses), net. Before implementing SFAS No. 121,
valuation allowances on real estate held for the production of income
were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
The adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on
real estate to be disposed of continue to be computed using the lower
of estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal
income tax benefit of $12.4 million, due to the writedown to fair value
of building improvements relating to facilities being vacated beginning
in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans
within the scope of this statement are measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. The Company
provides for impairment of loans through an allowance for possible
losses. The adoption of this statement did not have a material effect
on the level of these allowances or on the Company's consolidated
statements of earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred
policy acquisition costs ("DAC"), amounts attributable to participating
group annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant or, alternatively, to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Companies
which elect to continue to apply APB Opinion No. 25 must provide pro
forma net income disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company accounts for stock option plans
sponsored by the Holding Company, DLJ and Alliance in accordance with
the provisions of APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of
repurchase agreements, dollar-roll, securities lending and similar
transactions. Management has not yet determined the effect of
implementing SFAS No. 125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is
adjusted for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized
on transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired
real estate is written down to fair value with the impairment loss
being included in investment gains (losses) net. Valuation allowances
on real estate available for sale are computed using the lower of
current estimated fair value or depreciated cost, net of disposition
costs. Prior to the adoption of SFAS No. 121, valuation allowances on
real estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the
equity basis of accounting and are included either with equity real
estate or other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment
gains or losses.
Unrealized investment gains and losses on fixed maturities available
for sale and equity securities held by the Company are accounted for as
a separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in
the period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of
policy issue and loss recognition testing at the end of each accounting
period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses)
is recognized with an offset to unrealized gains (losses) in
consolidated shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset
to unrealized gains (losses) in consolidated shareholder's equity as of
the balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the
basis of actuarial assumptions equal to guaranteed mortality and
dividend fund interest rates. The liability for annual dividends
represents the accrual of annual dividends earned. Terminal dividends
are accrued in proportion to gross margins over the life of the
contract.
For non-participating traditional life insurance policies, future
policy benefit liabilities are estimated using a net level premium
method on the basis of actuarial assumptions as to mortality,
persistency and interest established at policy issue. Assumptions
established at policy issue as to mortality and persistency are based
on the Insurance Group's experience which, together with interest and
expense assumptions, include a margin for adverse deviation. When the
liabilities for future policy benefits plus the present value of
expected future gross premiums for a product are insufficient to
provide for expected future policy benefits and expenses for that
product, DAC is written off and thereafter, if required, a premium
deficiency reserve is established by a charge to earnings. Benefit
liabilities for traditional annuities during the accumulation period
are equal to accumulated contractholders' fund balances and after
annuitization are equal to the present value of expected future
payments. Interest rates used in establishing such liabilities range
from 2.25% to 11.5% for life insurance liabilities and from 2.25% to
13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities
("Pension Par") was completed which included management's revised
estimate of assumptions, including expected mortality and future
investment returns. The study's results prompted management to
establish a premium deficiency reserve which decreased earnings from
continuing operations and net earnings by $47.5 million ($73.0 million
pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as
claim incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a
reasonable basis and are adequate, there can be no assurance reserves
will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6
million at December 31, 1996 and 1995, respectively (excluding $175.0
million of reserve strengthening in 1996). Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
DI and major medical policies (excluding $175.0 million of reserve
strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable
Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's
shareholder. Earnings in excess of limitations, if any, would be
accrued as policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current
Federal income taxes were charged or credited to operations based upon
amounts estimated to be payable or recoverable as a result of taxable
operations for the current year. Deferred income tax assets and
liabilities were recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as
separate captions in the consolidated balance sheets. The Insurance
Group bears the investment risk on assets held in one Separate Account,
therefore, such assets are carried on the same basis as similar assets
held in the General Account portfolio. Assets held in the other
Separate Accounts are carried at quoted market values or, where quoted
values are not available, at estimated fair values as determined by the
Insurance Group.
The investment results of Separate Accounts on which the Insurance
Group does not bear the investment risk are reflected directly in
Separate Accounts liabilities. For 1996, 1995 and 1994, investment
results of such Separate Accounts were $2,970.6 million, $1,963.2
million and $665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality,
policy administration and surrender charges on all Separate Accounts
are included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon
the assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost
of $3,915.7 million and $3,748.9 million, respectively, had estimated
fair values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or
5 (below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total
mortgage loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to
time be restructured or modified. The investment in restructured
mortgage loans on real estate, based on amortized cost, amounted to
$388.3 million and $531.5 million at December 31, 1996 and 1995,
respectively. These amounts include $1.0 million and $3.8 million of
problem mortgage loans on real estate at December 31, 1996 and 1995,
respectively. Gross interest income on restructured mortgage loans on
real estate that would have been recorded in accordance with the
original terms of such loans amounted to $35.5 million, $52.1 million
and $44.9 million in 1996, 1995 and 1994, respectively. Gross interest
income on these loans included in net investment income aggregated
$28.2 million, $37.4 million and $32.8 million in 1996, 1995 and 1994,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where
the fair value of the collateral or the net present value of the
expected future cash flows related to the loan equals or exceeds the
recorded investment. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995,
respectively, including $17.9 million and $13.4 million recognized on a
cash basis.
The Insurance Group's investment in equity real estate is through
direct ownership and through investments in real estate joint ventures.
At December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate
acquired in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally
range from 40 to 50 years. Accumulated depreciation on real estate was
$587.5 million and $662.4 million at December 31, 1996 and 1995,
respectively. Depreciation expense on real estate totaled $91.8
million, $121.7 million and $117.0 million for 1996, 1995 and 1994,
respectively. As a result of the implementation of SFAS No. 121, during
1996 no depreciation expense has been recorded on real estate available
for sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized
on these sales. The change in unrealized investment (losses) gains
related to fixed maturities classified as available for sale for 1996,
1995 and 1994 amounted to $(258.0) million, $1,077.2 million and
$(742.2) million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an
investment gain of $20.6 million as a result of the issuance of
Alliance Units in this transaction. At December 31, 1996, the Company's
ownership of Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to
third parties at prevailing market prices. The Company continues to
hold its 1% general partnership interest in Alliance. The Company
recognized an investment gain of $52.4 million as a result of these
transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in
the contribution from the Closed Block of $27.5 million, $18.8 million
and $(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively,
of restructured securities which includes problem fixed maturities of
$.3 million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified
as held to maturity were transferred to the available for sale
portfolio. All actions resulted from significant deterioration in
creditworthiness. The amortized cost of the security sold was $4.2
million. The aggregate amortized cost of the securities transferred was
$81.3 million with gross unrealized investment losses of $.1 million
transferred to equity. At December 1, 1995, $1,750.7 million of
securities classified as held to maturity were transferred to the
available for sale portfolio. As a result, unrealized gains of $88.5
million on fixed maturities were recognized, offset by DAC amortization
of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had an amortized cost of $4.3 million and $36.5 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7
million, respectively. At December 31, 1996 and 1995, the restructured
mortgage loans on real estate amount included $.7 million and $8.8
million, respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and
1995, respectively, including $4.7 million and $1.3 million recognized
on a cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of
the Closed Block operations. Operating costs and expenses outside of
the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen
the loss provisions by $129.0 million, resulting in a post-tax charge
of $83.8 million to discontinued operations' results in the fourth
quarter of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets.
There can be no assurance the losses provided for will not differ from
the losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the loss provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment.
Subsequently, the GIC Segment remitted $1,155.4 million in cash to
continuing operations in partial repayment of borrowings by the GIC
Segment. No gains or losses were recognized on these transactions.
Amounts due to continuing operations at December 31, 1996, consisted of
$1,080.0 million borrowed by the discontinued GIC Segment offset by
$83.8 million representing an obligation of continuing operations to
provide assets to fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate
and recognition of impairment losses of $69.8 million on real estate
held and used. Writedowns of fixed maturities amounted to $1.6 million,
$8.1 million and $17.8 million for 1996, 1995 and 1994, respectively
and writedowns of equity real estate subsequent to the adoption of SFAS
No. 121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had amortized costs of $7.9 million and $35.4 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction
of debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate
purposes used to support Equitable Life's liquidity needs and is
supported by Equitable Life's existing $350.0 million five-year bank
credit facility. There were no borrowings outstanding under this
program at December 31, 1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of
Alliance, is a floating rate generally based upon a defined prime rate,
a rate related to the LIBOR or the Federal Funds rate. A facility fee
is payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for
general working capital purposes. As of December 31, 1996, Alliance had
not issued any commercial paper under its $100.0 million commercial
paper program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997
totaling $174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and
securities amounting to $1,406.4 million and $1,629.7 million at
December 31, 1996 and 1995, respectively, as collateral for certain
long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings
before Federal income taxes and minority interest by the expected
Federal income tax rate of 35%. The sources of the difference and the
tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes,
by an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by
the Internal Revenue Service. As a stock life insurance company,
Equitable Life no longer is required to reduce its policyholder
dividend deduction by the differential earnings amount, but
differential earnings amounts for pre-demutualization years were still
being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary
differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. The effect of reinsurance (excluding group life
and health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard
underwriting risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994,
respectively. Ceded death and disability benefits totaled $21.2
million, $188.1 million and $235.5 million for 1996, 1995 and 1994,
respectively. Insurance liabilities ceded totaled $652.4 million and
$724.2 million at December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans
are non-contributory. Equitable Life's and EREIM's benefits are based
on a cash balance formula or years of service and final average
earnings, if greater, under certain grandfathering rules in the plans.
Alliance's benefits are based on years of credited service, average
final base salary and primary social security benefits. The Company's
funding policy is to make the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1
million, net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable
Life. Benefit payments under these contracts were approximately $34.7
million, $36.4 million and $38.1 million for 1996, 1995 and 1994,
respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of
postretirement benefits are recognized in accordance with the
provisions of SFAS No. 106. The Company continues to fund
postretirement benefits costs on a pay-as-you-go basis and, for 1996,
1995 and 1994, the Company made estimated postretirement benefits
payments of $18.9 million, $31.1 million and $29.8 million,
respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was
7.50% and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%,
the accumulated postretirement benefits obligation as of December 31,
1996 would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly
are utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996,
the cost of terminating outstanding matched swaps in a loss position
was $8.3 million and the unrealized gain on outstanding matched swaps
in a gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2)
million, respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on
interest-sensitive individual annuities contracts. The outstanding
notional amounts at December 31, 1996 of contracts purchased and sold
were $5,050.0 million and $500.0 million, respectively. The net premium
paid by Equitable Life on these contracts was $22.5 million and is
being amortized ratably over the contract periods ranging from 3 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's
involvement in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect
any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans
are limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the
appropriate duration. For durations in excess of the published index
rate, the appropriate Treasury rate is used plus a spread equal to the
longest duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair
values for single premium deferred annuities ("SPDA") are estimated
using projected cash flows discounted at current offering rates. The
estimated fair values for supplementary contracts not involving life
contingencies ("SCNILC") and annuities certain are derived using
discounted cash flows based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage
debt are determined by discounting contractual cash flows at a rate
which takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing
loan or loan commitment agreements; and to provide short-term financing
loans which at December 31, 1996 totaled $14.6 million. Management
believes the Company will not incur any material losses as a result of
these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date,
no such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance
Society of the United States was filed on January 20, 1995 in New York
County Supreme Court. The action purports to be brought on behalf of a
class of persons insured after 1983 under Lifetime Guaranteed Renewable
Major Medical Insurance Policies issued by Equitable Life (the
"policies"). The complaint alleges that premium increases for these
policies after 1983, all of which were filed with and approved by the
New York State Insurance Department and certain other state insurance
departments, breached the terms of the policies, and that statements in
the policies and elsewhere concerning premium increases constituted
fraudulent concealment, misrepresentations in violation of New York
Insurance Law Section 4226 and deceptive practices under New York
General Business Law Section 349. The complaint seeks a declaratory
judgment, injunctive relief restricting the methods by which Equitable
Life increases premiums on the policies in the future, a refund of
premiums, and punitive damages. Plaintiffs also have indicated that
they will seek damages in an unspecified amount. Equitable Life moved
to dismiss the complaint in its entirety on the grounds that it fails
to state a claim and that uncontroverted documentary evidence
establishes a complete defense to the claims. On May 29, 1996, the New
York County Supreme Court entered a judgment dismissing the complaint
with prejudice. Plaintiffs have filed a notice of appeal of that
judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved
Equitable Life's rate increases. These actions are asserted on behalf
of proposed classes of Pennsylvania issued or renewed policyholders and
Texas issued or renewed policyholders, insured under the policies. The
Pennsylvania and Texas actions seek compensatory and punitive damages
and injunctive relief restricting the methods by which Equitable Life
increases premiums in the future based on the common law and statutes
of those states. On February 9, 1996, Equitable Life removed the
Pennsylvania action, Malvin, to the United States District Court for
the Middle District of Pennsylvania. Following the decision granting
Equitable Life's motion to dismiss the New York action (Golomb), on the
consent of the parties the District Court ordered an indefinite stay of
all proceedings in the Pennsylvania action, pending either party's
right to reinstate the proceeding, and ordered that for administrative
purposes the case be deemed administratively closed. On February 2,
1996, Equitable Life removed the Texas action, Bowler, to the United
States District Court for the Northern District of Texas. On May 20,
1996, the plaintiffs in Bowler amended their complaint by adding
allegations of misrepresentation regarding premium increases on other
types of guaranteed renewable major medical insurance policies issued
by Equitable Life up to and including 1983. On July 1, 1996, Equitable
Life filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted
plaintiffs leave to file a supplemental complaint on behalf of a
proposed class of Texas policyholders claiming unfair discrimination,
breach of contract and other claims arising out of alleged differences
between premiums charged to Texas policyholders and premiums charged to
similarly situated policyholders in New York and certain other states.
Plaintiffs seek refunds of alleged overcharges, exemplary or additional
damages citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued
by Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which
Equitable Life increases premiums in the future based on various common
law claims. On June 20, 1996, Equitable Life removed the Florida action
to Federal court. Equitable Life has answered the complaint, denying
the material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment
and plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially
the same allegations concerning premium rates and premium rate
increases on guaranteed renewable policies made in the Bowler action.
The complaint alleges, among other things, that differentials between
rates charged California policyholders and policyholders in New York
and certain other states, and the methods used by Equitable Life to
calculate premium increases, breached the terms of its policies, that
Equitable Life misrepresented and concealed the facts pertaining to
such differentials and methods in violation of California law, and that
Equitable Life also misrepresented that its rate increases were
approved by the California Insurance Department. Plaintiffs seek
compensatory damages in an unspecified amount, rescission, injunctive
relief and attorneys' fees. Equitable Life removed the action to
Federal court; plaintiff has moved to remand the case to state court.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, the Company's
management believes that the ultimate resolution of the Golomb, Malvin,
Bowler, Bachman and Fletcher litigations should not have a material
adverse effect on the financial position of the Company. Due to the
early stage of such litigations, the Company's management cannot make
an estimate of loss, if any, or predict whether or not such litigations
will have a material adverse effect on the Company's results of
operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and
its wholly owned subsidiary, EOC, in New York state court, entitled
Sidney C. Cole et al. v. The Equitable Life Assurance Society of the
United States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of
action under the New York State consumer protection statute. The only
remaining causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a
motion to have this proceeding moved from Kings County Supreme Court to
New York County for joint trial or consolidation with the Cole action.
The motion was denied by the court on January 9, 1997. On January 10,
1997, plaintiffs moved for certification of a nationwide class
consisting of all persons or entities who were sold one or more life
insurance products on a "vanishing premium" basis and/or were allegedly
induced to purchase additional policies from EVLICO, using the cash
value accumulated in existing policies, from January 1, 1980 through
and including December 31, 1996. Plaintiffs further moved to have
Michael Bradley designated as the class representative. Discovery
regarding class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual
who purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly
promised by Equitable Life and EOC. The second is a "fraud class,"
consisting of all persons with an interest in policies issued by
Equitable Life and EOC at any time since October 1, 1986. Plaintiff
seeks damages in an unspecified amount, and also seeks injunctive
relief attaching Equitable Life's and EOC's profits from their alleged
sales practices. Equitable Life's and EOC's time to answer or move with
respect to the complaint has been extended until February 24, 1997.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, the Company's management
believes that the ultimate resolution of the Cole, Duncan, Bradley and
Dillon litigations should not have a material adverse effect on the
financial position of the Company. Due to the early stages of such
litigations, the Company's management cannot make an estimate of loss,
if any, or predict whether or not any such litigation will have a
material adverse effect on the Company's results of operations in any
particular period.
On January 3, 1996, an amended complaint was filed in an action
entitled Frank Franze Jr. and George Busher, individually and on behalf
of all others similarly situated v. The Equitable Life Assurance
Society of the United States, and Equitable Variable Life Insurance
Company, No. 94-2036 in the United States District Court for the
Southern District of Florida. The action was brought by two individuals
who purchased variable life insurance policies. The plaintiffs purport
to represent a nationwide class consisting of all persons who purchased
variable life insurance policies from Equitable Life and EVLICO since
September 30, 1991. The basic allegation of the amended complaint is
that Equitable Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated
v. The Equitable Life Assurance Society of the United States, and
Equitable Variable Life Insurance Company, was filed in Massachusetts
state court making claims similar to those in the Franze action and
alleging violations of the Massachusetts securities laws. The plaintiff
purports to represent all persons in Massachusetts who purchased
variable life insurance contracts from Equitable Life and EVLICO from
January 9, 1993 to the present. The Massachusetts action seeks
rescission of the contracts or compensatory damages, attorneys' fees,
expenses and injunctive relief. Although the outcome of any litigation
cannot be predicted with certainty, particularly in the early stages of
an action, the Company's management believes that the ultimate
resolution of the litigations discussed in this paragraph should not
have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigation, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S.
Department of Labor ("DOL") requesting copies of any third-party
appraisals in Equitable Life's possession relating to the ten largest
properties (by value) in the Prime Property Fund ("PPF"). PPF is an
open-end, commingled real estate separate account of Equitable Life for
pension clients. Equitable Life serves as investment manager in PPF and
has retained EREIM as advisor. In early 1995, the DOL commenced a
national investigation of commingled real estate funds with pension
investors, including PPF. The investigation now appears to be focused
principally on appraisal and valuation procedures in respect of fund
properties. The most recent request from the DOL seems to reflect, at
least in part, an interest in the relationship between the valuations
for those properties reflected in appraisals prepared for local
property tax proceedings and the valuations used by PPF for other
purposes. At no time has the DOL made any specific allegation that
Equitable Life or EREIM has acted improperly and Equitable Life and
EREIM believe that any such allegation would be without foundation.
While the outcome of this investigation cannot be predicted with
certainty, in the opinion of management, the ultimate resolution of
this matter should not have a material adverse effect on the Company's
consolidated financial position or results of operations in any
particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The
arbitration panel issued a final award in favor of Casualty and GEICO
General on June 17, 1996. Casualty and GEICO General moved in the
pending Texas state court action, with Houston General's consent, for
an order confirming the arbitration award and entering judgment
dismissing the action. The motion was granted on January 29, 1997. The
parties have also stipulated to the dismissal without prejudice of a
related Texas Federal court action brought by Houston General against
GEICO General and Equitable Life. In connection with confirmation of
the arbitration award, Houston General paid to Casualty approximately
$839,600 in settlement of certain reimbursement claims by Casualty
against Houston General.
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Complaint") was filed against the Alliance North American
Government Income Trust, Inc. (the "Fund"), Alliance and certain other
defendants affiliated with Alliance, including the Holding Company,
alleging violations of Federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint, which seeks certification of a
plaintiff class of persons who purchased or owned Class A, B or C
shares of the Fund from March 27, 1992 through December 23, 1994, seeks
an unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations of the Complaint are that the Fund
purchased debt securities issued by the Mexican and Argentine
governments in amounts that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and
warrants to purchase shares of common stock of Rickel Home Centers,
Inc. ("Rickel") filed a class action complaint against Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC") and certain other
defendants for unspecified compensatory and punitive damages in the
United States District Court for the Southern District of New York. The
suit was brought on behalf of the purchasers of 126,457 units
consisting of $126,457,000 aggregate principal amount of 13 1/2% senior
notes due 2001 and 126,457 warrants to purchase shares of common stock
of Rickel issued by Rickel in October 1994. The complaint alleges
violations of Federal securities laws and common law fraud against
DLJSC, as the underwriter of the units and as an owner of 7.3% of the
common stock of Rickel, Eos Partners, L.P., and General Electric
Capital Corporation, each as owners of 44.2% of the common stock of
Rickel, and members of the Board of Directors of Rickel, including a
DLJSC Managing Director. The complaint seeks to hold DLJSC liable for
alleged misstatements and omissions contained in the prospectus and
registration statement filed in connection with the offering of the
units, alleging that the defendants knew of financial losses and a
decline in value of Rickel in the months prior to the offering and did
not disclose such information. The complaint also alleges that Rickel
failed to pay its semi-annual interest payment due on the units on
December 15, 1995 and that Rickel filed a voluntary petition for
reorganization pursuant to Chapter 11 of the United States Bankruptcy
Code on January 10, 1996. DLJSC intends to defend itself vigorously
against all of the allegations contained in the complaint. Although
there can be no assurance, DLJ does not believe the outcome of this
litigation will have a material adverse effect on its financial
condition. Due to the early stage of this litigation, based on the
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter
11 reorganization proceedings. The class action complaint alleges that
the plan of reorganization submitted by NGC was based upon projections
by NGC and DLJSC which intentionally understated forecasts, and
provided misleading and incorrect information in order to hide NGC's
true value and that defendants breached their fiduciary duties by,
among other things, providing false, misleading or incomplete
information to deliberately understate the value of NGC. The class
action complaint seeks compensatory and punitive damages purportedly
sustained by the class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in
the complaint. Although there can be no assurance, DLJ does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on its financial condition. Due to the early stage of
such litigation, based upon the information currently available to it,
DLJ's management cannot make an estimate of loss, if any, or predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed
in the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently
available to it, DLJ's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material
adverse effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of
the actions and proceedings have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek
damages of unspecified amounts. While the ultimate outcome of such
matters cannot be predicted with certainty, in the opinion of
management no such matter is likely to have a material adverse effect
on the Company's consolidated financial position or results of
operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million,
$110.6 million, $100.3 million, $72.3 million, $59.3 million and $427.3
million thereafter. Minimum future sublease rental income on these
noncancelable leases for 1997 and the succeeding four years are $9.8
million, $6.0 million, $4.5 million, $2.4 million, $.8 million and $.1
million thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million,
$219.8 million, $194.3 million, $174.6 million and $847.1 million
thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million
writeoff of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment
of dividends to its shareholders. For 1996, 1995 and 1994, statutory
net (loss) earnings totaled $(351.1) million, $(352.4) million and
$67.5 million, respectively. No amounts are expected to be available
for dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996,
1995 and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been
restated to reflect the Company's accounting change adopted in the
fourth quarter of 1996 for long-duration participating life contracts
in accordance with the provisions prescribed by SFAS No. 120. Net
earnings for the three months ended December 31, 1996 includes a charge
of $339.3 million related to writeoffs of DAC on DI contracts of $94.3
million, reserve strengthening on DI business of $113.7 million,
pension par of $47.5 million and the discontinued GIC Segment of $83.8
million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess
of the proceeds over the book value in DLJ at the date of sale of
$340.2 million has been reflected as a capital contribution. In 1995,
DLJ completed the initial public offering ("IPO") of 10.58 million
shares of its common stock, which included 7.28 million of the Holding
Company's shares in DLJ, priced at $27 per share. Concurrent with the
IPO, the Company contributed equity securities to DLJ having a market
value of $21.2 million. Upon completion of the IPO, the Company's
ownership percentage was reduced to 36.1%. The Company's ownership
interest will be further reduced upon the issuance of common stock
after the vesting of forfeitable restricted stock units acquired by
and/or the exercise of options granted to certain DLJ employees. DLJ
restricted stock units represents forfeitable rights to receive
approximately 5.2 million shares of DLJ common stock through February
2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of
DLJ is included in investment in and loans to affiliates in the
consolidated balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method
prescribed in APB Opinion No. 25. Had compensation expense of the
Company's stock option incentive plans for options granted after
December 31, 1994 been determined based on the estimated fair value at
the grant dates for awards under those plans, the Company's pro forma
net earnings for 1996 and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as
of the date of grants using Black-Scholes option pricing models. The
option and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-83750
INCOME MANAGER (SERVICE MARK) ACCUMULATOR
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
- -----------------------------------------------------------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS
OF SEPARATE ACCOUNT NO. 45
<TABLE>
<CAPTION>
EQUITY SERIES
- -----------------------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
<S> <C> <C>
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets Equity* MFS Emerging Growth Companies
MFS Research T. Rowe Price International Stock Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity
T. Rowe Price Equity Income *Available on or about September 2, 1997.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government Securities
EQ/Putnam Balanced Alliance Money Market
Merrill Lynch World Strategy
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
This statement of additional information (SAI) is not a prospectus. It should
be read in conjunction with the Separate Account No. 45 prospectus supplement
for the Accumulator, dated May 1, 1997 and the prospectus for the
Accumulator, dated May 1, 1996. Definitions of special terms used in the SAI
are found in the prospectus.
A copy of the prospectus is available free of charge by writing the
Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your Registered Representative.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- --------------------------------------------------------------------------------------------------
<S> <C>
Part 1 Accumulation Unit Values 2
- --------------------------------------------------------------------------------------------------
Part 2 Annuity Unit Values 2
- --------------------------------------------------------------------------------------------------
Part 3 Custodian and Independent Accountants 3
- --------------------------------------------------------------------------------------------------
Part 4 Alliance Money Market Fund and Alliance Intermediate Government Securities Fund
Yield Information 3
- --------------------------------------------------------------------------------------------------
Part 5 Long-Term Market Trends 5
- --------------------------------------------------------------------------------------------------
Part 6 Financial Statements 7
- --------------------------------------------------------------------------------------------------
</TABLE>
Copyright 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104.
All rights reserved. Income Manager is a service mark of The Equitable Life
Assurance Society of the United States.
<PAGE>
PART 1 - ACCUMULATION UNIT VALUES
Accumulation Unit Values are determined at the end of each Valuation Period
for each of the Investment Funds. Other annuity contracts and certificates
which may be offered by us will have their own accumulation unit values for
the Investment Funds which may be different from those for the Accumulator.
The Accumulation Unit Value for an Investment Fund for any Valuation Period
is equal to the Accumulation Unit Value for the preceding Valuation Period
multiplied by the Net Investment Factor for that Investment Fund for that
Valuation Period. The NET INVESTMENT FACTOR is (a) -c where:
b
(a) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the Valuation Period before giving effect to
any amounts allocated to or withdrawn from the Investment Fund for the
Valuation Period. For this purpose, we use the share value reported to
us by HR Trust or EQ Trust, as applicable.
(b) is the value of the Investment Fund's shares of the corresponding
Portfolio at the end of the preceding Valuation Period (after any
amounts allocated or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risk charge and
asset based administrative charge relating to the Certificates, times
the number of calendar days in the Valuation Period. These daily
charges are at an effective annual rate not to exceed a total of 1.15%.
PART 2 - ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on May 1, 1995 for Certificates
with assumed base rates of net investment return of both 5% and 3 1/2% a
year. For each Valuation Period after that date, it is the annuity unit value
for the immediately preceding Valuation Period multiplied by the adjusted Net
Investment Factor under the Certificate. For each Valuation Period, the
adjusted Net Investment Factor is equal to the Net Investment Factor reduced
for each day in the Valuation Period by:
o .00013366 of the Net Investment Factor if the assumed base rate of net
investment return is 5% a year; or
o .00009425 of the Net Investment Factor if the assumed base rate of net
investment return is 3 1/2%.
Because of this adjustment, the annuity unit value rises and falls depending
on whether the actual rate of net investment return (after deduction of
charges) is higher or lower than the assumed base rate.
All Certificates have a 5% assumed base rate of net investment return, except
in states where that rate is not permitted. Annuity payments under
Certificates with an assumed base rate of 3 1/2% will at first be smaller
than those under Certificates with a 5% assumed base rate. Payments under the
3 1/2% Certificates, however, will rise more rapidly when unit values are
rising, and payments will fall more slowly when unit values are falling than
those under 5% Certificates.
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Business Day specified on your election form,
or on such other future date as specified therein and are made on a monthly
basis. The first three payments are of equal amounts. Each of the first three
payments will be based on the amount specified in the Tables of Guaranteed
Annuity Payments in the Certificate.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period). If the annuity
involved a life contingency, the risk class and the age of the annuitants
will affect payments.
The amount of the fourth and each later payment will vary according to the
investment performance of the Alliance Common Stock Fund. Each monthly
payment will be calculated by multiplying the number of annuity units
credited by the average annuity unit value for the second calendar month
immediately preceding the due date of the payment. The number of units is
calculated by dividing the first monthly payment by the annuity unit value
for the Valuation Period which includes the due date of the first monthly
payment. The average annuity unit value is the average of the annuity unit
values for the Valuation Periods ending in that month. Variable income
annuities may also be available by separate prospectus through the Alliance
Common Stock or other Funds of other separate accounts we offer.
Illustration of Changes in Annuity Unit Values.
To show how we determine variable annuity payments from month to month,
assume that the Annuity Account Value on an Annuity Commencement Date is
enough to fund an annuity with a monthly payment of $363 and that the
2
<PAGE>
annuity unit value for the Valuation Period that includes the due date of the
first annuity payment is $1.05. The number of annuity units credited under
the contract would be 345.71 (363 divided by 1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the
number of units (345.71) times the average annuity unit value ($1.10), or
$380.28. If the average annuity unit value was $1 in February, the annuity
payment for April would be 345.71 times $1, or $345.71.
PART 3 - CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of the HR Trust and EQ Trust owned
by the Separate Account.
The financial statements of the Separate Account for the period ended
December 31, 1996 and 1995, and the consolidated financial statements and
consolidated financial statement schedules of Equitable Life at December 31,
1996 and 1995 and for each of the three years ended December 31, 1996
included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the period ended
December 31, 1996 and 1995, and the consolidated financial statements and
consolidated financial statement schedules of Equitable Life for the years
ended December 31, 1996 and 1995 and for each of the three years ended
December 31, 1996 included in this SAI have been so included in reliance on
the reports of Price Waterhouse LLP, independent accountants, given on the
authority of such firm as experts in accounting and auditing.
PART 4 - ALLIANCE MONEY
MARKET FUND AND ALLIANCE
INTERMEDIATE GOVERNMENT
SECURITIES FUND YIELD
INFORMATION
Alliance Money Market Fund
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
Certificate with one Accumulation Unit at the beginning of the period. To
determine the seven-day rate of return, the net change in the Accumulation
Unit Value is computed by subtracting the Accumulation Unit Value at the
beginning of the period from an Accumulation Unit Value, exclusive of capital
changes, at the end of the period.
The net change is then reduced by the average contract fee factor (explained
below). This reduction is made to recognize the deduction of the annual
contract fee, which is not reflected in the unit value. See "Annual Contract
Fee" in Part 6 of the prospectus.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Money Market Fund but do not reflect the distribution fee the withdrawal
charge, the guaranteed minimum death benefit charge or any charges for
applicable taxes such as state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This seven-day adjusted base period return is then multiplied by 365/7 to
produce an annualized seven-day current yield figure carried to the nearest
one-hundredth of one percent.
The actual dollar amount of the annual contract fee that is deducted from the
Alliance Money Market Fund will vary for each Certificate depending upon the
percentage of the Annuity Account Value allocated to the Alliance Money
Market Fund. To determine the effect of the annual contract fee on the yield,
we start with the total dollar amounts of the charges deducted from the Fund
during the 12-month period ending on the last day of the prior year. The
amount is multiplied by 7/365 to produce an average contract fee factor which
is used in all weekly yield computations for the ensuing year. The average
contract fee factor is then divided by the number of Accumulator Alliance
Money Market Fund Accumulation Units as of the end of the prior calendar
year, and the resulting quotient is deducted from the net change in
Accumulation Unit Value for the seven-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by adding
one to the adjusted base period return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result, i.e., effective yield
= (base period return + 1 ) 365/7 -1. The Alliance Money Market Fund yields
will fluctuate daily. Accordingly, yields for any given period are not
necessarily representative of future results. In addition, the value of
Accumulation Units of the Alliance Money Market Fund will fluctuate and not
remain constant.
3
<PAGE>
Alliance Intermediate Government Securities Fund
The Alliance Intermediate Government Securities Fund calculates yield
information for 30-day periods. The 30-day current yield calculation is based
on a hypothetical Certificate with one Accumulation Unit at the beginning of
the period. To determine the 30-day rate of return, the net change in the
Accumulation Unit Value is computed by subtracting the Accumulation Unit
Value at the beginning of the period from an Accumulation Unit Value,
exclusive of capital changes, at the end of the period.
The net change is then reduced by the average contract fee factor (explained
below). This reduction is made to recognize the deduction of the annual
contract fee, which is not reflected in the unit value. See "Annual Contract
Fee" in Part 6 of the prospectus.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities Fund but do not reflect the distribution
fee, the withdrawal charge, the guaranteed minimum death benefit charge or
any charges for applicable taxes such as state or local premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return.
This 30-day adjusted base period return is then multiplied by 365/30 to
produce an annualized 30-day current yield figure carried to the nearest
one-hundredth of one percent.
The actual dollar amount of the annual contract fee that is deducted from the
Alliance Intermediate Government Securities Fund will vary for each
Certificate depending upon the percentage of the Annuity Account Value
allocated to the Alliance Intermediate Government Securities Fund. To
determine the effect of the annual contract fee on the yield, we start with
the total dollar amounts of the charges deducted from the Fund during the
12-month period ending on the last day of the prior year. The amount is
multiplied by 30/365 to produce an average contract fee factor which is used
in all 30-day yield computations for the ensuing year. The average contract
fee is then divided by the number of Accumulator Alliance Intermediate
Government Securities Fund Accumulation Units as of the end of the prior
calendar year, and the resulting quotient is deducted from the net change in
Accumulation Unit Value for the 30-day period.
The effective yield is obtained by modifying the current yield to give effect
to the compounding nature of the Alliance Intermediate Government Securities
Fund's investments, as follows: the unannualized adjusted base period return
is compounded by adding one to the adjusted base period return, raising the
sum to a power equal to 365 divided by 30, and subtracting one from the
result, i.e., effective yield = (base period return + 1) 365/30 -1. Alliance
Intermediate Government Securities Fund yields will fluctuate daily.
Accordingly, yields for any given period are not necessarily representative
of future results. In addition, the value of the Accumulation Units of the
Alliance Intermediate Government Securities Fund will fluctuate and not
remain constant.
Alliance Money Market Fund and Alliance Intermediate Government Securities
Fund Yield Information
Alliance Money Market Fund and the Alliance Intermediate Government
Securities Fund yields reflect charges that are not normally reflected in the
yields of other investments and therefore may be lower when compared with
yields of other investments. Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund yields should not be compared to the
return on fixed rate investments which guarantee rates of interest for
specified periods, such as the Guarantee Periods. Nor should the yield be
compared to the yield of money market funds or government securities funds
made available to the general public.
The seven-day current yield for the Alliance Money Market Fund was 4.03% for
the period ended December 31, 1996. The effective yield for that period was
4.11%.
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 4.41% for the period ended December 31, 1996. The effective yield
for that period was 4.50%.
Because the above yields reflect the deduction of Separate Account expenses,
including the annual contract fee, they are lower than the corresponding
yield figures for the Alliance Money Market Portfolio and Alliance
Intermediate Government Securities Portfolio which reflect only the deduction
of HR Trust-level expenses.
4
<PAGE>
PART 5 - LONG-TERM MARKET TREND
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return
trends for various types of securities. The information presented, while not
directly related to the performance of the Investment Funds, helps to provide
a perspective on the potential returns of different asset classes over
different periods of time. By combining this information with knowledge of
personal financial needs (e.g., the length of time until you retire, your
financial requirements at retirement), you may be able to better determine
how you wish to allocate contributions among the Investment Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long-or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus
is on long-term growth potential and protection against inflation, there may
be advantages to allocating some or all of their Annuity Account Value to
those Investment Funds that invest in stocks.
Growth of $1 Invested on January 1, 1996
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED
AREA GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
TOTAL U.S.
RETURN INFLATION
- ------------------------------------------
INDEX VALUE
- ------------------------------------------
Dec 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
- ------------------------------------------
[END OF GRAPHICALLY REPRESENTED DATA]
[BLACK] Common Stock [WHITE] Inflation
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
Over shorter periods of time, however, common stocks tend to be subject to
more dramatic changes in value than fixed income (debt) securities. Investors
who are nearing retirement age, or who have a need to limit short-term risk,
may find it preferable to allocate a smaller percentage of their Annuity
Account Value to those Investment Funds that invest in common stocks. The
following graph illustrates the monthly fluctuations in value of $1 based on
monthly returns of the Standard & Poor's 500 during 1990, a year that
represents more typical volatility than 1996.
Growth of $1 Invested on January 1, 1990
(Values are as of the last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
- ------------------------------------------
S&P 500
U.S. IT TOTAL
GVT TR RETURN
- ------------------------------------------
INDEX INDEX
- ------------------------------------------
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
Common Stock Intermediate-Term Govt. Bonds
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding
and following chart.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1996 for different
types of securities: common stocks, long-term government bonds, long-term
corporate bonds, intermediate-term government bonds and U.S. Treasury Bills.
For comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated
with deferred annuity products, are reflected.
The information presented is merely a summary of past experience for
unmanaged groups of securities and is neither an estimate or guarantee of
future performance. Any investment in securities, whether equity or debt,
involves varying degrees of potential risk, in addition to offering varying
degrees of potential reward.
5
<PAGE>
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated
in the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the trusts and Separate Account charges), see the supplement
to the prospectus.
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
LONG-TERM INTERMEDIATE-
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM U.S. TREASURY CONSUMER
ENDING 12/31/96 STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------- -------- ------------- ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
Yearbook(Trademark), Ibbotson Associates Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)--Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS--Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS--For the period 1969-1996, represented by the
Salomon Brothers Long-term, High-Grade Corporate Bond Index for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1996; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent
coupon and a twenty year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS--Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five year
maturity.
U. S. TREASURY BILLS--Measured by rolling over each month a one-bill
portfolio containing, at the beginning of each month, the bill having the
shortest maturity not less than one month.
INFLATION--Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
6
<PAGE>
PART 6 - FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society
of the United States included herein should be considered only as bearing
upon the ability of Equitable Life to meet its obligations under the Certifi-
cates. There are no financial statements for the Investment Funds of the
Separate Account investing in the Alliance Small Cap Growth and Alliance High
Yield Portfolios of HR Trust and Class IB shares of EQ Trust as the Separate
Account did not invest in such shares prior to the date of the prospectus
supplement and SAI.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 45
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market Fund,
Intermediate Government Securities Fund, Growth & Income Fund, Common Stock
Fund, Global Fund, International Fund, Aggressive Stock Fund, Conservative
Investors Fund and Growth Investors Fund, separate investment funds of The
Equitable Life Assurance Society of the United States ("Equitable Life")
Separate Account No. 45 at December 31, 1996, the results of each of their
operations and changes in each of their net assets for the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Equitable Life's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of shares in The Hudson River Trust at December 31, 1996 with
the transfer agent, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
New York, New York
February 10, 1997
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT GROWTH & COMMON
MARKET SECURITIES INCOME STOCK
FUND FUND FUND FUND
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $32,590,855 ........ $32,392,955
3,570,593 ......... $3,533,879
14,345,718......... $15,109,954
74,352,777......... $75,709,230
15,256,959.........
8,620,079..........
43,176,986.........
7,918,815..........
24,267,019.........
Receivable for policy related
transactions .................. 919,631 2,352 217,813 812,700
----------- ------------ ----------- -----------
Total Assets ................... 33,312,586 3,536,231 15,327,767 76,521,930
----------- ------------ ----------- -----------
LIABILITIES
Payable for The Hudson River
Trust shares purchased ........ 934,835 4,273 224,654 853,808
Amount retained by Equitable
Life in Separate Account 45
(Note 4) ...................... 80,961 55,974 77,185 161,327
----------- ------------ ----------- -----------
Total Liabilities .............. 1,015,796 60,247 301,839 1,015,135
----------- ------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS................ $32,296,790 $3,475,984 $15,025,928 $75,506,795
=========== ============ =========== ===========
Units Outstanding at December
31, 1996 (Note 5) ............. 1,301,724 252,426 1,055,829 493,651
=========== ============ =========== ===========
Unit Value at December 31,
1996........................... $ 24.81 $ 13.77 $ 14.23 $ 152.96
=========== ============ =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS INVESTORS
FUND FUND FUND FUND FUND
----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of
The Hudson River Trust--
at market value (Note 1)
Cost: $32,590,855 ........
3,570,593 .........
14,345,718 ........
74,352,777 ........
15,256,959......... $15,456,443
8,620,079.......... $8,651,467
43,176,986......... $41,011,800
7,918,815.......... $7,923,466
24,267,019......... $24,108,242
Receivable for policy related
transactions .................. 206,778 39,027 528,494 190,991 255,852
----------- ------------- ----------- ------------ -----------
Total Assets ................... 15,663,221 8,690,494 41,540,294 8,114,457 24,364,094
----------- ------------- ----------- ------------ -----------
LIABILITIES
Payable for The Hudson River
Trust shares purchased ........ 213,416 43,221 549,556 195,199 269,698
Amount retained by Equitable
Life in Separate Account 45
(Note 4) ...................... 73,501 63,269 103,486 60,976 86,001
----------- ------------- ----------- ------------ -----------
Total Liabilities .............. 286,917 106,490 653,042 256,175 355,699
----------- ------------- ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS................ $15,376,304 $8,584,004 $40,887,252 $7,858,282 $24,008,395
=========== ============= =========== ============ ===========
Units Outstanding at December
31, 1996 (Note 5) ............. 608,877 716,759 620,080 456,627 914,232
=========== ============= =========== ============ ===========
Unit Value at December 31,
1996........................... $ 25.25 $ 11.98 $ 65.94 $ 17.21 $ 26.26
=========== ============= =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE
MONEY GOVERNMENT GROWTH & COMMON
MARKET SECURITIES INCOME STOCK
FUND FUND FUND FUND
--------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ....... $ 973,287 $169,012 $ 140,078 $ 307,270
Expenses (Note 3):
Mortality and expense risk charges ............ 182,124 30,204 75,795 350,135
--------- ------------ ---------- ----------
NET INVESTMENT INCOME .......................... 791,163 138,808 64,283 (42,865)
--------- ------------ ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ........... 19,803 (21,067) 30,281 249,329
Realized gain distribution from
The Hudson River Trust ....................... -- -- 663,496 5,761,725
--------- ------------ ---------- ----------
Net Realized Gain (Loss) ..................... 19,803 (21,067) 693,777 6,011,054
--------- ------------ ---------- ----------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ........................... (32,003) 4,810 65,829 (147,558)
End of period ................................. (197,900) (36,714) 764,236 1,356,453
--------- ------------ ---------- ----------
Change in unrealized
appreciation/(depreciation) during the period (165,897) (41,524) 698,407 1,504,011
--------- ------------ ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................... (146,094) (62,591) 1,392,184 7,515,065
--------- ------------ ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 645,069 $ 76,217 $1,456,467 $7,472,200
========= ============ ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AGGRESSIVE CONSERVATIVE GROWTH
GLOBAL INTERNATIONAL STOCK INVESTORS INVESTORS
FUND FUND FUND FUND FUND
-------- ------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from The Hudson River Trust ....... $159,750 $100,654 $ 48,668 $249,730 $ 364,945
Expenses (Note 3):
Mortality and expense risk charges ............ 71,437 47,321 170,068 56,301 146,920
-------- ------------- ----------- ------------ ---------
NET INVESTMENT INCOME .......................... 88,313 53,333 (121,400) 193,429 218,025
-------- ------------- ----------- ------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ........... 68,368 106,050 179,807 1,003 35,624
Realized gain distribution from
The Hudson River Trust ....................... 474,848 128,244 3,900,528 153,963 1,566,277
-------- ------------- ----------- ------------ ---------
Net Realized Gain (Loss) ..................... 543,216 234,294 4,080,335 154,966 1,601,901
-------- ------------- ----------- ------------ ---------
Unrealized appreciation/(depreciation) on
investments:
Beginning of period ........................... 15,112 15,034 (169,970) 16,872 39,211
End of period ................................. 199,484 31,388 (2,165,186) 4,651 (158,777)
-------- ------------- ----------- ------------ ---------
Change in unrealized
appreciation/(depreciation) during the period 184,372 16,354 (1,995,216) (12,221) (197,988)
-------- ------------- ----------- ------------ ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ................................... 727,588 250,648 2,085,119 142,745 1,403,913
-------- ------------- ----------- ------------ ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $815,901 $303,981 $ 1,963,719 $336,174 $1,621,938
======== ============= =========== ============ =========
</TABLE>
- ------------
See Notes to Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
MONEY MARKET FUND SECURITIES FUND
------------------------ ----------------------
1996 1995* 1996 1995*
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income .........$ 791,163 $ 84,034 $ 138,808 $ 26,602
Net realized gain (loss) ..... 19,803 (9,249) (21,067) 691
Change in unrealized
appreciation/depreciation on
investments .................. (165,897) (32,003) (41,524) 4,810
------------ ----------- ----------- ----------
Net increase in net assets
from operations .............. 645,069 42,782 76,217 32,103
------------ ----------- ----------- ----------
FROM CONTRACT OWNER
TRANSACTIONS:
Contributions and Transfers:
Contributions ................ 95,681,367 11,156,359 1,798,660 1,629,203
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1) ............ 19,687,669 59,949 8,533,013 513,895
------------ ----------- ----------- ----------
Total ....................... 115,369,036 11,216,308 10,331,673 2,143,098
------------ ----------- ----------- ----------
Benefit & other policy
transaction................... 198,356 -- 15,968 --
Withdrawals and Transfers:
Withdrawal and administrative
charges . .......... 514,843 -- 77,637 --
Transfers to other Funds and
Guaranteed Interest Rate
Account (Note 1) ............ 87,121,388 7,122,265 8,982,626 20,000
------------ ----------- ----------- ----------
Total ....................... 87,834,587 7,122,265 9,076,231 20,000
------------ ----------- ----------- ----------
Net increase in net assets
from Contract Owner
transactions ................. 27,534,449 4,094,043 1,255,442 2,123,098
------------ ----------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE
ACCOUNT 45 (NOTE 4)........... (17,582) (1,971) (6,709) (4,167)
------------ ----------- ----------- ----------
INCREASE IN NET ASSETS
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 28,161,936 4,134,854 1,324,950 2,151,034
NET ASSETS, BEGINNING OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 4,134,854 -- 2,151,034 --
------------ ----------- ----------- ----------
NET ASSETS, END OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................$ 32,296,790 $ 4,134,854 $ 3,475,984 $2,151,034
============ =========== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
GROWTH &
INCOME FUND COMMON STOCK FUND GLOBAL FUND
---------------------- ----------------------- ----------------------
1996 1995* 1996 1995* 1996 1995*
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income ......... $ 64,283 $ 13,604 $ (42,865) $ 18,811 $ 88,313 $ 4,015
Net realized gain (loss) ..... 693,777 -- 6,011,054 366,599 543,216 32,515
Change in unrealized
appreciation/depreciation on
investments .................. 698,407 65,829 1,504,011 (147,558) 184,372 15,112
----------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets
from operations .............. 1,456,467 79,433 7,472,200 237,852 815,901 51,642
----------- ---------- ----------- ----------- ----------- ----------
FROM CONTRACT OWNER
TRANSACTIONS:
Contributions and Transfers:
Contributions ................ 6,251,620 1,306,253 36,558,323 3,944,181 9,199,245 818,158
Transfers from other Funds
and Guaranteed Interest Rate
Account (Note 1) ............ 6,040,990 432,486 34,378,499 2,697,390 6,255,073 233,534
----------- ---------- ----------- ----------- ----------- ----------
Total ....................... 12,292,610 1,738,739 70,936,822 6,641,571 15,454,318 1,051,692
----------- ---------- ----------- ----------- ----------- ----------
Benefit & other policy
transaction................... 130,199 -- 427,323 -- 70,774 --
Withdrawals and Transfers:
Withdrawal and administrative
charges . .......... 31,991 703 290,642 14,649 36,757 1,379
Transfers to other Funds and
Guaranteed Interest Rate
Account (Note 1) ............ 342,494 -- 8,933,676 18,685 1,836,433 26,094
----------- ---------- ----------- ----------- ----------- ----------
Total ....................... 504,684 703 9,651,641 33,334 1,943,964 27,473
----------- ---------- ----------- ----------- ----------- ----------
Net increase in net assets
from Contract Owner
transactions ................. 11,787,926 1,738,036 61,285,181 6,608,237 13,510,354 1,024,219
----------- ---------- ----------- ----------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED
BY EQUITABLE LIFE IN SEPARATE
ACCOUNT 45 (NOTE 4)........... (27,565) (8,369) (85,006) (11,669) (18,054) (7,758)
----------- ---------- ----------- ----------- ----------- ----------
INCREASE IN NET ASSETS
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 13,216,828 1,809,100 68,672,375 6,834,420 14,308,201 1,068,103
NET ASSETS, BEGINNING OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ 1,809,100 -- 6,834,420 -- 1,068,103 --
----------- ---------- ----------- ----------- ----------- ----------
NET ASSETS, END OF PERIOD
ATTRIBUTABLE TO CONTRACT
OWNERS ........................ $15,025,928 $1,809,100 $75,506,795 $6,834,420 $15,376,304 $1,068,103
=========== ========== =========== =========== =========== ==========
</TABLE>
* Commencement of operations on May 1, 1995 for all funds.
See Notes to Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
AGGRESSIVE
INTERNATIONAL FUND STOCK FUND
--------------------- ------------------------
1996 1995* 1996 1995*
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................... $ 53,333 $ 8,748 $ (121,400) $ (3,345)
Net realized gain ............................... 234,294 5,969 4,080,335 324,801
Change in unrealized appreciation/depreciation
on investments ................................. 16,354 15,034 (1,995,216) (169,970)
---------- -------- ----------- ----------
Net increase in net assets from operations ..... 303,981 29,751 1,963,719 151,486
---------- -------- ----------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions .................................. 3,782,377 549,641 22,776,845 2,114,597
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 5,791,839 236,742 20,452,746 930,163
---------- -------- ----------- ----------
Total ......................................... 9,574,216 786,383 43,229,591 3,044,760
---------- -------- ----------- ----------
Benefit & other policy transaction............... 38,451 -- 245,070 --
Withdrawals and Transfers:
Withdrawal and administrative charges ......... 75,353 691 90,356 14,649
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 1,979,003 -- 7,099,325 6,689
---------- -------- ----------- ----------
Total ......................................... 2,092,807 691 7,434,751 21,338
---------- -------- ----------- ----------
Net increase in net assets from Contract Owner
transactions ................................... 7,481,409 785,692 35,794,840 3,023,422
---------- -------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 45 (NOTE 4) .. (11,874) (4,955) (33,503) (12,712)
---------- -------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACT
OWNERS .......................................... 7,773,516 810,488 37,725,056 3,162,196
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. 810,488 -- 3,162,196 --
---------- -------- ----------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. $8,584,004 $810,488 $40,887,252 $3,162,196
========== ======== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CONSERVATIVE GROWTH
INVESTORS FUND INVESTORS FUND
----------------------- -----------------------
1996 1995* 1996 1995*
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................... $ 193,429 $ 24,367 $ 218,025 $ 31,399
Net realized gain ............................... 154,966 11,297 1,601,901 54,116
Change in unrealized appreciation/depreciation
on investments ................................. (12,221) 16,872 (197,988) 39,211
---------- ---------- ----------- ----------
Net increase in net assets from operations ..... 336,174 52,536 1,621,938 124,726
---------- ---------- ----------- ----------
FROM CONTRACT OWNER TRANSACTIONS:
Contributions and Transfers:
Contributions .................................. 3,977,495 977,433 11,004,121 1,950,052
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 2,837,790 698,465 9,331,901 1,712,951
---------- ---------- ----------- ----------
Total ......................................... 6,815,285 1,675,898 20,336,022 3,663,003
---------- ---------- ----------- ----------
Benefit & other policy transaction............... 60,271 -- 206,468 --
Withdrawals and Transfers:
Withdrawal and administrative charges ......... 100,314 -- 228,021 24,866
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................ 814,338 27,054 1,177,040 59,290
---------- ---------- ----------- ----------
Total ......................................... 974,923 27,054 1,611,529 84,156
---------- ---------- ----------- ----------
Net increase in net assets from Contract Owner
transactions ................................... 5,840,362 1,648,844 18,724,493 3,578,847
---------- ---------- ----------- ----------
NET INCREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT 45 (NOTE 4) .. (12,633) (7,001) (32,214) (9,395)
---------- ---------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACT
OWNERS .......................................... 6,163,903 1,694,379 20,314,217 3,694,178
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. 1,694,379 -- 3,694,178 --
---------- ---------- ----------- ----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ................................. $7,858,282 $1,694,379 $24,008,395 $3,694,178
========== ========== =========== ==========
</TABLE>
- --------------------
* Commencement of operations on May 1, 1995 for all funds.
See Notes to Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 45 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The
Account consists of nine investment funds (Funds): the Money Market Fund,
the Intermediate Government Securities Fund, the Growth & Income Fund, the
Common Stock Fund, the Global Fund, the International Fund, the Aggressive
Stock Fund, the Conservative Investors Fund and the Growth Investors Fund.
The assets in each Fund are invested in Class IA shares of a corresponding
portfolio (Portfolio) of a mutual fund, The Hudson River Trust (the
Trust). The Trust is an open-end, diversified, management investment
company that invests the assets of separate accounts of insurance
companies. Each Portfolio has separate investment objectives.
The Account is used to fund benefits for the Income Manager Accumulator, a
non-qualified deferred variable annuity, which combines the Portfolios in
the Account with guaranteed fixed rate options, and the Income Manager
Rollover IRA, which offers the same investment options as the Accumulator
for the qualified market. The Income Manager Accumulator and the Income
Manager Rollover IRA, collectively referred to as the Contracts, are
offered under group and individual variable deferred annuity forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Contract owners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate
of the contract owners' accounts allocated to that Fund. Additional assets
are set aside in Equitable Life's General Account to provide for other
policy benefits, as required under the state insurance law.
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net
asset values per share of the respective Portfolios. The net asset value
is determined by the Trust using the market or fair value of the
underlying assets of the Portfolio.
Investment transactions are recorded on the trade date. Realized gains and
losses include gains and losses on redemptions of the Trust's shares
(determined on the identified cost basis) and Trust distributions
representing the net realized gains on Trust investment transactions.
Dividends are recorded at the end of each quarter on the ex-dividend date.
Capital gains are distributed by the Trust at the end of each year.
No Federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code
and no Federal income tax payable by Equitable Life is expected to affect
the unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required.
F-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life deducts mortality and expense risks
at an annual rate of 0.90%. In addition, asset based administrative
charges are also deducted from the net assets at an annual rate of 0.25%.
The charges may be retained in the Account by Equitable Life and, to the
extent retained, participate in the net investment results of the trust
ratably with assets attributable to the Contracts. The aggregate of these
charges may not exceed a total effective annual rate of 1.15%.
4. Amounts retained by Equitable Life in Separate Account No. 45
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and asset based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at
any time by Equitable Life to its General Account.
The following table shows the net surplus contributions (withdrawals) by
Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
INVESTMENT FUND 1996 1995*
- ----------------------------------- ------------ ---------
<S> <C> <C>
Money Market ....................... $(125,000) $ 50,000
Intermediate Government Securities (25,000) 50,000
Growth & Income .................... (60,000) 50,000
Common Stock ....................... (223,000) 50,000
Global ............................. (52,000) 50,000
International ...................... (35,000) 50,000
Aggressive Stock ................... (110,000) 50,000
Conservative Investors ............. (45,000) 50,000
Growth Investors ................... (105,000) 50,000
------------ ---------
$(780,000) $450,000
============ =========
</TABLE>
- ------------
*Commencement of operations on May 1, 1995 for all funds.
F-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
(Continued)
5. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
MAY 1(A)
TO
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
MONEY MARKET FUND
- ------------------------
Unit value, beginning of
period ................. $ 23.83 $ 23.15
Unit value, end of
period ................. $ 24.81 $ 23.83
Number of units
outstanding,
end of period (000's) . 1,302 174
INTERMEDIATE GOVERNMENT
SECURITIES FUND
- ------------------------
Unit value, beginning of
period ................. $ 13.42 $ 12.50
Unit value, end of
period ................. $ 13.77 $ 13.42
Number of units
outstanding,
end of period (000's) . 252 160
GROWTH & INCOME
- ------------------------
Unit value, beginning of
period ................. $ 11.99 $ 10.38
Unit value, end of
period ................. $ 14.23 $ 11.99
Number of units
outstanding,
end of period (000's) . 1,056 151
COMMON STOCK FUND
- ------------------------
Unit value, beginning of
period ................. $124.52 $102.34
Unit value, end of
period ................. $152.96 $124.52
Number of units
outstanding,
end of period (000's) . 494 55
GLOBAL FUND
- ------------------------
Unit value, beginning of
period ................. $ 22.29 $ 19.48
Unit value, end of
period ................. $ 25.25 $ 22.29
Number of units
outstanding,
end of period (000's) . 609 48
</TABLE>
<TABLE>
<CAPTION>
MAY 1(A)
TO
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<C> <C> <C>
INTERNATIONAL FUND
------------------------
Unit value, beginning of
period ................. $11.03 $10.13
Unit value, end of
period ................. $11.98 $11.03
Number of units
outstanding,
end of period (000's) . 717 73
AGGRESSIVE STOCK FUND
------------------------
Unit value, beginning of
period ................. $54.59 $44.03
Unit value, end of
period ................. $65.94 $54.59
Number of units
outstanding,
end of period (000's) . 620 58
CONSERVATIVE INVESTORS FUND
------------------------
Unit value, beginning of
period ................. $16.55 $14.65
Unit value, end of
period ................. $17.21 $16.55
Number of units
outstanding,
end of period (000's) . 457 102
GROWTH INVESTORS FUND
------------------------
Unit value, beginning of
period ................. $23.59 $20.07
Unit value, end of
period ................. $26.26 $23.59
Number of units
outstanding,
end of period (000's) . 914 157
</TABLE>
- ------------
(a) Date on which units were made available for sale.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life
insurance contracts and long-lived assets in 1996, for loan impairments in 1995
and for postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly
owned life insurance subsidiary, Equitable Variable Life Insurance
Company ("EVLICO"). Effective January 1, 1997, EVLICO was merged into
Equitable Life, which will continue to conduct the Company's insurance
business. Equitable Life's investment management business, which
comprises the Investment Services segment, is conducted principally by
Alliance Capital Management L.P. ("Alliance"), Equitable Real Estate
Investment Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette,
Inc. ("DLJ"), an investment banking and brokerage affiliate. AXA-UAP
("AXA"), a French holding company for an international group of
insurance and related financial services companies, is the Holding
Company's largest shareholder, owning approximately 60.8% at December
31, 1996 (63.6% assuming conversion of Series E Convertible Preferred
Stock held by AXA and 54.4% if all securities convertible into, and
options on, common stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships
and joint ventures in which Equitable Life or its subsidiaries has
control and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for
the benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which
were in force on that date. Assets were allocated to the Closed Block
in an amount which, together with anticipated revenues from policies
included in the Closed Block, was reasonably expected to be sufficient
to support such business, including provision for payment of claims,
certain expenses and taxes, and for continuation of dividend scales
payable in 1991, assuming the experience underlying such scales
continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block
assets represents the expected future post-tax contribution from the
Closed Block which would be recognized in income over the period the
policies and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and
Guaranteed Interest Contract ("GIC") lines of business. The Company
established a pre-tax provision for the estimated future losses of the
GIC line of business and a premium deficiency reserve for the Wind-Up
Annuities. Subsequent losses incurred have been charged to the two loss
provisions. Management reviews the adequacy of the allowance and
reserve each quarter. During the fourth quarter 1996 review, management
determined it was necessary to increase the allowance for expected
future losses of the GIC Segment. Management believes the loss
provisions for GIC contracts and Wind-Up Annuities at December 31, 1996
are adequate to provide for all future losses; however, the
determination of loss provisions continues to involve numerous
estimates and subjective judgments regarding the expected performance
of discontinued operations investment assets. There can be no assurance
the losses provided for will not differ from the losses ultimately
realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect
of accounting change by $19.2 million, net of Federal income taxes of
$10.3 million for 1996. The financial statements for 1995 and 1994 have
been retroactively restated for the change which resulted in an
increase (decrease) in earnings before cumulative effect of accounting
change of $15.2 million, net of Federal income taxes of $8.2 million,
and $(2.6) million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in
investment gains (losses), net. Before implementing SFAS No. 121,
valuation allowances on real estate held for the production of income
were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
The adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on
real estate to be disposed of continue to be computed using the lower
of estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal
income tax benefit of $12.4 million, due to the writedown to fair value
of building improvements relating to facilities being vacated beginning
in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans
within the scope of this statement are measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. The Company
provides for impairment of loans through an allowance for possible
losses. The adoption of this statement did not have a material effect
on the level of these allowances or on the Company's consolidated
statements of earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred
policy acquisition costs ("DAC"), amounts attributable to participating
group annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant or, alternatively, to continue to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Companies
which elect to continue to apply APB Opinion No. 25 must provide pro
forma net income disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company accounts for stock option plans
sponsored by the Holding Company, DLJ and Alliance in accordance with
the provisions of APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of
repurchase agreements, dollar-roll, securities lending and similar
transactions. Management has not yet determined the effect of
implementing SFAS No. 125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is
adjusted for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized
on transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired
real estate is written down to fair value with the impairment loss
being included in investment gains (losses) net. Valuation allowances
on real estate available for sale are computed using the lower of
current estimated fair value or depreciated cost, net of disposition
costs. Prior to the adoption of SFAS No. 121, valuation allowances on
real estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the
equity basis of accounting and are included either with equity real
estate or other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment
gains or losses.
Unrealized investment gains and losses on fixed maturities available
for sale and equity securities held by the Company are accounted for as
a separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in
the period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of
policy issue and loss recognition testing at the end of each accounting
period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses)
is recognized with an offset to unrealized gains (losses) in
consolidated shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset
to unrealized gains (losses) in consolidated shareholder's equity as of
the balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the
basis of actuarial assumptions equal to guaranteed mortality and
dividend fund interest rates. The liability for annual dividends
represents the accrual of annual dividends earned. Terminal dividends
are accrued in proportion to gross margins over the life of the
contract.
For non-participating traditional life insurance policies, future
policy benefit liabilities are estimated using a net level premium
method on the basis of actuarial assumptions as to mortality,
persistency and interest established at policy issue. Assumptions
established at policy issue as to mortality and persistency are based
on the Insurance Group's experience which, together with interest and
expense assumptions, include a margin for adverse deviation. When the
liabilities for future policy benefits plus the present value of
expected future gross premiums for a product are insufficient to
provide for expected future policy benefits and expenses for that
product, DAC is written off and thereafter, if required, a premium
deficiency reserve is established by a charge to earnings. Benefit
liabilities for traditional annuities during the accumulation period
are equal to accumulated contractholders' fund balances and after
annuitization are equal to the present value of expected future
payments. Interest rates used in establishing such liabilities range
from 2.25% to 11.5% for life insurance liabilities and from 2.25% to
13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities
("Pension Par") was completed which included management's revised
estimate of assumptions, including expected mortality and future
investment returns. The study's results prompted management to
establish a premium deficiency reserve which decreased earnings from
continuing operations and net earnings by $47.5 million ($73.0 million
pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as
claim incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a
reasonable basis and are adequate, there can be no assurance reserves
will be sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6
million at December 31, 1996 and 1995, respectively (excluding $175.0
million of reserve strengthening in 1996). Incurred benefits (benefits
paid plus changes in claim reserves) and benefits paid for individual
DI and major medical policies (excluding $175.0 million of reserve
strengthening in 1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable
Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's
shareholder. Earnings in excess of limitations, if any, would be
accrued as policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current
Federal income taxes were charged or credited to operations based upon
amounts estimated to be payable or recoverable as a result of taxable
operations for the current year. Deferred income tax assets and
liabilities were recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as
separate captions in the consolidated balance sheets. The Insurance
Group bears the investment risk on assets held in one Separate Account,
therefore, such assets are carried on the same basis as similar assets
held in the General Account portfolio. Assets held in the other
Separate Accounts are carried at quoted market values or, where quoted
values are not available, at estimated fair values as determined by the
Insurance Group.
The investment results of Separate Accounts on which the Insurance
Group does not bear the investment risk are reflected directly in
Separate Accounts liabilities. For 1996, 1995 and 1994, investment
results of such Separate Accounts were $2,970.6 million, $1,963.2
million and $665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality,
policy administration and surrender charges on all Separate Accounts
are included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
has determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon
the assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost
of $3,915.7 million and $3,748.9 million, respectively, had estimated
fair values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or
5 (below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total
mortgage loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to
time be restructured or modified. The investment in restructured
mortgage loans on real estate, based on amortized cost, amounted to
$388.3 million and $531.5 million at December 31, 1996 and 1995,
respectively. These amounts include $1.0 million and $3.8 million of
problem mortgage loans on real estate at December 31, 1996 and 1995,
respectively. Gross interest income on restructured mortgage loans on
real estate that would have been recorded in accordance with the
original terms of such loans amounted to $35.5 million, $52.1 million
and $44.9 million in 1996, 1995 and 1994, respectively. Gross interest
income on these loans included in net investment income aggregated
$28.2 million, $37.4 million and $32.8 million in 1996, 1995 and 1994,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where
the fair value of the collateral or the net present value of the
expected future cash flows related to the loan equals or exceeds the
recorded investment. Interest income earned on loans where the
collateral value is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995,
respectively, including $17.9 million and $13.4 million recognized on a
cash basis.
The Insurance Group's investment in equity real estate is through
direct ownership and through investments in real estate joint ventures.
At December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate
acquired in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally
range from 40 to 50 years. Accumulated depreciation on real estate was
$587.5 million and $662.4 million at December 31, 1996 and 1995,
respectively. Depreciation expense on real estate totaled $91.8
million, $121.7 million and $117.0 million for 1996, 1995 and 1994,
respectively. As a result of the implementation of SFAS No. 121, during
1996 no depreciation expense has been recorded on real estate available
for sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized
on these sales. The change in unrealized investment (losses) gains
related to fixed maturities classified as available for sale for 1996,
1995 and 1994 amounted to $(258.0) million, $1,077.2 million and
$(742.2) million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an
investment gain of $20.6 million as a result of the issuance of
Alliance Units in this transaction. At December 31, 1996, the Company's
ownership of Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to
third parties at prevailing market prices. The Company continues to
hold its 1% general partnership interest in Alliance. The Company
recognized an investment gain of $52.4 million as a result of these
transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in
the contribution from the Closed Block of $27.5 million, $18.8 million
and $(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively,
of restructured securities which includes problem fixed maturities of
$.3 million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified
as held to maturity were transferred to the available for sale
portfolio. All actions resulted from significant deterioration in
creditworthiness. The amortized cost of the security sold was $4.2
million. The aggregate amortized cost of the securities transferred was
$81.3 million with gross unrealized investment losses of $.1 million
transferred to equity. At December 1, 1995, $1,750.7 million of
securities classified as held to maturity were transferred to the
available for sale portfolio. As a result, unrealized gains of $88.5
million on fixed maturities were recognized, offset by DAC amortization
of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had an amortized cost of $4.3 million and $36.5 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7
million, respectively. At December 31, 1996 and 1995, the restructured
mortgage loans on real estate amount included $.7 million and $8.8
million, respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and
1995, respectively, including $4.7 million and $1.3 million recognized
on a cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of
the Closed Block operations. Operating costs and expenses outside of
the Closed Block are, therefore, disproportionate to the business
outside of the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen
the loss provisions by $129.0 million, resulting in a post-tax charge
of $83.8 million to discontinued operations' results in the fourth
quarter of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets.
There can be no assurance the losses provided for will not differ from
the losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the loss provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment.
Subsequently, the GIC Segment remitted $1,155.4 million in cash to
continuing operations in partial repayment of borrowings by the GIC
Segment. No gains or losses were recognized on these transactions.
Amounts due to continuing operations at December 31, 1996, consisted of
$1,080.0 million borrowed by the discontinued GIC Segment offset by
$83.8 million representing an obligation of continuing operations to
provide assets to fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate
and recognition of impairment losses of $69.8 million on real estate
held and used. Writedowns of fixed maturities amounted to $1.6 million,
$8.1 million and $17.8 million for 1996, 1995 and 1994, respectively
and writedowns of equity real estate subsequent to the adoption of SFAS
No. 121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate
had amortized costs of $7.9 million and $35.4 million, respectively,
and mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction
of debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate
purposes used to support Equitable Life's liquidity needs and is
supported by Equitable Life's existing $350.0 million five-year bank
credit facility. There were no borrowings outstanding under this
program at December 31, 1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of
Alliance, is a floating rate generally based upon a defined prime rate,
a rate related to the LIBOR or the Federal Funds rate. A facility fee
is payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for
general working capital purposes. As of December 31, 1996, Alliance had
not issued any commercial paper under its $100.0 million commercial
paper program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997
totaling $174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and
securities amounting to $1,406.4 million and $1,629.7 million at
December 31, 1996 and 1995, respectively, as collateral for certain
long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings
before Federal income taxes and minority interest by the expected
Federal income tax rate of 35%. The sources of the difference and the
tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes,
by an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by
the Internal Revenue Service. As a stock life insurance company,
Equitable Life no longer is required to reduce its policyholder
dividend deduction by the differential earnings amount, but
differential earnings amounts for pre-demutualization years were still
being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary
differences and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. The effect of reinsurance (excluding group life
and health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard
underwriting risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994,
respectively. Ceded death and disability benefits totaled $21.2
million, $188.1 million and $235.5 million for 1996, 1995 and 1994,
respectively. Insurance liabilities ceded totaled $652.4 million and
$724.2 million at December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans
are non-contributory. Equitable Life's and EREIM's benefits are based
on a cash balance formula or years of service and final average
earnings, if greater, under certain grandfathering rules in the plans.
Alliance's benefits are based on years of credited service, average
final base salary and primary social security benefits. The Company's
funding policy is to make the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1
million, net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable
Life. Benefit payments under these contracts were approximately $34.7
million, $36.4 million and $38.1 million for 1996, 1995 and 1994,
respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of
postretirement benefits are recognized in accordance with the
provisions of SFAS No. 106. The Company continues to fund
postretirement benefits costs on a pay-as-you-go basis and, for 1996,
1995 and 1994, the Company made estimated postretirement benefits
payments of $18.9 million, $31.1 million and $29.8 million,
respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was
7.50% and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%,
the accumulated postretirement benefits obligation as of December 31,
1996 would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly
are utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996,
the cost of terminating outstanding matched swaps in a loss position
was $8.3 million and the unrealized gain on outstanding matched swaps
in a gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2)
million, respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on
interest-sensitive individual annuities contracts. The outstanding
notional amounts at December 31, 1996 of contracts purchased and sold
were $5,050.0 million and $500.0 million, respectively. The net premium
paid by Equitable Life on these contracts was $22.5 million and is
being amortized ratably over the contract periods ranging from 3 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's
involvement in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect
any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans
are limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the
appropriate duration. For durations in excess of the published index
rate, the appropriate Treasury rate is used plus a spread equal to the
longest duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair
values for single premium deferred annuities ("SPDA") are estimated
using projected cash flows discounted at current offering rates. The
estimated fair values for supplementary contracts not involving life
contingencies ("SCNILC") and annuities certain are derived using
discounted cash flows based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage
debt are determined by discounting contractual cash flows at a rate
which takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing
loan or loan commitment agreements; and to provide short-term financing
loans which at December 31, 1996 totaled $14.6 million. Management
believes the Company will not incur any material losses as a result of
these commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date,
no such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance
Society of the United States was filed on January 20, 1995 in New York
County Supreme Court. The action purports to be brought on behalf of a
class of persons insured after 1983 under Lifetime Guaranteed Renewable
Major Medical Insurance Policies issued by Equitable Life (the
"policies"). The complaint alleges that premium increases for these
policies after 1983, all of which were filed with and approved by the
New York State Insurance Department and certain other state insurance
departments, breached the terms of the policies, and that statements in
the policies and elsewhere concerning premium increases constituted
fraudulent concealment, misrepresentations in violation of New York
Insurance Law Section 4226 and deceptive practices under New York
General Business Law Section 349. The complaint seeks a declaratory
judgment, injunctive relief restricting the methods by which Equitable
Life increases premiums on the policies in the future, a refund of
premiums, and punitive damages. Plaintiffs also have indicated that
they will seek damages in an unspecified amount. Equitable Life moved
to dismiss the complaint in its entirety on the grounds that it fails
to state a claim and that uncontroverted documentary evidence
establishes a complete defense to the claims. On May 29, 1996, the New
York County Supreme Court entered a judgment dismissing the complaint
with prejudice. Plaintiffs have filed a notice of appeal of that
judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved
Equitable Life's rate increases. These actions are asserted on behalf
of proposed classes of Pennsylvania issued or renewed policyholders and
Texas issued or renewed policyholders, insured under the policies. The
Pennsylvania and Texas actions seek compensatory and punitive damages
and injunctive relief restricting the methods by which Equitable Life
increases premiums in the future based on the common law and statutes
of those states. On February 9, 1996, Equitable Life removed the
Pennsylvania action, Malvin, to the United States District Court for
the Middle District of Pennsylvania. Following the decision granting
Equitable Life's motion to dismiss the New York action (Golomb), on the
consent of the parties the District Court ordered an indefinite stay of
all proceedings in the Pennsylvania action, pending either party's
right to reinstate the proceeding, and ordered that for administrative
purposes the case be deemed administratively closed. On February 2,
1996, Equitable Life removed the Texas action, Bowler, to the United
States District Court for the Northern District of Texas. On May 20,
1996, the plaintiffs in Bowler amended their complaint by adding
allegations of misrepresentation regarding premium increases on other
types of guaranteed renewable major medical insurance policies issued
by Equitable Life up to and including 1983. On July 1, 1996, Equitable
Life filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted
plaintiffs leave to file a supplemental complaint on behalf of a
proposed class of Texas policyholders claiming unfair discrimination,
breach of contract and other claims arising out of alleged differences
between premiums charged to Texas policyholders and premiums charged to
similarly situated policyholders in New York and certain other states.
Plaintiffs seek refunds of alleged overcharges, exemplary or additional
damages citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued
by Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which
Equitable Life increases premiums in the future based on various common
law claims. On June 20, 1996, Equitable Life removed the Florida action
to Federal court. Equitable Life has answered the complaint, denying
the material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment
and plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially
the same allegations concerning premium rates and premium rate
increases on guaranteed renewable policies made in the Bowler action.
The complaint alleges, among other things, that differentials between
rates charged California policyholders and policyholders in New York
and certain other states, and the methods used by Equitable Life to
calculate premium increases, breached the terms of its policies, that
Equitable Life misrepresented and concealed the facts pertaining to
such differentials and methods in violation of California law, and that
Equitable Life also misrepresented that its rate increases were
approved by the California Insurance Department. Plaintiffs seek
compensatory damages in an unspecified amount, rescission, injunctive
relief and attorneys' fees. Equitable Life removed the action to
Federal court; plaintiff has moved to remand the case to state court.
Although the outcome of any litigation cannot be predicted with
certainty, particularly in the early stages of an action, the Company's
management believes that the ultimate resolution of the Golomb, Malvin,
Bowler, Bachman and Fletcher litigations should not have a material
adverse effect on the financial position of the Company. Due to the
early stage of such litigations, the Company's management cannot make
an estimate of loss, if any, or predict whether or not such litigations
will have a material adverse effect on the Company's results of
operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and
its wholly owned subsidiary, EOC, in New York state court, entitled
Sidney C. Cole et al. v. The Equitable Life Assurance Society of the
United States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of
action under the New York State consumer protection statute. The only
remaining causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a
motion to have this proceeding moved from Kings County Supreme Court to
New York County for joint trial or consolidation with the Cole action.
The motion was denied by the court on January 9, 1997. On January 10,
1997, plaintiffs moved for certification of a nationwide class
consisting of all persons or entities who were sold one or more life
insurance products on a "vanishing premium" basis and/or were allegedly
induced to purchase additional policies from EVLICO, using the cash
value accumulated in existing policies, from January 1, 1980 through
and including December 31, 1996. Plaintiffs further moved to have
Michael Bradley designated as the class representative. Discovery
regarding class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual
who purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly
promised by Equitable Life and EOC. The second is a "fraud class,"
consisting of all persons with an interest in policies issued by
Equitable Life and EOC at any time since October 1, 1986. Plaintiff
seeks damages in an unspecified amount, and also seeks injunctive
relief attaching Equitable Life's and EOC's profits from their alleged
sales practices. Equitable Life's and EOC's time to answer or move with
respect to the complaint has been extended until February 24, 1997.
Although the outcome of litigation cannot be predicted with certainty,
particularly in the early stages of an action, the Company's management
believes that the ultimate resolution of the Cole, Duncan, Bradley and
Dillon litigations should not have a material adverse effect on the
financial position of the Company. Due to the early stages of such
litigations, the Company's management cannot make an estimate of loss,
if any, or predict whether or not any such litigation will have a
material adverse effect on the Company's results of operations in any
particular period.
On January 3, 1996, an amended complaint was filed in an action
entitled Frank Franze Jr. and George Busher, individually and on behalf
of all others similarly situated v. The Equitable Life Assurance
Society of the United States, and Equitable Variable Life Insurance
Company, No. 94-2036 in the United States District Court for the
Southern District of Florida. The action was brought by two individuals
who purchased variable life insurance policies. The plaintiffs purport
to represent a nationwide class consisting of all persons who purchased
variable life insurance policies from Equitable Life and EVLICO since
September 30, 1991. The basic allegation of the amended complaint is
that Equitable Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated
v. The Equitable Life Assurance Society of the United States, and
Equitable Variable Life Insurance Company, was filed in Massachusetts
state court making claims similar to those in the Franze action and
alleging violations of the Massachusetts securities laws. The plaintiff
purports to represent all persons in Massachusetts who purchased
variable life insurance contracts from Equitable Life and EVLICO from
January 9, 1993 to the present. The Massachusetts action seeks
rescission of the contracts or compensatory damages, attorneys' fees,
expenses and injunctive relief. Although the outcome of any litigation
cannot be predicted with certainty, particularly in the early stages of
an action, the Company's management believes that the ultimate
resolution of the litigations discussed in this paragraph should not
have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigation, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S.
Department of Labor ("DOL") requesting copies of any third-party
appraisals in Equitable Life's possession relating to the ten largest
properties (by value) in the Prime Property Fund ("PPF"). PPF is an
open-end, commingled real estate separate account of Equitable Life for
pension clients. Equitable Life serves as investment manager in PPF and
has retained EREIM as advisor. In early 1995, the DOL commenced a
national investigation of commingled real estate funds with pension
investors, including PPF. The investigation now appears to be focused
principally on appraisal and valuation procedures in respect of fund
properties. The most recent request from the DOL seems to reflect, at
least in part, an interest in the relationship between the valuations
for those properties reflected in appraisals prepared for local
property tax proceedings and the valuations used by PPF for other
purposes. At no time has the DOL made any specific allegation that
Equitable Life or EREIM has acted improperly and Equitable Life and
EREIM believe that any such allegation would be without foundation.
While the outcome of this investigation cannot be predicted with
certainty, in the opinion of management, the ultimate resolution of
this matter should not have a material adverse effect on the Company's
consolidated financial position or results of operations in any
particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The
arbitration panel issued a final award in favor of Casualty and GEICO
General on June 17, 1996. Casualty and GEICO General moved in the
pending Texas state court action, with Houston General's consent, for
an order confirming the arbitration award and entering judgment
dismissing the action. The motion was granted on January 29, 1997. The
parties have also stipulated to the dismissal without prejudice of a
related Texas Federal court action brought by Houston General against
GEICO General and Equitable Life. In connection with confirmation of
the arbitration award, Houston General paid to Casualty approximately
$839,600 in settlement of certain reimbursement claims by Casualty
against Houston General.
On July 25, 1995, a Consolidated and Supplemental Class Action
Complaint ("Complaint") was filed against the Alliance North American
Government Income Trust, Inc. (the "Fund"), Alliance and certain other
defendants affiliated with Alliance, including the Holding Company,
alleging violations of Federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint, which seeks certification of a
plaintiff class of persons who purchased or owned Class A, B or C
shares of the Fund from March 27, 1992 through December 23, 1994, seeks
an unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations of the Complaint are that the Fund
purchased debt securities issued by the Mexican and Argentine
governments in amounts that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment
of the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and
warrants to purchase shares of common stock of Rickel Home Centers,
Inc. ("Rickel") filed a class action complaint against Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC") and certain other
defendants for unspecified compensatory and punitive damages in the
United States District Court for the Southern District of New York. The
suit was brought on behalf of the purchasers of 126,457 units
consisting of $126,457,000 aggregate principal amount of 13 1/2% senior
notes due 2001 and 126,457 warrants to purchase shares of common stock
of Rickel issued by Rickel in October 1994. The complaint alleges
violations of Federal securities laws and common law fraud against
DLJSC, as the underwriter of the units and as an owner of 7.3% of the
common stock of Rickel, Eos Partners, L.P., and General Electric
Capital Corporation, each as owners of 44.2% of the common stock of
Rickel, and members of the Board of Directors of Rickel, including a
DLJSC Managing Director. The complaint seeks to hold DLJSC liable for
alleged misstatements and omissions contained in the prospectus and
registration statement filed in connection with the offering of the
units, alleging that the defendants knew of financial losses and a
decline in value of Rickel in the months prior to the offering and did
not disclose such information. The complaint also alleges that Rickel
failed to pay its semi-annual interest payment due on the units on
December 15, 1995 and that Rickel filed a voluntary petition for
reorganization pursuant to Chapter 11 of the United States Bankruptcy
Code on January 10, 1996. DLJSC intends to defend itself vigorously
against all of the allegations contained in the complaint. Although
there can be no assurance, DLJ does not believe the outcome of this
litigation will have a material adverse effect on its financial
condition. Due to the early stage of this litigation, based on the
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter
11 reorganization proceedings. The class action complaint alleges that
the plan of reorganization submitted by NGC was based upon projections
by NGC and DLJSC which intentionally understated forecasts, and
provided misleading and incorrect information in order to hide NGC's
true value and that defendants breached their fiduciary duties by,
among other things, providing false, misleading or incomplete
information to deliberately understate the value of NGC. The class
action complaint seeks compensatory and punitive damages purportedly
sustained by the class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in
the complaint. Although there can be no assurance, DLJ does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on its financial condition. Due to the early stage of
such litigation, based upon the information currently available to it,
DLJ's management cannot make an estimate of loss, if any, or predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed
in the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently
available to it, DLJ's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material
adverse effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of
the actions and proceedings have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek
damages of unspecified amounts. While the ultimate outcome of such
matters cannot be predicted with certainty, in the opinion of
management no such matter is likely to have a material adverse effect
on the Company's consolidated financial position or results of
operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million,
$110.6 million, $100.3 million, $72.3 million, $59.3 million and $427.3
million thereafter. Minimum future sublease rental income on these
noncancelable leases for 1997 and the succeeding four years are $9.8
million, $6.0 million, $4.5 million, $2.4 million, $.8 million and $.1
million thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million,
$219.8 million, $194.3 million, $174.6 million and $847.1 million
thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million
writeoff of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment
of dividends to its shareholders. For 1996, 1995 and 1994, statutory
net (loss) earnings totaled $(351.1) million, $(352.4) million and
$67.5 million, respectively. No amounts are expected to be available
for dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996,
1995 and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been
restated to reflect the Company's accounting change adopted in the
fourth quarter of 1996 for long-duration participating life contracts
in accordance with the provisions prescribed by SFAS No. 120. Net
earnings for the three months ended December 31, 1996 includes a charge
of $339.3 million related to writeoffs of DAC on DI contracts of $94.3
million, reserve strengthening on DI business of $113.7 million,
pension par of $47.5 million and the discontinued GIC Segment of $83.8
million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess
of the proceeds over the book value in DLJ at the date of sale of
$340.2 million has been reflected as a capital contribution. In 1995,
DLJ completed the initial public offering ("IPO") of 10.58 million
shares of its common stock, which included 7.28 million of the Holding
Company's shares in DLJ, priced at $27 per share. Concurrent with the
IPO, the Company contributed equity securities to DLJ having a market
value of $21.2 million. Upon completion of the IPO, the Company's
ownership percentage was reduced to 36.1%. The Company's ownership
interest will be further reduced upon the issuance of common stock
after the vesting of forfeitable restricted stock units acquired by
and/or the exercise of options granted to certain DLJ employees. DLJ
restricted stock units represents forfeitable rights to receive
approximately 5.2 million shares of DLJ common stock through February
2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of
DLJ is included in investment in and loans to affiliates in the
consolidated balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method
prescribed in APB Opinion No. 25. Had compensation expense of the
Company's stock option incentive plans for options granted after
December 31, 1994 been determined based on the estimated fair value at
the grant dates for awards under those plans, the Company's pro forma
net earnings for 1996 and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as
of the date of grants using Black-Scholes option pricing models. The
option and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
F-46
