Registration No. 33-83750
Registration No. 811-8754
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 9 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 11 [X]
(Check appropriate box or boxes)
-------------------------
SEPARATE ACCOUNT No. 45
of
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
(Exact Name of Registrant)
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THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
(Name of Depositor)
1290 Avenue of the Americas, New York, New York 10104
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: (212) 554-1234
-------------------------
MARY P. BREEN
VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL
The Equitable Life Assurance Society of the United States
1290 Avenue of the Americas, New York, New York 10104
(Name and Address of Agent for Service)
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Please send copies of all communications to:
PETER E. PANARITES
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W., Suite 825
Washington, D.C. 20036
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<PAGE>
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485 .
[X] On May 1, 1998 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
previously filed post-effective amendment.
Title of Securities Being Registered:
Units of interest in Separate Account under variable annuity contracts.
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PROSPECTUSES
FORM N-4 ITEM PROSPECTUS CAPTION
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1. Cover Page Cover Page
2. Definitions General Terms
3. Synopsis See Profile of Prospectus or
Summary
4. Condensed Financial Investment Performance - Money
Information Market Fund, Intermediate
Government Securities Fund and
High Yield Fund Yield Information, -
Provisions of the Certificates
and Services We Provide - Annuity
Account Value
5. General Description of Equitable Life, The Separate Account
Registrant, Depositor and and The Investment Funds
Portfolio Companies
6. Deductions and Expenses Provisions of the Certificates
and Services We Provide -
Distribution of the Certificates,
Deductions and Charges
7. General Description of Provisions of
Variable Annuity Contracts the Certificates and Services We
Provide
8. Annuity Period Provisions of the Certificates
and Services We Provide
9. Death Benefit Provisions of the Certificates
and Services We Provide - Death
Benefit
10. Purchases and Contract Value Investment Performance,
Provisions of the Certificates
and Services We Provide
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PROSPECTUSES
FORM N-4 ITEM PROSPECTUS CAPTION
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11. Redemptions Provisions of the Certificates
and Services We Provide -
Surrendering the Certificates to
Receive the Cash Value,- Income
Annuity Options, Deductions and
Charges
12. Taxes Tax Aspects of the Certificates
13. Legal Proceedings Not Applicable
14. Table of Contents of the Statement of Additional Information
Statement of Additional Table of Contents
Information
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION
IN STATEMENTS OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL
FORM N-4 ITEM INFORMATION CAPTION
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15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information Prospectus Caption:
and History Equitable Life, The Separate
Account and The Investment Funds
18. Services Not Applicable
19. Purchases of Securities Prospectus Caption:
Being Offered Provisions of the Certificates and
Services We Provide - Distribution
of the Certificates
20. Underwriters Prospectus Caption:
Provisions of the Certificates
and Services We Provide -
Distribution of the Certificates
21. Calculation of Performance Accumulation Unit Values,
Data Annuity Unit Values,
Money Market Fund, Intermediate
Government Securities Fund and High
Yield Fund Yield Information
22. Annuity Payments Annuity Unit Values
23. Financial Statements Financial Statements
<PAGE>
NOTE
This Post-Effective Amendment No. 9 ("PEA") to the Form N-4 Registration
Statement No. 33-83750 ("Registration Statement") of The Equitable Life
Assurance Society of the United States ("Equitable Life") and its Separate
Account No. 45 includes, among other documents, updating prospectus supplements,
each dated May 1, 1998 ("Prospectus Supplements") to Equitable Life prospectuses
which were previously filed and supplemented, as indicated in the Prospectus
Suplements, and are part of the Registration Statement. The PEA also includes
accompanying statements of additional information ("SAIs"), dated May 1, 1998,
which also are part of the Registration Statement. These Prospectus Supplements
and the SAIs will be used for continuing offerings to in-force owners, as of May
1, 1998, of the fixed and variable annuity certificates to which the Prospectus
Supplements and SAIs relate.
<PAGE>
SUPPLEMENT TO
EQUITABLE ACCUMULATORSM
(IRA, NQ AND QP)
PROSPECTUS DATED MAY 1, 1998
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
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This prospectus supplement describes the baseBUILDER(R) Combined Guaranteed
Minimum Income Benefit and Guaranteed Minimum Death Benefit offered to Annuitant
issue ages 76 or older under the Equitable Accumulator (IRA, NQ and QP)
prospectus. Capitalized terms in this supplement have the same meaning as in the
prospectus.
A different version of the Combined Guaranteed Minimum Income Benefit and
Guaranteed Minimum Death Benefit than the versions discussed on page 28 of the
prospectus under "baseBUILDER Benefits" is available for Annuitant issue ages 76
or older. The charge for this benefit is 0.30% of the Guaranteed Minimum Income
Benefit benefit base in effect on a Processing Date. The versions of the
baseBUILDER Benefits described in the prospectus are not available at these
Annuitant issue ages. The benefit for Annuitant issue ages 76 or older is as
discussed below:
The Guaranteed Minimum Income Benefit 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 Death Benefit applicable to the combined benefit is as
follows:
4% Roll Up to Age 85 - On the Contract Date, the Guaranteed Minimum
Death Benefit is equal to the initial contribution. Thereafter, the
Guaranteed Minimum Death Benefit is credited with interest at 4% 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 withdrawals.
The Guaranteed Minimum Income Benefit benefit base described on page 40 of the
prospectus is as follows:
The Guaranteed Minimum Income Benefit benefit base is equal to the
initial contribution on the Contract Date. Thereafter, the Guaranteed
Minimum Income Benefit benefit base is credited with interest at 4% on
each Contract Date anniversary through the Annuitant's age 85, and 0%
thereafter, and is adjusted for any subsequent contributions and
withdrawals. 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.
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Copyright 1998 The Equitable Life Assurance Society of the United States,
New York, New York 10104. All rights reserved. Accumulator is a service
mark and baseBUILDER is a registered service mark of The Equitable Life
Assurance Society of the United States.
SUPPLEMENT DATED MAY 1, 1998
PROS AGENT SUPP1(5/98)
<PAGE>
MAY 1, 1998
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
PROFILE OF THE EQUITABLE ACCUMULATOR(SM) (IRA, NQ AND QP)
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 Equitable Accumulator Certificate is a
combination variable and fixed deferred annuity issued by Equitable Life.
Certificates can be issued as individual retirement annuities (IRAS, which can
be either TRADITIONAL IRAS or ROTH IRAS) or as non-qualified annuities (NQ) for
after-tax contributions only. NQ Certificates may also be used as an investment
vehicle for certain types of qualified plans (QP). The Equitable Accumulator
Certificate is designed to provide for the accumulation of retirement savings
and for income through the investment, during an accumulation phase, of (a)
rollover contributions, direct transfers from other individual retirement
arrangements and additional IRA contributions or (b) after-tax money.
Your Equitable Life agent can provide you with information about other annuity
products we offer and help you decide which one may best meet your needs.
You may allocate amounts to Investment Funds where your Certificate's value may
vary up or down depending upon investment performance. You may also allocate
amounts to Guaranteed Interest Rate Options (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.
Also, the Special Dollar Cost Averaging Account (in states where approved) which
is part of our general account and pays interest at guaranteed fixed interest
rates, is available for our Special Dollar Cost Averaging program discussed
below. In states where the Special Dollar Cost Averaging Account is not
currently approved, the Special Dollar Cost Averaging program is available in
the Alliance Money Market Fund. Earnings accumulate under your Certificate on a
tax-deferred basis until amounts are distributed. Amounts distributed under the
Equitable Accumulator Certificate may be subject to income tax.
The Investment Funds offer the potential for better returns than the interest
rates guaranteed under the GIROs or the Special Dollar Cost Averaging Account,
but the Investment Funds involve risk and you can lose money. You may make
transfers among the Investment Funds and GIROs. The value of the GIROs prior to
their maturity fluctuates and you can lose money on premature transfers or
withdrawals. Any transfers (other than Dollar Cost Averaging transfers) or
withdrawals out of the Special Dollar Cost Averaging Account will cancel the
Special Dollar Cost Averaging program.
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Copyright 1998 The Equitable Life Assurance Society of the United States,
New York, New York 10104. Accumulator is a service mark, and baseBUILDER
and Income Manager are registered service marks of The Equitable Life
Assurance Society of the United States.
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The Certificate provides a number of distribution methods during the
accumulation phase and for converting to annuity income, which include annuity
benefits and under IRA Certificates only, the ASSURED PAYMENT OPTION AND APO
PLUS.
Under IRA Certificates, 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 IRA 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 allocated to 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, a
portion of your money in the selected Investment Fund is applied to increase the
guaranteed payments, if applicable, 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 receive.
You can elect the baseBUILDER(R) at issue of the Certificate for an additional
charge. The baseBUILDER provides a combined Guaranteed Minimum Income Benefit
and Guaranteed Minimum Death Benefit. The Guaranteed Minimum Income Benefit
provides a minimum amount of guaranteed lifetime income regardless of investment
performance when converting, at specific times, to the Income Manager(R)
(Life Annuity with a Period Certain) payout annuity certificate.
2. ANNUITY PAYMENTS. When you are ready to start receiving income, annuity
income is available by applying your Certificate's value to an Income Manager
payout annuity certificate. You can also have your IRA or NQ Certificate's value
applied to any of the following ANNUITY BENEFITS: (1) Life Annuity - payments
for the annuitant's life, (2) Life Annuity - Period Certain - payments for the
annuitant's life, but with payments continuing to the beneficiary for the
balance of the selected years if the annuitant dies before the end of the
selected period; (3) Life Annuity - Refund Certain - payments for the
annuitant's life, with payments continuing to the beneficiary after the
annuitant's 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 the
annuitant's life, and after the annuitant's death, continuation of payments to
the survivor for life. Under QP Certificates the only Annuity Benefit available
is Option (2) as a Life Annuity with a 10 Year Period Certain, or a Joint and
Survivor Life Annuity with a 10 Year Period Certain. Annuity Benefits (other
than the Life Annuity in New York, the Refund Certain and the Period Certain
which are 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
annuity payments, you cannot change your Annuity Benefit.
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3. PURCHASE. You can purchase an Equitable Accumulator IRA Certificate by
rolling over or transferring at least $5,000 or more from one or more individual
retirement arrangements. Under a Traditional IRA Certificate you may add
additional amounts of $1,000 or more at any time (subject to certain
restrictions). Additional amounts under a Traditional IRA Certificate are
limited to $2,000 per year, but additional rollover or IRA transfer amounts are
unlimited. In certain cases, additional amounts may not be added to a Roth IRA
Certificate.
An Equitable Accumulator NQ or QP Certificate can be purchased with $5,000 or
more. Additional amounts of $1,000 or more can be made at any time (subject to
certain restrictions). Certain restrictions also apply to the type of
contributions we will accept under Equitable Accumulator QP Certificates.
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 (HRT) and EQ Advisors Trust (EQAT). The portfolios are described in the
prospectuses for HRT and EQAT.
<TABLE>
<CAPTION>
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EQUITY SERIES:
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<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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
Equity Warburg Pincus Small Company
MFS Research T. Rowe Price International Value
Stock
Merrill Lynch Basic Value Equity
T. Rowe Price Equity Income
<CAPTION>
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ASSET ALLOCATION SERIES FIXED INCOME SERIES
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<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
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Alliance Equity Index (AVAILABLE ONLY UNDER APO PLUS)
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</TABLE>
You may also invest in one or more GIROs currently maturing in years 1999
through 2008. Under the Assured Payment Option and APO Plus for IRA
Certificates, GIROs currently maturing in years 2009 through 2013 are also
available. The Special Dollar Cost Averaging Account is available for the
Special Dollar Cost Averaging program, discussed below.
5. EXPENSES. The Certificates have expenses as follows: As a percentage of net
assets in the Investment Funds, a daily charge is deducted for mortality and
expense risks (including the Guaranteed Minimum Death Benefit discussed below)
at an annual rate of 1.10%, and a daily charge is deducted for administration
expenses at an annual rate of 0.25%. If baseBUILDER with the
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6% Roll Up to Age 80 Guaranteed Minimum Death Benefit or the Annual Ratchet to
Age 80 Guaranteed Minimum Death Benefit is elected, there is an annual charge of
0.30% expressed as a percentage of the Guaranteed Minimum Income Benefit benefit
base. If baseBUILDER with the 6% Roll Up to Age 70 is elected, the annual charge
is 0.15% expressed as a percentage of the Guaranteed Minimum Income Benefit
benefit base. The baseBUILDER charge is deducted from your Certificate's value.
The charges for the portfolios of HRT range from 0.61% to 1.33% of the average
daily net assets of HRT portfolios, depending upon HRT portfolios selected. The
charges for the portfolios of EQAT range from 0.55% to 1.75% of the average
daily net assets of EQAT portfolios, depending upon the EQAT portfolios
selected. The amounts for HRT are based on average portfolio assets for the year
ended December 31, 1997 and have been restated to reflect the fees that would
have been paid if a new advisory agreement that Alliance, HRT's manager, and HRT
entered into (which went into effect on May 1, 1997) were in effect since
January 1, 1997. The amounts for EQAT are based on current expense caps. The
12b-1 fee (reflected in the "Total Annual Portfolio Charges" column in the chart
below) for the portfolios of HRT (other than the Alliance Small Cap Growth
portfolio) and EQAT are 0.25% of the average daily net assets of HRT and EQAT,
respectively. For the Alliance Small Cap Growth portfolio the 12b-1 fee may be
less than 0.25% under certain circumstances. 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 IRA Certificates for 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 Equitable
Accumulator IRA Certificates. 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+
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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 net 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 0.30% benefit based charge for the
baseBUILDER 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.
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<TABLE>
<CAPTION>
TOTAL ANNUAL TOTAL ANNUAL EXAMPLES
CERTIFICATE PORTFOLIO TOTAL Total Annual
CHARGES CHARGES ANNUAL Expenses at End of:
INVESTMENT FUND CHARGES .....(1) (2)
1 Year 10 Years
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors 1.35% 0.80% 2.15% $ 91.78 $285.33
Alliance Growth Investors 1.35% 0.82% 2.17% $ 91.98 $287.33
Alliance Growth & Income 1.35% 0.84% 2.19% $ 92.18 $283.94
Alliance Common Stock 1.35% 0.65% 2.00% $ 90.29 $270.24
Alliance Global 1.35% 0.98% 2.33% $ 93.57 $303.15
Alliance International 1.35% 1.33% 2.68% $ 97.05 $336.94
Alliance Aggressive Stock 1.35% 0.82% 2.17% $ 91.98 $287.33
Alliance Small Cap Growth 1.35% 1.20% 2.55% $ 95.76 $324.53
Alliance Money Market 1.35% 0.64% 1.99% $ 90.19 $269.23
Alliance Intermediate Government
Securities 1.35% 0.81% 2.16% $ 91.88 $286.33
Alliance High Yield 1.35% 0.89% 2.24% $ 92.68 $294.28
UNDER APO PLUS
Alliance Common Stock 1.35% 0.65% 2.00% $ 90.29 $270.24
Alliance Equity Index 1.35% 0.61% 1.96% $ 89.90 $266.19
BT Equity 500 Index 1.35% 0.55% 1.90% $ 89.30 $260.07
BT Small Company Index 1.35% 0.60% 1.95% $ 89.80 $265.18
BT International Equity Index 1.35% 0.80% 2.15% $ 91.78 $285.33
MFS Emerging Growth Companies 1.35% 0.85% 2.20% $ 92.28 $290.31
MFS Research 1.35% 0.85% 2.20% $ 92.28 $290.31
Merrill Lynch Basic Value Equity 1.35% 0.85% 2.20% $ 92.28 $290.31
Merrill Lynch World Strategy 1.35% 1.20% 2.55% $ 95.76 $324.53
Morgan Stanley Emerging Markets Equity
1.35% 1.75% 3.10% $101.22 $376.00
EQ/Putnam Balanced 1.35% 0.90% 2.25% $ 92.78 $295.27
EQ/Putnam Growth & Income Value 1.35% 0.85% 2.20% $ 92.28 $290.31
T. Rowe Price Equity Income 1.35% 0.85% 2.20% $ 92.28 $290.31
T. Rowe Price International Stock 1.35% 1.20% 2.55% $ 95.76 $324.53
Warburg Pincus Small Company Value 1.35% 1.00% 2.35% $ 93.77 $305.12
</TABLE>
Total annual portfolio charges may vary from year to year. For Investment Funds
investing in portfolios with less than 10 years of operations, charges have been
estimated. The charges reflect any waiver or limitation.
For more detailed information, see the Fee Table in the prospectus.
We may also offer other Equitable Accumulator certificates which have other
features, benefits and charges. A current prospectus for these other Equitable
Accumulator certificates, if available, may be obtained from your agent.
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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, in addition to income tax you may be charged a 10% Federal
tax penalty on the taxable amount received. This tax discussion does not apply
to Roth IRA or QP Certificates. Please consult your tax adviser.
7. ACCESS TO YOUR MONEY. During the accumulation phase, you may receive
distributions under a Certificate through the following WITHDRAWAL OPTIONS.
Under IRA, NQ and QP Certificates: (1) Lump Sum Withdrawals of at least $1,000
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. Under both the Traditional IRA and Roth IRA
Certificates only: (1) Substantially Equal Payment Withdrawals (if you are less
than age 59 1/2), paid monthly, quarterly or annually based on life expectancy;
and under Traditional IRA Certificates only (2) 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 may be subject to income tax and a tax penalty. Withdrawals from the
GIROs prior to their maturity may result in a market value adjustment. A request
for withdrawal of amounts from the Special Dollar Cost Averaging Account, will
cancel the Dollar Cost Averaging program.
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. Past performance is not a guarantee
of future results.
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 is equal to your Certificate's value in (i) the Investment Funds, (ii)
the GIROs and (iii) the Special Dollar Cost Averaging Account, or if greater,
the Guaranteed Minimum Death Benefit.
For Traditional IRA and Roth IRA Certificates if the annuitant is between the
ages of 20 through 78 at issue of the Certificate; for NQ Certificates for
annuitant ages 0 through 79 at issue of the Certificate; and for QP Certificates
for annuitant ages 20 through 70 at issue of the Certificate, you may choose one
of two types of Guaranteed Minimum Death Benefit available under the
Certificates: a "6% Roll Up to Age 80" or an "Annual Ratchet to Age 80." Both
types are described below. Both benefits are based on the amount you initially
put in and are adjusted for additional contributions and withdrawals. For NQ
Certificates, for annuitant ages 80 through 83 at issue of the Certificate, a
return of the contributions you have invested under the Certificate will be the
Guaranteed Minimum Death Benefit.
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6% Roll Up to Age 80 (Not available in New York) -- We add interest to the
initial amount at 6% (4% for amounts in the Alliance Money Market and Alliance
Intermediate Government Securities Funds, and GIROs) 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.
Annual Ratchet to Age 80 -- The Guaranteed Minimum Death Benefit is reset each
year through the annuitant's age 80 to the Certificate's value, if it is higher
than the prior year's Guaranteed Minimum Death Benefit. In New York, the
Guaranteed Minimum Death Benefit at the death of the annuitant will never be
less than the amounts in the Investment Funds, plus amounts (not reflecting any
increase due to interest rate changes) in the GIROs reflecting guaranteed
interest.
10. OTHER INFORMATION.
QUALIFIED PLANS. If the QP 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 BENEFITS. 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.
baseBUILDER benefits (which are different than the ones described below) may be
available for annuitant issue ages 76 and older. baseBUILDER benefits are not
currently 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) payout annuity certificate 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 purchase factors.
Death Benefit -- As part of the baseBUILDER you have the choice, at
issue of the Certificate, of two Guaranteed Minimum Death Benefit
options: (i) the 6% Roll Up to Age 80 or (ii) the Annual Ratchet to Age
80. These options are described in "Death Benefit" above. For annuitant
ages 20 through 60 at issue of the Certificate, there is an alternate
baseBUILDER benefit with a Guaranteed Minimum Death Benefit option
which is a 6% Roll Up to Age 70.
6% Roll Up to Age 70 -- We add interest to the initial amount
at 6% (4% for amounts in the Alliance Money Market and
Alliance Intermediate Government Securities Funds, and GIROs)
through the annuitant's age 70 (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.
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<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, any increase or decrease in the value of any
amounts held in the GIROs, and interest credited to amounts in the Special
Dollar Cost Averaging Account through the date we receive your Certificate. Some
states or Federal income tax regulations may require that we calculate the
refund differently. In the case of a complete conversion of an existing
Traditional IRA Certificate to a Roth IRA, you may cancel your Roth IRA and
return to a Traditional IRA by following the instructions in the request for
full conversion form available from the Processing Office or your agent.
AUTOMATIC INVESTMENT PROGRAM (AIP). AIP provides for a specified amount to be
automatically deducted from a bank checking account, bank money market account
or credit union checking account and to be applied as additional amounts under
NQ and Traditional IRA Certificates. AIP is not available for Roth IRA and QP
Certificates.
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 initial contribution to the Special
Dollar Cost Averaging Account where it will be credited with interest at a
guaranteed fixed rate. Amounts will be transferred from the Special Dollar Cost
Averaging Account to the other Investment Funds on a monthly basis over the
first twelve months of your Certificate. Thereafter the Special Dollar Cost
Averaging Account will not be available for allocation under your Certificate.
If you request a transfer (other than the Dollar Cost Averaging transfers) or a
withdrawal from amounts in the Special Dollar Cost Averaging Account, the
Special Dollar Cost Averaging program will end. Any amounts remaining in the
Special Dollar Cost Averaging Account will immediately be transferred to the
other Investment Options according to your previous allocation instructions we
have on file.
The Special Dollar Cost Averaging Account may not currently be available in your
state. In states where it is currently not available, we offer a Special Dollar
Cost Averaging program from the Alliance Money Market Fund. During the time
amounts are in the Alliance Money Market Fund under this program, 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. The mortality and expense risks and
administration charges will be deducted from the Alliance Money Market Fund
under this program.
8
<PAGE>
Dollar cost averaging does not assure a profit or protect against a loss should
market prices decline.
REBALANCING. You can have your money automatically readjusted among the
Investment Funds quarterly, semiannually or annually as you select. The amounts
you have in each selected Investment Fund will grow or decline in value at
different rates during each time period. Rebalancing is intended to transfer
amounts among the chosen Investment Funds in order to retain the allocation
percentages you specify. Rebalancing does not assure a profit or protect against
a loss should market prices decline and should be reviewed periodically, as your
needs may change.
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 semiannual
statements of HRT and EQAT.
You may call toll-free at 1-800-789-7771 for a recording of daily Investment
Fund values, guaranteed rates applicable to the GIROs, as well as guaranteed
fixed interest rates in the Special Dollar Cost Averaging Account.
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
Equitable Accumulator
P.O. Box 1547
Secaucus, NJ 07096-1547
Telephone 1-800-789-7771 and Fax 1-201-583-2224
9
<PAGE>
EQUITABLE ACCUMULATOR(SM)
(IRA, NQ AND QP)
PROSPECTUS DATED MAY 1, 1998
- --------------------------------------------------------------------------------
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 issued on a group basis or as
individual contracts. Enrollment under a group contract is evidenced by issuance
of a certificate. Certificates and individual contracts are each referred to as
"Certificates." Certificates can be issued as individual retirement annuities
(IRAS, which can be either TRADITIONAL IRAS or ROTH IRAS), or non-qualified
annuities for after-tax contributions only (NQ). NQ Certificates may also be
used as an investment vehicle for a defined contribution plan or defined benefit
plan (QP). Under IRA Certificates we accept only initial contributions that are
rollover contributions or that are direct transfers from other individual
retirement arrangements, as described in this prospectus. Under QP Certificates
we will only accept employer contributions from a trust under a plan qualified
under Section 401(a) or 401(k) of the Code. A minimum initial contribution of
$5,000 is required to put a Certificate into effect.
The Certificates are 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), available for Certificates issued as Traditional IRAs and Roth
IRAs, 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 Certificates offer investment options (INVESTMENT OPTIONS) that permit you
to create your own strategies. These Investment Options include 24 variable
investment funds (INVESTMENT FUNDS) and each GUARANTEED INTEREST RATE OPTION
(GIRO) in the GUARANTEED PERIOD ACCOUNT. There is an additional Investment Fund
which is available only under APO Plus. Also, the Special Dollar Cost Averaging
Account (in states where approved) which is part of Equitable Life's general
account and pays interest at guaranteed fixed interest rates, is available for
our Special Dollar Cost Averaging program.
We invest each Investment Fund in Class IB shares of a corresponding portfolio
(PORTFOLIO) of The Hudson River Trust (HRT) and EQ Advisors Trust (EQAT), mutual
funds whose shares are purchased by separate accounts of insurance companies.
The prospectuses for HRT (in which the Alliance Funds invest) and EQAT (in which
the other Investment Funds invest), 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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
MFS Research Equity Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity T. Rowe Price International Stock
T. Rowe Price Equity Income
- --------------------------------------------------------------------------------------------------------------------
<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
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
- --------------------------------------------------------------------------------------------------------------------
Alliance Equity Index (AVAILABLE ONLY UNDER APO PLUS)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts allocated to a GIRO 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 GIROs. A market value adjustment (positive or
negative) will be made for withdrawals, transfers, surrender and certain other
transactions from a GIRO before its expiration date (EXPIRATION DATE). Each GIRO
has its own Guaranteed Rates. The GIROs currently available have Expiration
Dates of February 15, in years 1999 through 2008 and 1999 through 2013 under the
Assured Payment Option and APO Plus.
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of the
United States, New York, New York 10104.
All rights reserved. Accumulator is a service mark, and
baseBUILDER and Income Manager are registered service marks of
The Equitable Life Assurance Society of the United States.
<PAGE>
This prospectus provides information about IRA, NQ and QP Certificates 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 HRT and EQAT, both of which you should
also read carefully.
Your Equitable Life agent can provide you with information about other annuity
products we offer and help you decide which one may best meet your needs.
Registration statements relating to Separate Account No. 45 (SEPARATE ACCOUNT)
and interests under the GIROs have been filed with the Securities and Exchange
Commission (SEC). The statement of additional information (SAI), dated May 1,
1998, 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.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1997 and a current report on Form 8-K dated April 7, 1998 are 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).
3
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL TERMS PAGE 6
FEE TABLE PAGE 8
PART 1: EQUITABLE LIFE, THE SEPARATE
ACCOUNT AND THE
INVESTMENT FUNDS PAGE 13
Equitable Life 13
Separate Account No. 45 13
The Trusts 13
HRT's Manager and Adviser 14
EQAT's Manager 14
EQAT's Investment Advisers 14
Investment Policies and Objectives of HRT's
Portfolios and EQAT's Portfolios 16
PART 2: THE GUARANTEED PERIOD
ACCOUNT PAGE 19
GIROs 19
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior to the
Expiration Date 20
Modal Payment Portion 20
Investments 21
PART 3: THE SPECIAL DOLLAR COST AVERAGING
ACCOUNT PAGE 22
PART 4: PROVISIONS OF THE
CERTIFICATES AND SERVICES
WE PROVIDE PAGE 23
What Is the Equitable Accumulator? 23
Joint Ownership 23
Contributions under the Certificates 23
Methods of Payment 24
Allocation of Contributions 24
Free Look Period 25
Annuity Account Value 25
Transfers among Investment Options 26
Dollar Cost Averaging 26
Rebalancing 27
baseBUILDER Benefits 28
Guaranteed Minimum Income Benefit 28
Death Benefit 29
How Death Benefit Payment Is Made 30
When an NQ Certificate Owner Dies
before the Annuitant 31
Cash Value 31
Surrendering the Certificates to
Receive the Cash Value 31
When Payments Are Made 31
Assignment 31
Services We Provide 32
Distribution of the Certificates 32
PART 5: DISTRIBUTION METHODS UNDER THE
CERTIFICATES PAGE 33
Assured Payment Option 33
APO Plus 36
Withdrawal Options 38
How Withdrawals Affect Your
Guaranteed Minimum Income Benefit
and Guaranteed Minimum Death Benefit 40
Annuity Benefits and Payout Annuity Options 41
PART 6: DEDUCTIONS AND CHARGES PAGE 43
Charges Deducted from the Annuity
Account Value 43
Charges Deducted from the Investment Funds 44
HRT Charges to Portfolios 44
EQAT Charges to Portfolios 44
Group or Sponsored Arrangements 45
Other Distribution Arrangements 45
PART 7: VOTING RIGHTS PAGE 46
The Trusts' Voting Rights 46
Voting Rights of Others 46
Separate Account Voting Rights 46
Changes in Applicable Law 46
PART 8: TAX ASPECTS
OF THE CERTIFICATES PAGE 47
Tax Changes 47
Taxation of Non-Qualified Annuities 47
Charitable Remainder Trusts 48
Special Rules for NQ Certificates Issued
in Puerto Rico 48
IRA Tax Information 48
Traditional Individual Retirement Annuities
(Traditional IRAs) 49
Roth Individual Retirement Annuities
(Roth IRAs) 54
Federal and State Income Tax Withholding and
Information Reporting 58
Other Withholding 59
Impact of Taxes to Equitable Life 59
PART 9: OTHER INFORMATION PAGE 60
Independent Accountants 60
Legal Proceedings 60
PART 10: INVESTMENT PERFORMANCE PAGE 61
Communicating Performance Data 68
4
<PAGE>
Alliance Money Market Fund, Alliance
Intermediate Government Securities
Fund and Alliance High Yield Fund Yield
Information 69
APPENDIX I: MARKET VALUE
ADJUSTMENT EXAMPLE PAGE 70
APPENDIX II: PURCHASE CONSIDERATIONS
FOR QP CERTIFICATES PAGE 71
APPENDIX III: GUARANTEED MINIMUM
DEATH BENEFIT EXAMPLE PAGE 72
APPENDIX IV: EXAMPLE OF
PAYMENTS UNDER THE ASSURED
PAYMENT OPTION AND APO PLUS PAGE 73
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS PAGE 74
5
<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 the Certificate. Under NQ Certificates, the Annuitant can be different
from the Certificate Owner; under both Traditional and Roth IRA Certificates,
the Annuitant and Certificate Owner must be the same individual. Under QP
Certificates, the Annuitant must be the Participant/Employee.
ANNUITY ACCOUNT VALUE -- The sum of the amounts in the Investment Options under
the Certificate. See "Annuity Account Value" in Part 4.
ANNUITY COMMENCEMENT DATE -- The date on which Annuity Benefit payments are to
commence.
ASSURED PAYMENT OPTION -- A distribution option under Traditional and Roth IRA
Certificates 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 or the Special Dollar Cost Averaging Account.
APO PLUS -- A distribution option under Traditional and Roth IRA Certificates
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. No amounts may be allocated to the Special Dollar
Cost Averaging Account.
BASEBUILDER(R) -- Optional protection benefit, consisting of the Guaranteed
Minimum Income Benefit and the Guaranteed Minimum Death 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.
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. Under NQ Certificates, the
Certificate Owner can be different from the Annuitant; under both Traditional
and Roth IRA Certificates, the Certificate Owner must be the same individual as
the Annuitant. Under QP Certificates, the Certificate Owner must be the trustee
of a trust for a qualified plan maintained by an employer.
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.
EQAT -- 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 EQAT and has appointed advisers for each of the
Portfolios.
EXPIRATION DATE -- The date on which a GIRO ends.
GUARANTEED MINIMUM DEATH BENEFIT -- The minimum amount payable upon death of the
Annuitant.
GUARANTEED MINIMUM INCOME BENEFIT -- The minimum amount of future guaranteed
lifetime income.
GIROS -- Any of the periods of time ending on an Expiration Date that are
available for investment under the Certificates. GIROs are referred to as
Guarantee Periods in the Certificates.
GUARANTEED PERIOD ACCOUNT -- The Account that contains the GIROs.
GUARANTEED RATE -- The annual interest rate established for each allocation to a
GIRO.
HRT -- 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 HRT.
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.
6
<PAGE>
INVESTMENT OPTIONS -- The choices for investment: the Investment Funds, each
available GIRO, and the Special Dollar Cost Averaging Account (available only
during the first Contract Year).
IRA -- An individual retirement annuity, as defined in Section 408(b) of the
Code. There are two types of IRAs, a Traditional IRA and a Roth IRA. A Roth IRA
must also meet the requirements of Section 408A of the Code.
JOINT OWNERS -- Two individuals who own undivided interests in the entire
Certificate. If Joint Owners are named, reference to "Certificate Owner," "you"
or "your" will apply to both Joint Owners or either of them. Joint Owners may be
selected only for NQ Certificates.
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 GIRO 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.
NQ -- An annuity contract which may be purchased only with after-tax
contributions, but is not a Roth IRA.
PARTICIPANT/EMPLOYEE -- An individual who participates in an employer's plan
funded by an Equitable Accumulator QP Certificate.
PORTFOLIOS -- The portfolios of HRT and EQAT 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 4.
QP -- When issued with the appropriate endorsement, an NQ Certificate which is
used as an investment vehicle for a defined contribution plan within the meaning
of Section 401(a) and 401(k) of the Code, or a defined benefit plan within the
meaning of Section 401(a) of the Code.
ROTH IRA -- An IRA which must be funded on an after-tax basis, the distributions
from which may be tax free under specified circumstances.
SAI -- The statement of additional information for the Separate Account under
the Certificates.
SEPARATE ACCOUNT -- Equitable Life's Separate Account No. 45.
SPECIAL DOLLAR COST AVERAGING ACCOUNT -- The Investment Option that pays
interest at guaranteed fixed rates and is part of our general account. This
account is available only for Dollar Cost Averaging of your initial Contribution
during the first Contract Year. The Special Dollar Cost Averaging Account is
referred to as the Guaranteed Interest Account in the Certificates.
TRADITIONAL IRA -- An IRA which is generally purchased with pre-tax
contributions, the distributions from which are treated as taxable.
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.
TRUSTS -- HRT and EQAT.
VALUATION PERIOD -- Each Business Day together with any preceding non-business
days.
7
<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 Certificates so
that you may compare them with other similar products. The table reflects both
the charges of the Separate Account and the expenses of HRT and EQAT. Charges
for applicable taxes such as state or local premium taxes may also apply. For a
complete description of the charges under the Certificates, see "Part 6:
Deductions and Charges." For a complete description of the Trusts' charges and
expenses, see the prospectuses for HRT and EQAT.
As explained in Parts 2 and 3, the GIROs and the Special Dollar Cost Averaging
Account 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 that will be deducted
from amounts allocated to the GIROs and the Special Dollar Cost Averaging
Account is the withdrawal charge. 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 GIRO. See "Part 2: The Guaranteed Period Account."
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
WITHDRAWALCHARGE AS A PERCENTAGE OF CONTRIBUTIONS (deducted CONTRACT
upon surrender or for certain withdrawals. The YEAR
applicable withdrawal charge percentage is determined ----
by the Contract Year in which the withdrawal is made or 1......7.00%
the Certificate is surrendered beginning with Contract 2......6.00
Year 1 with respect to each contribution withdrawn or 3......5.00
surrendered. For each contribution, the Contract Year 4......4.00
in which we receive that contribution is "Contract Year 5......3.00
1").(1) 6......2.00
7......1.00
8+.....0.00
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS IN EACH
- --------------------------------------------------------------------------------
INVESTMENT FUND)
- ---------------
MORTALITY AND EXPENSE RISKS(2).................................... 1.10%
ADMINISTRATION(3)................................................. 0.25%
=====
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES......................... 1.35%
=====
OPTIONAL BENEFIT EXPENSE (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- -------------------------------------------------------------------
BASEBUILDER BENEFITS EXPENSE (calculated as a percentage of the
Guaranteed Minimum Income Benefit benefit base)(4).............. 0.30%
- -------------------
See footnotes on next page.
8
<PAGE>
HRT AND EQAT 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
HRT INVESTORS INVESTORS INCOME STOCK GLOBAL INTERNATIONAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.48% 0.52% 0.55% 0.37% 0.65% 0.90%
12b-1 Fee(5) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.07% 0.05% 0.04% 0.03% 0.08% 0.18%
===============================================================================================================================
TOTAL HRT ANNUAL EXPENSES(6) 0.80% 0.82% 0.84% 0.65% 0.98% 1.33%
===============================================================================================================================
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE ALLIANCE
AGGRESSIVE SMALL CAP MONEY GOVT. HIGH EQUITY
HRT STOCK GROWTH MARKET SECURITIES YIELD INDEX
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.54% 0.90% 0.35% 0.50% 0.60% 0.32%
12b-1 Fee(5) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.03% 0.05% 0.04% 0.06% 0.04% 0.04%
===============================================================================================================================
TOTAL HRT ANNUAL EXPENSES(6) 0.82% 1.20% 0.64% 0.81% 0.89% 0.61%
===============================================================================================================================
<CAPTION>
BT BT MFS MERRILL
BT SMALL INTERNATIONAL EMERGING LYNCH
EQUITY 500 COMPANY EQUITY GROWTH MFS BASIC VALUE
EQAT INDEX INDEX INDEX COMPANIES RESEARCH EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.25% 0.25% 0.35% 0.55% 0.55% 0.55%
12b-1 Fee(5) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.05% 0.10% 0.20% 0.05% 0.05% 0.05%
===============================================================================================================================
TOTAL EQAT ANNUAL EXPENSES(7) 0.55% 0.60% 0.80% 0.85% 0.85% 0.85%
===============================================================================================================================
<CAPTION>
MORGAN WARBURG
MERRILL STANLEY EQ/PUTNAM T. ROWE T. ROWE PINCUS
LYNCH EMERGING GROWTH & PRICE PRICE SMALL
WORLD MARKETS EQ/PUTNAM INCOME EQUITY INTERNATIONAL COMPANY
EQAT STRATEGY EQUITY BALANCED VALUE INCOME STOCK VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.70% 1.15% 0.55% 0.55% 0.55% 0.75% 0.65%
12b-1 Fee(5) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.25% 0.35% 0.10% 0.05% 0.05% 0.20% 0.10%
===============================================================================================================================
TOTAL EQAT ANNUAL EXPENSES(7) 1.20% 1.75% 0.90% 0.85% 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
surrender of a Certificate. See "Withdrawal Charge" in Part 6.
(2)A portion of this charge is for providing the Guaranteed Minimum Death
Benefit. See "Mortality and Expense Risks Charge" in Part 6.
(3)We reserve the right to increase this charge to an annual rate of 0.35%, the
maximum permitted under the Certificates.
(4)The 0.30% charge is for the baseBUILDER with the "6% Roll Up to Age 80"
Guaranteed Minimum Death Benefit and the "Annual Ratchet to Age 80"
Guaranteed Minimum Death Benefit. The charge for the baseBUILDER with the "6%
Roll Up to Age 70" Guaranteed Minimum Death Benefit, available under only
Traditional IRA Certificates, is 0.15%. See "baseBUILDER Benefits" in Part 4.
If the baseBUILDER is elected, this charge is deducted annually on each
Processing Date. See "baseBUILDER Benefits Charge" in Part 6. For the
description of the Guaranteed Minimum Income Benefit benefit base, see
"Guaranteed Minimum Income Benefit Benefit Base" in Part 5.
(5)The Class IB shares of HRT and EQAT are subject to fees imposed under
distribution plans (herein, the "Rule 12b-1 Plans" ) adopted by HRT and EQAT
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended.
The Rule 12b-1 Plans provide that HRT and EQAT, on behalf of each Portfolio
(other than the Alliance Small Cap Growth Portfolio of HRT), 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. The Rule 12b-1 Plan for the Alliance Small Cap
Growth Portfolio of HRT provides that Equitable Distributors Inc. ("EDI")
will receive an annual fee not to exceed the lesser of (a) 0.25% of the
average daily net assets of the Portfolio attributable to Class IB shares and
(b) an amount that, when added to certain other expenses of the Class IB
shares, would result in the ratio of expenses to average daily net assets
attributable to Class IB shares equalling 1.20%.
(6)Effective May 1, 1997, a new Investment Advisory Agreement was entered into
between HRT and Alliance Capital Management L.P. ("Alliance"), HRT's
Investment Adviser, which effected changes in HRT's management fee and
expense structure. See HRT's prospectus for more information. The amounts
shown for the Portfolios of HRT are based on average daily net assets for the
year ended December 31, 1997 and have been restated to reflect (i) the fees
that would have been paid to Alliance if the current Investment Advisory
Agreement had been in effect as of January 1, 1997 and (ii) estimated
accounting expenses for the year ending December 31, 1997. The investment
management and advisory fees for each Portfolio may vary from year to year
depending upon the average daily net assets of the respective Portfolio of
HRT. The maximum investment management and 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 "HRT Charges to Portfolios" in Part 6.
9
<PAGE>
(7)All EQAT Portfolios commenced operations on May 1, 1997, except the Morgan
Stanley Emerging Markets Equity Portfolio, which commenced operations on
August 20, 1997, and the following Portfolios, which had initial seed capital
invested on December 31, 1997: BT Equity 500 Index, BT Small Company Index,
and BT International Equity Index.
The maximum investment management and advisory fees for each EQAT Portfolio
cannot be increased without a vote of that Portfolio's shareholders. The
amounts shown as "Other Expenses" will fluctuate from year to year depending
on actual expenses, however, EQ Financial Consultants, Inc. ("EQ Financial"),
EQAT's manager, has entered into an expense limitation agreement with respect
to each Portfolio ("Expense Limitation Agreement"), pursuant to which EQ
Financial has agreed to waive or limit its fees and assume other expenses.
Under the Expense Limitation Agreement, total annual operating expenses of
each Portfolio (other than interest, taxes, brokerage commissions,
capitalized expenditures, extraordinary expenses, and 12b-1 fees) are limited
for the respective average daily net assets of each Portfolio as follows: BT
Equity 500 Index - 0.30%; BT Small Company Index - 0.35%; BT International
Equity - 0.55%; MFS Research, MFS Emerging Growth Companies, Merrill Lynch
Basic Value Equity, EQ/Putnam Growth & Income Value, T. Rowe Price Equity
Income - 0.60%; Merrill Lynch World Strategy and T. Rowe Price International
- 0.95%; Morgan Stanley Emerging Markets Equity - 1.50%; EQ/Putnam Balanced -
0.65%; and Warburg Pincus Small Company - 0.75%.
Absent the expense limitation, the "Other Expenses" for 1997 on an annualized
basis for each of the following Portfolios would have been as follows: MFS
Emerging Growth Companies - 1.02%; MFS Research - 0.98%; Merrill Lynch Basic
Value Equity - 1.09%; Merrill Lynch World Strategy - 2.10%; Morgan Stanley
Emerging Markets Equity - 1.21%; EQ/Putnam Balanced - 1.75%; EQ/Putnam Growth
& Income Value - 0.95%; T. Rowe Price Equity Income - 0.94%; T. Rowe Price
International Stock - 1.56%; and Warburg Pincus Small Company Value - 0.80%.
For EQAT Portfolios which had initial seed capital invested on December 31,
1997, the "Other Expenses" for 1998 are estimated to be as follows (absent
the expense limitation): BT Equity 500 Index - 0.29%; BT Small Company Index
- 0.23%; and BT International Equity Index - 0.47%. See "EQAT Charges to
Portfolios" in Part 6.
Each Portfolio may at a later date make a reimbursement to EQ Financial for
any of the management fees waived or limited and other expenses assumed and
paid by EQ Financial pursuant to the Expense Limitation Agreement provided
that, among other things, such Portfolio has reached sufficient size to
permit such reimbursement to be made and provided that the Portfolio's
current annual operating expenses do not exceed the operating expense limit
determined for such Portfolio. See the EQAT prospectus for more information.
We may also offer Equitable Accumulator certificates, which have other features,
benefits and charges. A current prospectus for these other Equitable Accumulator
certificates, if available, may be obtained from your agent.
10
<PAGE>
EXAMPLES
- ---------------
The examples below show the expenses that a hypothetical Certificate Owner (who
has (i) elected the baseBUILDER with a 6% Roll Up to Age 80 Guaranteed Minimum
Death Benefit or an Annual Ratchet to Age 80 Guaranteed Minimum Death Benefit
and (ii) has elected APO Plus) 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)
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.
EXPENSES REFLECTING BASEBUILDER BENEFIT ELECTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT
END OF EACH PERIOD SHOWN, THE EXPENSES THE END OF EACH PERIOD SHOWN, THE EXPENSES
WOULD BE: WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------------------
HRT
- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Conservative
Investors $ 91.78 $123.52 $158.32 $279.95 $24.96 $77.10 $132.34 $285.33
Alliance Growth Investors 91.98 124.12 159.32 281.95 25.16 77.70 133.34 287.33
Alliance Growth & Income 92.18 124.72 160.32 283.94 92.18 124.72 160.32 283.94
Alliance Common Stock 90.29 119.04 150.82 264.87 23.47 72.61 124.83 270.24
Alliance Global 93.57 128.90 167.28 297.79 26.75 82.47 141.29 303.15
Alliance International 97.05 139.29 184.51 331.58 30.23 92.86 158.52 336.94
Alliance Aggressive Stock 91.98 124.12 159.32 281.95 25.16 77.70 133.34 287.33
Alliance Small Cap Growth 95.76 135.44 -- -- 28.94 89.01 -- --
Alliance Money Market 90.19 118.74 150.32 263.86 23.37 72.31 124.33 269.23
Alliance Intermediate Gov't
Securities 91.88 123.82 158.82 280.95 25.06 77.40 132.84 286.33
Alliance High Yield 92.68 126.22 162.82 288.92 25.86 79.79 136.83 294.28
EQAT
- ----
BT Equity 500 Index 89.30 116.04 -- -- 22.48 69.62 -- --
BT Small Company Index 89.80 117.55 -- -- 22.98 71.12 -- --
BT International Equity Index 91.78 123.52 -- -- 24.96 77.10 -- --
MFS Emerging
Growth Companies 92.28 125.02 -- -- 25.46 78.59 -- --
MFS Research 92.28 125.02 -- -- 25.46 78.59 -- --
Merrill Lynch Basic Value
Equity 92.28 125.02 -- -- 25.46 78.59 -- --
Merrill Lynch World Strategy 95.76 135.44 -- -- 28.94 89.01 -- --
Morgan Stanley Emerging
Markets Equity 101.22 151.65 -- -- 34.40 105.23 -- --
EQ/Putnam Balanced 92.78 126.52 -- -- 25.96 80.09 -- --
EQ/Putnam Growth & Income
Value 92.28 125.02 -- -- 25.46 78.59 -- --
T. Rowe Price Equity Income 92.28 125.02 -- -- 25.46 78.59 -- --
T. Rowe Price
International Stock 95.76 135.44 -- -- 28.94 89.01 -- --
Warburg Pincus
Small Company Value 93.77 129.49 -- -- 26.95 83.07 -- --
</TABLE>
- -------------------
See footnote on next page.
11
<PAGE>
EXPENSES REFLECTING APO PLUS ELECTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT
END OF EACH PERIOD SHOWN, THE EXPENSES THE END OF EACH PERIOD SHOWN, THE EXPENSES
WOULD BE: WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------------------
HRT
- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Common Stock $90.29 $119.04 $150.82 $264.87 $23.47 $72.61 $124.83 $270.24
Alliance Equity Index 89.90 117.85 148.82 260.81 23.08 71.42 122.83 266.19
</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 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.
12
<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 U.S. 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, 1997, AXA beneficially owned
approximately 58.7% of the outstanding common stock of the Holding Company.
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
$274.1 billion of assets as of December 31, 1997.
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 HRT and EQAT. 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. This means that assets supporting Annuity
Account Value in the Separate Account are not subject to claims of Equitable
Life's creditors. 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 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 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.
THE TRUSTS
The Trusts are open-end management investment companies registered under the
1940 Act, more commonly called mutual funds. As a "series" type of
13
<PAGE>
mutual fund, each Trust issues several different series of stock, each of which
relates to a different Portfolio of that Trust. HRT commenced operations in
January 1976 with a predecessor of its Alliance Common Stock Portfolio. EQAT
commenced operations on May 1, 1997. The Trusts do not impose sales charges or
"loads" for buying and selling their shares. All dividends and other
distributions on a Portfolio's shares are reinvested in full and fractional
shares of the Portfolio to which they relate. Each Investment Fund invests in
Class IB shares of a corresponding Portfolio. All of the Portfolios, except for
the Morgan Stanley Emerging Markets Equity Portfolio, are diversified for 1940
Act purposes. The Board of Trustees of HRT and EQAT may establish additional
Portfolios or eliminate existing Portfolios at any time. More detailed
information about the Trusts, their investment objectives, policies,
restrictions, risks, expenses, their respective Rule 12b-1 Plans relating to
their respective Class IB shares, and other aspects of their operations, appears
in the HRT prospectus (beginning after this prospectus), the EQAT prospectus
(beginning after the HRT prospectus), or in their respective Statements of
Additional Information, which are available upon request.
HRT'S MANAGER AND ADVISER
HRT is managed and its Portfolios are advised by Alliance Capital Management
L.P. (ALLIANCE), which is registered with the SEC as an investment adviser under
the Investment Advisers Act of 1940, as amended (ADVISERS ACT).
In its role as manager of HRT, Alliance has overall responsibility for the
general management and administration of HRT, including selecting the portfolio
managers for HRT's Portfolios, monitoring their investment programs and results,
reviewing brokerage matters, performing fund accounting, overseeing compliance
by HRT with various Federal and state statutes, and carrying out the directives
of its Board of Trustees. With the approval of HRT's Trustees, Alliance may
enter into agreements with other companies to assist with its administrative and
management responsibilities to HRT.
As adviser for all HRT Portfolios, Alliance is responsible for developing the
Portfolios' investment programs, making investment decisions for the Portfolios,
placing all orders for the purchase and sale of those investments and performing
certain limited related administrative functions.
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance, a leading international investment adviser, provides investment
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 is a publicly traded limited partnership incorporated in Delaware. On
December 31, 1997, Alliance was managing approximately $218.7 billion in assets.
Alliance employs 223 investment professionals, including 83 research analysts.
Portfolio managers have average investment experience of more than 14 years.
Alliance is an indirect, majority-owned subsidiary of Equitable Life, and its
main office is located at 1345 Avenue of the Americas, New York, NY 10105.
Additional information regarding Alliance is located in the HRT prospectus which
directly follows this prospectus.
EQAT'S MANAGER
EQ Financial Consultants, Inc. (EQ FINANCIAL), subject to the supervision and
direction of the Board of Trustees of EQAT, has overall responsibility for the
general management and administration of EQAT. EQ Financial is an investment
adviser registered under the Advisers Act, and a broker-dealer registered under
the Exchange Act. EQ Financial currently furnishes specialized investment advice
to other clients, including individuals, pension and profit-sharing plans,
trusts, charitable organizations, corporations, and other business entities. EQ
Financial is a Delaware corporation and an indirect, wholly owned subsidiary of
Equitable Life.
EQ Financial is responsible for providing management and administrative services
to EQAT and selects the investment advisers for EQAT's Portfolios, monitors the
EQAT advisers' investment programs and results, reviews brokerage matters,
oversees compliance by EQAT with various Federal and state statutes, and carries
out the directives of its Board of Trustees. EQ Financial Consultants, Inc.'s
main office is located at 1290 Avenue of the Americas, New York, NY 10104.
Pursuant to a service agreement, Chase Global Funds Services Company assists EQ
Financial in the performance of its administrative responsibilities to EQAT with
other necessary administrative, fund accounting and compliance services.
EQAT'S INVESTMENT ADVISERS
Bankers Trust Company, Massachusetts Financial Services Company, Merrill Lynch
Asset Management, L.P., Morgan Stanley Asset Management Inc., Putnam Investment
Management Inc., T. Rowe Price Associates, Inc., and Rowe Price-Fleming
International, Inc., and Warburg Pincus Asset Management, Inc. serve as EQAT
advisers only for their respective EQAT Portfolios.
Each EQAT adviser furnishes EQAT's manager, EQ Financial, with an investment
program (updated periodically) for each of its Portfolios, makes investment
decisions on behalf of its EQAT Portfolios, places all
14
<PAGE>
orders for the purchase and sale of investments for the Portfolio's account with
brokers or dealers selected by such adviser and may perform certain limited
related administrative functions.
The assets of each Portfolio are allocated currently among the EQAT advisers. If
an EQAT Portfolio shall at any time have more than one EQAT adviser, the
allocation of an EQAT Portfolio's assets among EQAT advisers may be changed at
any time by EQ Financial.
BANKERS TRUST COMPANY
Bankers Trust Company (BANKERS TRUST) is a wholly owned subsidiary of Bankers
Trust New York Corporation which was founded in 1903. Bankers Trust conducts a
variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic institutional
markets. Bankers Trust advises BT Equity 500 Index, a domestic equity portfolio,
BT Small Company Index, an aggressive equity portfolio, and BT International
Equity Index, an international equity portfolio. As of December 31, 1997,
Bankers Trust had approximately $317.8 billion in assets under management
worldwide. The executive offices of Bankers Trust are located at 130 Liberty
Street (One Bankers Trust Plaza), New York, NY 10006.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company (MFS) is America's oldest mutual fund
organization, whose assets under management as of December 31, 1997 were
approximately $70.2 billion on behalf of more than 2.7 million investors. MFS
advises MFS Research, a domestic equity portfolio, and MFS Emerging Growth
Companies, an aggressive equity portfolio. MFS is an indirect subsidiary of Sun
Life Assurance Company of Canada and is located at 500 Boylston Street, Boston,
MA 02116.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
Founded in 1976, Merrill Lynch Asset Management, L.P. (MLAM) is a dedicated
asset management affiliate of Merrill Lynch & Co., Inc., a financial management
and advisory company with more than a century of experience. As of December 31,
1997, MLAM, along with its advisory affiliates held approximately $278 billion
in investment company and other portfolio assets under management. MLAM advises
Merrill Lynch Basic Value Equity, a domestic equity portfolio with a value
approach to investing, and Merrill Lynch World Strategy, a global flexible asset
allocation portfolio that invests in equities and fixed income securities
worldwide. The company is located at 800 Scudders Mill Road, Plainsboro, NJ
08543-9011.
MORGAN STANLEY ASSET MANAGEMENT INC.
Morgan Stanley Asset Management Inc. (MSAM) provides a broad range of portfolio
management services to customers in the United States and abroad and serves as
an investment adviser to numerous open-end and closed-end investment companies.
MSAM, together with its affiliated institutional investment management
companies, had approximately $146 billion in assets under management and
fiduciary care as of December 31, 1997. MSAM advises Morgan Stanley Emerging
Markets Equity, an international equity portfolio. MSAM is a subsidiary of
Morgan Stanley, Dean Witter & Co. and is located at 1221 Avenue of the Americas,
New York, NY 10020.
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam Investment Management, Inc. (PUTNAM) has been managing mutual funds since
1937. As of December 31, 1997, Putnam and its affiliates managed more than $235
billion in assets. Putnam advises EQ/Putnam Balanced, a balanced stock and bond
portfolio and EQ/Putnam Growth & Income Value, a domestic equity portfolio.
Putnam is an indirect subsidiary of Marsh & McLennan Companies, Inc. and is
located at One Post Office Square, Boston, MA 02109.
T. ROWE PRICE ASSOCIATES, INC. AND ROWE PRICE-FLEMING INTERNATIONAL, INC.
Founded in 1937, T. Rowe Price Associates, Inc. (T. ROWE PRICE) provides
investment management to both individuals and institutions. With its affiliates,
assets under management were over $126 billion as of December 31, 1997. T. Rowe
Price advises T. Rowe Price Equity Income, a domestic equity portfolio. The
company is located at 100 East Pratt Street, Baltimore, MD 21202.
Rowe Price-Fleming International, Inc., (PRICE-FLEMING) was founded as a joint
venture between T. Rowe Price and Robert Fleming Holdings, Ltd., a diversified
British investment organization. Price-Fleming's predominately non-U.S. assets
under management were the equivalent to approximately $30 billion as of December
31, 1997. Price-Fleming advises T. Rowe Price International Stock, an
international equity portfolio, and is located at 100 East Pratt Street,
Baltimore, MD 21202.
WARBURG PINCUS ASSET MANAGEMENT, INC.
Warburg Pincus Asset Management, Inc. (WPAM) is a professional investment
advisory firm which provides services to investment companies, employee benefit
plans, endowment funds, foundations, and other institutions and individuals.
Assets under management were approximately $19.6 billion as of December 31,
1997. WPAM is indirectly controlled by Warburg, Pincus & Co., a New York
partnership, which serves as a holding company of WPAM. WPAM advises Warburg
Pincus Small Company Value, an aggressive equity portfolio. The company is
located at 466 Lexington Avenue, New York, NY 10017.
Additional information regarding each of the companies which serve as an EQAT
adviser appears in the EQAT prospectus beginning after the HRT prospectus.
15
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF HRT'S PORTFOLIOS AND EQAT'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 HRT and EQAT, both of which
accompany this prospectus. Please read the prospectuses for each of the trusts
carefully before investing.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HRT PORTFOLIO INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded equity and High total return without, in the
Investors debt securities. adviser's opinion, undue risk to
principal
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Growth Investors Diversified mix of publicly traded equity and High total return consistent with
fixed-income securities, including at times the adviser's determination of
common stocks issued by intermediate- and reasonable risk
small-sized companies and at times
lower-quality fixed-income securities 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 and
instruments. increasing income
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Global Primarily equity securities of non-United Long-term growth of capital
Long-term growth of capital States as
well as United States companies.
- -------------------------------------------------------------------------------------------------------------------------------
Alliance International Primarily equity securities selected Long-term growth of capital
principally to 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 Long-term growth of capital
equity-type 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 High level of current income
money market instruments. while preserving assets and
maintaining liquidity
- -------------------------------------------------------------------------------------------------------------------------------
Alliance Intermediate Primarily debt securities issued or guaranteed High current income consistent
Government Securities as to principal and interest by the U.S. with relative stability of
government or any of its agencies or principal
instrumentalities. Each investment will have a
final maturity of not more than 10 years or a
duration not exceeding that of a 10-year
Treasury note.
- -------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield Primarily a diversified mix of high-yield, High return by maximizing current
fixed-income securities which generally involve income and, to the extent
greater volatility of price and risk of consistent with that objective,
principal and income than higher-quality capital appreciation
fixed-income securities. Lower-quality debt
securities are commonly known as "junk bonds."
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HRT PORTFOLIO
AVAILABLE ONLY UNDER APO PLUS INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Equity Index Selected securities in the Standard & Poor's Total return (before trust and
500 Composite Stock Price Index ("S&P 500") separate account expenses) that
which the adviser believes will, in the approximates the total return of
aggregate, approximate the performance results the Index (including reinvestment
of the Index. of dividends) at risk level
consistent with that of the Index
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQAT PORTFOLIO INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BT Equity 500 Index Invest in a statistically selected sample of Replicate as closely as possible
the 500 stocks included in the S&P 500. (before the deduction of
Portfolio expenses) the total
return of the S&P 500
- -------------------------------------------------------------------------------------------------------------------------------
BT Small Company Index Invest in a statistically selected sample of Replicate as closely as possible
the 2,000 stocks included in the Russell 2000 (before the deduction of
Index ("Russell 2000"). Portfolio expenses) the total
return of the Russell 2000
- -------------------------------------------------------------------------------------------------------------------------------
BT International Equity Index Invest in a statistically selected sample of Replicate as closely as possible
the securities of companies included in the (before the deduction of
Morgan Stanley Capital International Europe, Portfolio expenses) the total
Australia, Far East Index ("EAFE"), although return of the EAFE
not all companies within a country will be
represented in the Portfolio at the same time.
- -------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Primarily (i.e., at least 80% of its assets Long-term growth of capital
Companies under normal circumstances) in common stocks of
emerging growth companies that the 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 Long-term growth of capital and
common stock or securities convertible into future income
common stock of companies believed by the
adviser to possess better than average
prospects for long-term growth.
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Investment in securities, primarily Capital appreciation and, secondarily,
Equity equities, that the adviser believes income
are undervalued and therefore represent
basic investment value.
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy Investment primarily in a portfolio of equity High total investment return
and fixed-income securities, including
convertible securities, of U.S. and foreign
issuers.
- -------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Primarily equity securities of emerging market Long-term capital appreciation
Equity country issuers with a focus on those in which
the adviser believes the economies are
developing strongly and in which the markets
are becoming more sophisticated.
- -------------------------------------------------------------------------------------------------------------------------------
EQ/Putnam Balanced A well-diversified portfolio of stocks and Balanced investment
bonds that will produce both capital growth and
current income.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQAT PORTFOLIO (CONTINUED) INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQ/Putnam Growth Primarily common stocks that offer potential Capital growth and, secondarily,
& Income Value for capital growth and may, consistent with the current income
Portfolio's investment objective, invest in
common stocks that offer potential for current
income.
- -------------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Primarily dividend paying common stocks of Substantial dividend income and
established companies. also capital appreciation
- -------------------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Primarily common stocks of established Long-term growth of capital
non-United States companies.
- -------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Small Primarily in a portfolio of equity securities Long-term capital appreciation
Company Value of small capitalization companies (i.e.,
companies having market capitalizations of
$1 billion or less at the time of initial
purchase) that the adviser considers to be
relatively undervalued.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
PART 2: THE GUARANTEED PERIOD ACCOUNT
- --------------------------------------------------------------------------------
GIROS
Each amount allocated to a GIRO and held to the GIRO'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
GIRO, which was in effect on the Transaction Date for the allocation. We may
establish different Guaranteed Rates under other classes of Certificates. We use
the term GUARANTEED PERIOD AMOUNT to refer to the amount allocated to and
accumulated in each GIRO. 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 GIROs to which you have allocated
Annuity Account Value. On the Expiration Date of a GIRO, 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 GIRO'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 GIROs on any Business Day,
therefore, will be the sum of the present value of the Maturity Value in each
GIRO, using the Guaranteed Rate in effect for new allocations to each such GIRO
on such date.
GIROs and Expiration Dates
We currently offer GIROs ending on February 15th for each of the maturity years
1999 through 2008. Not all of these GIROs will be available for Annuitant ages
76 and above. See "Allocation of Contributions" in Part 4. Also, the GIROs may
not be available for investment in all states. As GIROs 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 GIROs above,
GIROs ending on February 15th for each of the maturity years 2009 through 2013
are available.
We will not accept allocations to a GIRO if, on the Transaction Date:
o Such Transaction Date and the Expiration Date for such GIRO fall within the
same calendar year.
o The Guaranteed Rate is 3%.
o The GIRO 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 GIRO can be
determined at the time it is made, you can determine the amount required to be
allocated to a GIRO in order to produce a target Maturity Value (assuming no
transfers or withdrawals are made and no charges are allocated to the GIRO). 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, 1998 and the related price
per $100 of Maturity Value for each currently available GIRO were as follows:
- -------------------------------------------------------------
GUARANTEE
PERIODS WITH GUARANTEED
EXPIRATION DATE RATE AS OF PRICE
FEBRUARY 15TH OF APRIL 15, PER $100 OF
MATURITY YEAR 1998 MATURITY VALUE
- -------------------------------------------------------------
1999 4.48% $96.39
2000 4.59 92.08
2001 4.64 87.91
2002 4.68 83.89
2003 4.73 79.95
2004 4.80 76.04
2005 4.81 72.50
2006 4.83 69.07
2007 4.86 65.72
2008 4.86 62.68
- -------------------------------------------------------------
Available under the Assured Payment Option and APO Plus
- -------------------------------------------------------------
2009 4.75% $60.45
2010 4.75 57.71
2011 4.75 55.09
2012 4.75 52.59
2013 4.75 50.20
- -------------------------------------------------------------
Allocation among GIROs
The same approach as described above may also be used to determine the amount
which you would need to allocate to each GIRO 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
1999 through 2003, then according to the above table the lump sum contribution
19
<PAGE>
you would have to make as of April 15, 1998 would be $440.22 (the sum of the
prices per $100 of Maturity Value for each maturity year from 1999 through
2003).
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 GIROs 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
We will notify you on or before December 31st prior to the Expiration Date of
each GIRO 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 4:
(a) to transfer the Maturity Value into any GIRO 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 GIRO will be transferred into the GIRO 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 GIRO prior
to its Expiration Date will cause any remaining Guaranteed Period Amount for
that GIRO 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 GIRO 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 GIRO 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 GIROs.
The market value adjustment (positive or negative) resulting from a withdrawal
of all funds from a GIRO 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 GIRO (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 GIRO.
(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 GIRO, 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 GIRO will be
a percentage of the market value adjustment that would be applicable upon a
withdrawal of all funds from a GIRO. This percentage is determined by (i)
dividing the amount of the withdrawal or transfer from the GIRO by (ii) the
Annuity Account Value in such GIRO prior to the withdrawal or transfer. See
Appendix I for an example.
The Guaranteed Rate for new allocations to a GIRO is the rate we have in effect
for this purpose even if new allocations to that GIRO 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 GIRO 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 GIROs, 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
(Applicable Only for the Assured Payment Option and APO Plus)
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
20
<PAGE>
Guaranteed Period Account for payments to be made prior to the Expiration Date
of the earliest GIRO 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 GIRO, the Guaranteed Period Amount will be held in the
Modal Payment Portion of the Guaranteed Period Account. Amounts from an expired
GIRO 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 GIRO, beginning on the Expiration Date of such GIRO.
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 GIROs (or the Modal Payment Portion of the Guaranteed
Period Account under Traditional IRA and Roth IRA Certificates) 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 GIROs (or the Modal Payment Portion of the
Guaranteed Period Account under Traditional IRA and Roth IRA Certificates) 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
(and any earnings on those amounts) 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 GIROs. 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 GIROs 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 GIROs.
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 and the Special
Dollar Cost Averaging 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 5.
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,
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.
21
<PAGE>
- --------------------------------------------------------------------------------
PART 3: THE SPECIAL DOLLAR COST AVERAGING ACCOUNT
- --------------------------------------------------------------------------------
The Special Dollar Cost Averaging Account is part of our general account and
pays interest at guaranteed rates. The general account supports all of our
policy and contract guarantees, as well as our general obligations. See,
"General Account" under "Investments" in "Part 2: the Guaranteed Period Account"
for a discussion of our general account.
The Special Dollar Cost Averaging Account is only available for Dollar Cost
Averaging of your entire initial contribution. Partial allocation of your
initial contribution and transfer of amounts into this Account are not
permitted. The Special Dollar Cost Averaging Account will not be available as an
Investment Option under your Certificate after the first Contract Year. The
Special Dollar Cost Averaging Account may not currently be available in your
state. See "Dollar Cost Averaging" in Part 4. Contributions to the Special
Dollar Cost Averaging Account, less transfers under the Special Dollar Cost
Averaging program are guaranteed by Equitable Life.
Interest is credited to the Special Dollar Cost Averaging Account every day at
the current interest rate. Current interest rates are set periodically by
Equitable Life, at its discretion, according to procedures that Equitable Life
reserves the right to change. All interest rates are effective annual rates, but
before deduction of applicable withdrawal charges.
An interest rate is assigned to each allocation of an initial contribution to
the Special Dollar Cost Averaging Account and the rate is guaranteed for a
Contract Year. The guaranteed interest rate applicable under the Special Dollar
Cost Averaging program is set forth in your Certificate and will never be less
than 3%. See "Dollar Cost Averaging" in Part 4 for the rules and restrictions
applicable to the Special Dollar Cost Averaging Account.
22
<PAGE>
- --------------------------------------------------------------------------------
PART 4: PROVISIONS OF THE CERTIFICATES AND SERVICES WE PROVIDE
- --------------------------------------------------------------------------------
THE PROVISIONS DISCUSSED IN THIS PART 4 APPLY WHEN YOUR CERTIFICATE IS OPERATING
PRIMARILY TO ACCUMULATE ANNUITY ACCOUNT VALUE. UNDER TRADITIONAL IRA AND ROTH
IRA CERTIFICATES, 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 TRADITIONAL IRA OR ROTH IRA CERTIFICATE AS DISCUSSED IN PART
5.
WHAT IS THE EQUITABLE ACCUMULATOR?
The Equitable Accumulator 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 GIROs
providing guaranteed interest when held to maturity. The Special Dollar Cost
Averaging Account providing guaranteed interest is also available (in states
where approved) only for Dollar Cost Averaging of your initial contribution
during the first Contract Year. Equitable Accumulator Certificates can be issued
as two different types of individual retirement annuities (IRAS), TRADITIONAL
IRAS and ROTH IRAS, or non-qualified annuities (NQ). NQ Certificates may also be
used as an investment vehicle for qualified plans (QP). The provisions of your
Certificate may be restricted by applicable laws or regulations. Roth IRA
Certificates may not currently be available in your state. Your agent can
provide information about state availability, or you may contact our Processing
Office.
Earnings generally accumulate on a tax-deferred basis until withdrawn or when
distributions become payable. Withdrawals made prior to 59 1/2 may also be
subject to tax penalty.
IRA CERTIFICATES
IRA Certificates are available for Annuitant issue ages 20 through 78. IRA
Certificates are not available in Puerto Rico.
NQ CERTIFICATES
NQ Certificates are available for Annuitant issue ages 0 through 83.
QP CERTIFICATES
When issued with the appropriate endorsement, an NQ Certificate may be purchased
by a plan qualified under Section 401(a) or 401(k) of the Code. Such purchases
may not be available in all states. QP Certificates are available for Annuitant
issue ages 20 through 70. Plan fiduciaries considering purchase of a Certificate
should read the important information in "Appendix II: Purchase Considerations
for QP Certificates."
JOINT OWNERSHIP
If Joint Owners are named under an NQ Certificate, both Owners must be of legal
age, and joint ownership with non-natural persons is not permitted. Unless
otherwise provided in writing, the exercise of any ownership right in the
Certificate must be in a written form satisfactory to us and signed by both
Owners. A Joint Owner designation supersedes any beneficiary designation (see
"Death Benefit" below). This feature may not currently be available in your
state. Your agent can provide information about state availability, or you may
contact our Processing Office.
CONTRIBUTIONS UNDER THE CERTIFICATES
The minimum initial contribution under all Certificates is $5,000. 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 that you own would then total more
than $2,500,000.
Contributions are credited as of the Transaction Date.
IRA CERTIFICATES
Under IRA Certificates, 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
traditional individual retirement arrangements. Under Roth IRA Certificates, we
will only accept rollover contributions from Traditional IRAs, or Roth IRAs, or
direct custodian-to-custodian transfers from other Roth IRAs. See "Part 8: Tax
Aspects of the Certificates."
Under Traditional IRA Certificates, you may make subsequent contributions of at
least $1,000. Subsequent Traditional IRA Certificate contributions may be
"regular" IRA contributions (limited to a maximum of $2,000 a year), or rollover
contributions or direct transfers as described above.
23
<PAGE>
"Regular" contributions to Traditional IRAs may not 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, under the Code, 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 "Traditional Individual Retirement Annuities
(Traditional IRAs)" in Part 8. For the consequences of making a "regular" IRA
contribution to your IRA Certificate, also see Part 8.
We will not accept "regular" IRA contributions to Roth IRAs. Rollover and direct
custodian-to-custodian transfer contributions can be made any time until you
attain age 79, provided you meet certain requirements. See "Roth Individual
Retirement Annuities (Roth IRAs)" in Part 8.
NQ CERTIFICATES
Under NQ Certificates, you may make subsequent contributions of at least $1,000
at any time until the Annuitant attains age 84.
QP CERTIFICATES
Under QP Certificates, we will only accept contributions which are employer
contributions from a trust under a plan qualified under Section 401(a) of the
Code. If a defined contribution plan is qualified under Section 401(k) of the
Code, contributions may include employee pre-tax and employer matching
contributions, but not employee after-tax contributions to the plan. For defined
benefit plans, contributions may not be made by employees. The employer shall
contribute to the Certificates such amounts as shall be determined by the plan
trustee.
Under QP Certificates, you may make subsequent contributions of at least $1,000
once per Contract Year at any time during the Contract Year until the Annuitant
attains age 71.
METHODS OF PAYMENT
Except as indicated under "Wire Transmittals" and "Automatic Investment Plan"
below, all contributions must be made by check drawn on a bank in the U.S.
clearing through the Federal Reserve System, in U.S. dollars and payable to
Equitable Life. Third party checks endorsed to Equitable Life are not acceptable
forms of payment except in cases of a rollover from a qualified plan, a tax-free
exchange under the Code or a trustee check that involves no refund. All checks
are accepted subject to collection. Equitable Life reserves the right to reject
a payment if an unacceptable form of payment is received.
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 is incomplete 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 or
non-acceptability 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.
Section 1035 Exchanges
You may apply the values of an existing NQ life insurance or deferred annuity
contract to purchase an Equitable Accumulator NQ Certificate in a tax-deferred
exchange, if you follow certain procedures. For further information, consult
your tax adviser. See also "Taxation of Non-Qualified Annuities: Withdrawals" in
Part 8. In the case of joint ownership, 1035 exchanges will not be permitted
unless both owners authorize the exchange.
Automatic Investment Program
Our Automatic Investment Program (AIP) provides for a specified amount to be
automatically deducted from a bank checking account, bank money market account,
or credit union checking account and to be contributed as a subsequent
contribution into an NQ or a Traditional IRA Certificate on a monthly or
quarterly basis. AIP is not available for Roth IRA and QP Certificates.
The minimum amount that will be deducted is $100 monthly and $300 quarterly
(subject to the maximum $2,000 annually for Traditional IRAs). AIP subsequent
contributions may be allocated to any of the Investment Funds and available
GIROs, but not the Special Dollar Cost Averaging Account. You may elect AIP by
properly completing the appropriate form, which is available from your agent,
and returning it to our Processing Office. You elect which day of the month
(other than the 29th, 30th, or 31st) you wish to have your account debited. That
date, or the next Business Day if that day is a non-Business Day, will be the
Transaction Date.
You may cancel AIP at any time by notifying our Processing Office in writing at
least two business days prior to the next scheduled transaction. Equitable Life
is not responsible for any debits made to your account prior to the time written
notice of revocation is received at our 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
24
<PAGE>
Fund based on the Accumulation Unit Value for that Investment Fund computed for
the Transaction Date. A contribution allocated to the Guaranteed Period Account
will have the Guaranteed Rate for the specified GIRO offered on the Transaction
Date. An initial contribution allocated to the Special Dollar Cost Averaging
Account will receive the guaranteed interest rate in effect on the Transaction
Date.
Self-Directed Allocation
You allocate your contributions to one or up to all of the available Investment
Funds and GIROs. The Special Dollar Cost Averaging Account is not available
under Self-Directed Allocation. Allocations among the available 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 GIROs 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 Allocation
This option (for Annuitant issue ages up through age 75) assures that your
Maturity Value in a specified GIRO will equal your initial contribution on the
GIRO'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 GIRO. 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 GIRO. 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.
If you are applying for a Traditional IRA Certificate, before you select a
maturity 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
Traditional IRA funds that you may have or from the Investment Funds to the
extent possible. See "Traditional Individual Retirement Annuities (Traditional
IRAs): Required Minimum Distributions" in Part 8.
Dollar Cost Averaging Allocation
A Special Dollar Cost Averaging program is available for allocation of your
initial contribution. Also, a General Dollar Cost Averaging program is available
for allocation of your initial contribution, or if elected at a later date, your
Annuity Account Value. Both programs are more fully described later in this Part
4 under "Dollar Cost Averaging."
FREE LOOK PERIOD
You have the right to examine your 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 period 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, any positive or negative market value adjustment, and any guaranteed
interest 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. 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 8: Tax Aspects of
the Certificates" for possible consequences of cancelling your Certificate
during the free look period.
In the case of a complete conversion of an existing Equitable Accumulator
Traditional IRA Certificate to an Equitable Accumulator Roth IRA Certificate,
you may cancel your Equitable Accumulator Roth IRA Certificate and return to an
Equitable Accumulator Traditional IRA Certificate by following the instructions
in the request for full conversion form available from our Processing Office or
your agent.
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
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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 the present value of the Maturity Value in each GIRO, using
the Guaranteed Rate in effect for new allocations to such GIRO 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."
Annuity Account Value in Special Dollar Cost Averaging Account
The amount that you have in the Special Dollar Cost Averaging Account at any
time is equal to your initial contribution allocated to the Special Dollar Cost
Averaging Account on your behalf plus interest, less the sum of all amounts that
have been Dollar Cost Averaged out. See "Part 3: The Special Dollar Cost
Averaging 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:
o You may not transfer any amount to the Special Dollar Cost Averaging Account.
The Special Dollar Cost Averaging Account is available only for allocation of
your initial contribution during the first Contract Year under the Special
Dollar Cost Averaging program. A request by you to transfer amounts out of
the Special Dollar Cost Averaging Account will cancel the Special Dollar Cost
Averaging program. In such case, all amounts will be transferred out of the
Special Dollar Cost Averaging Account. See "Dollar Cost Averaging" below.
o Transfers out of a GIRO other than at the Expiration Date will result in a
market value adjustment. See "Part 2: The Guaranteed Period Account."
o At Annuitant age 76 and above, transfers to GIROs 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 GIRO 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 programs for Dollar Cost Averaging 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 specified Investment Options to the Investment Funds
periodically, more Accumulation Units are purchased in an
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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.
You elect a Dollar Cost Averaging program by completing the proper form and
sending it to our Processing Office. The transfer date will be the same calendar
day of the month as the Contract Date (other than the 29th, 30th or 31st).
Dollar Cost Averaging may not be elected while the rebalancing program
(discussed below) or the Systematic Withdrawal option (described under
"Withdrawal Options" in Part 5) is in effect.
Special Dollar Cost Averaging
For Certificate Owners who at issue of the Certificate want to Dollar Cost
Average their entire initial contribution from the Special Dollar Cost Averaging
Account into the Investment Funds monthly over a period of twelve months, we
offer a Special Dollar Cost Averaging program. Under this program your entire
initial contribution must be allocated to the Special Dollar Cost Averaging
Account and it will be credited with interest at the guaranteed interest rate in
effect on the Transaction Date. We will transfer amounts out of the Special
Dollar Cost Averaging Account into the Investment Funds according to your
instructions. All amounts will be transferred out by the end of the first
Contract Year. Thereafter, no other amounts may be allocated to the Special
Dollar Cost Averaging Account under your Certificate.
A request by you to transfer or withdraw any amount from the Special Dollar Cost
Averaging Account will cancel this program. Or, you may request to cancel this
program at any time by sending us satisfactory notice to our Processing Office.
Upon cancellation, all remaining amounts in the Special Dollar Cost Averaging
Account will be transferred out and allocated to the other Investment Options
according to the allocation percentages you currently have on file with us,
unless you specify other allocation percentages.
Dollar Cost Averaging from the Special Dollar Cost Averaging Account may not
currently be available in your state. If the Special Dollar Cost Averaging
Account is not available in your state, we offer a Special Dollar Cost Averaging
program from the Alliance Money Market Fund. Under Special Dollar Cost Averaging
from the Alliance Money Market Fund, the mortality and expense risks and the
administration charges will not be deducted. See "Charges Deducted from the
Investment Funds" in Part 6. We reserve the right to discontinue offering
Special Dollar Cost Averaging from the Alliance Money Market Fund for new
Certificates subject to state availability of the Special Dollar Cost Averaging
Account. Your agent can provide information about state availability, or you may
contact our Processing Office.
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. You may not have
Annuity Account Value transferred to the Special Dollar Cost Averaging Account
or the GIROs. 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 program is elected, divided by
the number of transfers scheduled to be made each Contract Year.
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 program will
end. You may change the transfer amount once each Contract Year, or cancel this
program by sending us satisfactory notice to our Processing Office at least
seven calendar days before the next transfer date.
REBALANCING
We currently offer a rebalancing program under which you authorize us to
automatically transfer your Annuity Account Value among the Investment Funds
selected by you in order to maintain a particular percentage allocation (which
you specify) in such Investment Funds. Such percentages must be in whole
numbers. You select the period of time at the end of which the transfers will
take place. The period of time may be quarterly, semiannually, or annually on a
Contract Year basis on the same day of the month as the Contract Date (other
than the 29th, 30th or 31st). Rebalancing automatically reallocates the Annuity
Account Value in the chosen Investment Funds at the end of each period to the
specified allocation percentages. The transfers to and from each chosen
Investment Fund will be made at the Accumulation Unit Value next computed after
the Transaction Date. Rebalancing is not available for amounts in the Guaranteed
Period Account or the Special Dollar Cost Averaging Account.
Rebalancing does not assure a profit or protect against a loss in declining
markets and should be periodically reviewed as your needs may change. You may
want to
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discuss the rebalancing program with your financial adviser before electing such
program.
You may elect the rebalancing program at any time by properly completing the
appropriate form, which is available from your agent or our Processing Office.
You may change your rebalancing allocation percentages or cancel this program at
any time by submitting a request in a form satisfactory to us. Such request must
be received at our Processing Office at least seven days before the next
scheduled rebalancing date. A transfer request from you while the rebalancing
program is in effect, will cancel the rebalancing program.
Rebalancing may not be elected if a Dollar Cost Averaging program (discussed
above) is in effect.
BASEBUILDER BENEFITS
The baseBUILDER option provides guaranteed benefits in the form of a Combined
Guaranteed Minimum Income Benefit and Guaranteed Minimum Death Benefit. The
combined benefit is available for Annuitant issue ages 20 through 75 and is
subject to an additional charge (see "baseBUILDER Benefits Charge" in Part 6).
The baseBUILDER provides a degree of protection while you live (Income Benefit),
as well as for your beneficiary should you die. As part of the baseBUILDER you
will have a choice of two Guaranteed Minimum Death Benefit options for Annuitant
issue ages 20 through 75: (i) a 6% Roll Up to Age 80 or (ii) an Annual Ratchet
to Age 80. Under Traditional IRA Certificates for Annuitant issue ages 20
through 60, we offer an alternate Guaranteed Minimum Death Benefit under the
baseBUILDER which is a 6% Roll Up to Age 70. The three baseBUILDER Guaranteed
Minimum Death Benefit options are described below. If you do not elect the
baseBUILDER, and for Annuitant issue ages 0 through 19 under NQ Certificates,
the 6% Roll Up to Age 80 and the Annual Ratchet to Age 80 Guaranteed Minimum
Death Benefit choices are still provided under the Certificate. The 6% Roll Up
to Age 70 Guaranteed Minimum Death Benefit is available only under the
baseBUILDER. The baseBUILDER is not currently available in New York.
If the Annuitant's age at issue is 76 or older and you are interested in the
Combined Guaranteed Minimum Income Benefit and Guaranteed Minimum Death Benefit,
ask your agent for a copy of the prospectus supplement describing this benefit.
The main advantages of the Guaranteed Minimum Income Benefit relate to amounts
allocated to the Investment Funds. Before electing the baseBUILDER, you should
consider the extent to which you expect to utilize the Investment Funds. You
elect the baseBUILDER guaranteed benefits when you apply for a Certificate and
once elected, it may not be changed or cancelled.
GUARANTEED MINIMUM INCOME BENEFIT
The Guaranteed Minimum Income Benefit provides a minimum amount of guaranteed
lifetime income when you apply the Annuity Account Value under your Equitable
Accumulator Certificate to an Income Manager(R) (Life Annuity with a Period
Certain) payout annuity certificate during the periods of time indicated below.
This Income Manager payout annuity certificate 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 the Guaranteed Minimum Income Benefit,
the annual lifetime income that will be provided under the Income Manager (Life
Annuity with a Period Certain) payout annuity certificate will be the greater of
(i) your Guaranteed Minimum Income Benefit, and (ii) the income provided by
application of your Annuity Account Value at our then current annuity purchase
factors. The Guaranteed Minimum Income Benefit does not provide an Annuity
Account Value or guarantee performance of your Investment Options. Because this
benefit 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 purchase factors.
It should therefore be regarded as a safety net.
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 no subsequent contributions or
withdrawals and assuming there were no allocations to the Alliance Money Market
Fund or the Guaranteed Period Account.
- -------------------------------------------------------------
GUARANTEED MINIMUM
CONTRACT DATE INCOME BENEFIT -- ANNUAL INCOME
ANNIVERSARY AT ELECTION PAYABLE FOR LIFE WITH
10 YEAR PERIOD CERTAIN
- -------------------------------------------------------------
7 $ 8,992
10 12,160
15 18,358
- -------------------------------------------------------------
Withdrawals will reduce your Guaranteed Minimum Income Benefit, see "How
Withdrawals Affect Your Guaranteed Minimum Income Benefit and Guaranteed Minimum
Death Benefit" in Part 5.
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Under Traditional IRA, Roth IRA and NQ Certificates, the Guaranteed Minimum
Income Benefit may be exercised only within 30 days following the seventh or
later Contract Date anniversary under your Equitable 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 issue ages 20 through 44,
it may be exercised following the 15th or later Contract Date anniversary.
For information on when the Guaranteed Minimum Income Benefit may be exercised
under QP Certificates, see "Exercise of the Guaranteed Minimum Income Benefit
under QP Certificates" below.
When you exercise the Guaranteed Minimum Income Benefit, you will receive an
Income Manager (Life Annuity with a Period Certain) payout annuity certificate
and extinguish your rights in your Equitable 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:
- -------------------------------------------------------------
LEVEL PAYMENTS*
PERIOD CERTAIN YEARS
ANNUITANT'S TRADITIONAL AND
AGE AT ELECTION ROTH IRA NQ
- -------------------------------------------------------------
60 to 75 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
- ----------------
* Other forms and periods certain may also be available.
For Traditional IRA Certificates, please see
"Traditional Individual Retirement Annuities
(Traditional IRAs): Required Minimum Distributions" in
Part 8 to see how this option may be affected if
exercised after age 70 1/2.
- --------------------------------------------------------------------------------
Payments will start one payment mode from the Contract Date of the Income
Manager payout annuity certificate.
Each year on your Contract Date anniversary, if you are eligible to exercise the
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 the Guaranteed Minimum Income Benefit by submitting the
proper form and returning your Equitable 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 certificate, and you may always
apply your Annuity Account Value to any of our life annuity benefits. The
annuity benefits are discussed in Part 5. These benefits differ from the Income
Manager payout annuity certificates and may provide higher or lower income
levels, but do not have all the features of the Income Manager payout annuity
certificates. You may request an illustration from your agent.
The Income Manager (Life Annuity with a Period Certain) payout annuity
certificates are 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 (discussed below) elects to
continue the Certificate after your death, the Guaranteed Minimum Income Benefit
will continue to be available on Contract Date anniversaries specified above
based on the Contract Date of your Equitable Accumulator Certificate, provided
the Guaranteed Minimum Income Benefit is exercised as specified above based on
the age of the successor Annuitant/Certificate Owner.
Exercise of the Guaranteed Minimum Income Benefit under QP Certificates
Under QP Certificates, the Guaranteed Minimum Income Benefit may be exercised,
on Contract Date anniversaries as indicated above, only after the trustee of the
qualified plan changes ownership of the QP Certificate to the Annuitant and the
Annuitant, as the new Certificate Owner, converts such QP Certificate in a
direct rollover to a Traditional IRA Certificate according to our rules at the
time of the change. The change of ownership and rollover to a Traditional IRA
Certificate may only occur when the Annuitant will no longer be a participant in
the qualified plan.
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. If the Certificate is
jointly owned, the surviving Owner will be deemed the beneficiary, superseding
any other beneficiary designations. (The joint ownership feature may not
currently be available in your state.) The death
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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 is equal to the Annuity Account Value or, if greater, the
Guaranteed Minimum Death Benefit described below.
GUARANTEED MINIMUM DEATH BENEFIT
Applicable for Annuitant Issue Ages 0 through 79 under NQ Certificates; 20
through 78 under Traditional IRA and Roth IRA Certificates; and 20 through 70
under QP Certificates.
You elect either the "6% Roll Up to Age 80" or the "Annual Ratchet to Age 80"
Guaranteed Minimum Death Benefit when you apply for a Certificate. Once elected,
the benefit may not be changed.
6% Roll Up to Age 80 -- On the Contract Date the Guaranteed Minimum Death
- ---------------------
Benefit is equal to the initial contribution. Thereafter, the Guaranteed Minimum
Death Benefit is credited with interest at 6% (4% for amounts in the Alliance
Money Market and Alliance Intermediate Government Securities Funds, and the
GIROs, 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 withdrawals. 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%. The 6% Roll Up to Age 80 is not available in New York.
Annual Ratchet to Age 80 -- 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.
Alternate baseBUILDER Guaranteed Minimum Death Benefit applicable under
Traditional IRA Certificates for Annuitant Issue Ages 20 through 60
6% Roll Up to Age 70 -- Interest will be credited at 6% and 4% respectively (as
- --------------------
described under the 6% Roll Up to Age 80 above) through the Annuitant's age 70
(or at the Annuitant `s death, if earlier) and 0% thereafter and is adjusted for
any subsequent contributions and withdrawals. 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%. You also
elect this benefit when you apply for a Certificate and once elected, the
benefit may not be changed.
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.
Withdrawals will reduce your Guaranteed Minimum Death Benefit, see "How
Withdrawals Affect Your Guaranteed Minimum Income Benefit and Guaranteed Minimum
Death Benefit" in Part 5. For Certificates issued in New York, the Guaranteed
Minimum Death Benefit at the Annuitant's death will not be less than the Annuity
Account Value in the Investment Funds plus the sum of the Guaranteed Period
Amounts in each GIRO. See "GIROs" in Part 2.
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 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" in Part 5. 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/Certificate Owner
If you are both the Certificate Owner and the Annuitant, and if your spouse is
the sole primary beneficiary or the Joint Owner under the Certificate, then upon
your death your spouse beneficiary may elect to receive the death benefit, or to
continue the Certificate and become the successor Annuitant/ Certificate Owner
by completing the appropriate form and sending it to our Processing Office.
If the successor Annuitant/Certificate Owner elects to continue the Certificate,
then on the Contract Date anniversary following your death, the Annuity Account
Value will be reset to the then current Guaranteed Minimum Death Benefit if it
is higher than the Annuity Account Value as of such date. In determining whether
the Guaranteed Minimum Death Benefit will continue to grow, we will use the age
(as of the Contract Date anniversary) of the successor Annuitant/Certificate
Owner.
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WHEN AN NQ CERTIFICATE OWNER DIES BEFORE THE ANNUITANT
When you are not the Annuitant under an NQ Certificate 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). If the Certificate is
jointly owned and the first Owner to die is not the Annuitant, the surviving
Owner becomes the sole Certificate Owner and will be deemed the "beneficiary"
for purposes of the distribution rules described in this section, automatically
superseding any other beneficiary designation.
Unless the surviving spouse of the deceased Owner (or in the case of a joint
ownership situation, the surviving spouse of the first Owner to die) is the
designated beneficiary for this purpose, the entire interest in the Certificate
must be distributed under these rules.
The Cash Value in the Certificate must be fully paid to the designated
beneficiary (new Owner) by December 31st of the fifth calendar year after your
death (or in a joint ownership situation, the death of the first Owner to die).
A permissible alternative is for the new Owner to elect to receive such amounts
as a life annuity (or payments for a period certain of not longer than the new
Owner's life expectancy), with payments beginning no later than December 31st
following the calendar year of the non-Annuitant Owner's death. If such an
annuity benefit or payments for a period certain is not elected, we will pay any
Cash Value in the Certificate on December 31st of the fifth calendar year
following the year of your death (or the death of the first Owner to die).
Where a surviving spouse is designated beneficiary or Joint Owner, the spouse
may elect to continue the Certificate. No distributions are required as long as
the surviving spouse and Annuitant are living.
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 and any guaranteed interest. We do not
guarantee any minimum Cash Value except for amounts in a GIRO held to the
Expiration Date and amounts in the Special Dollar Cost Averaging Account. See
"Part 2: The Guaranteed Period Account" and "Part 3: The Special Dollar Cost
Averaging Account." 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 6:
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. See "Annuity Benefits and Payout Annuity Options"
in Part 5. 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 8: 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 and the Special Dollar Cost Averaging 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.
ASSIGNMENT
Traditional IRA and Roth IRA Certificates are not assignable or transferable
except through surrender to us. They may not be borrowed against or used as
collateral for a loan or other obligation.
QP Certificates may not be assigned.
The NQ 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.
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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 8: 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 semiannual 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 GIROs and guaranteed interest rates for
the Special Dollar Cost Averaging Account. 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
Equitable Accumulator
P.O. 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., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY REGULAR MAIL:
Equitable Life
Equitable Accumulator
P.O. Box 1547
Secaucus, NJ 07096-1547
o FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY EXPRESS MAIL:
Equitable Life
Equitable Accumulator
200 Plaza Drive, 4th Floor
Secaucus, NJ 07096
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer your
Certificate and operate the Investment Options. Some of these systems belong to
service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing this the question of whether its
computer systems would recognize the year 2000 before, on or after January 1,
2000, and Equitable Life believes it has identified those of its systems
critical to business operations that are not Year 2000 compliant. By year end
1998, Equitable Life expects that the work of modifying or replacing
non-compliant systems will substantially be completed and expects a
comprehensive test of its Year 2000 compliance will be performed in the first
half of 1999. Equitable Life is in the process of seeking assurances from third
party service providers that they are acting to address the Year 2000 issue with
the goal of avoiding any material adverse effect on services provided to
Certificate Owners and on operations of the Investment Options. Any significant
unresolved difficulty related to the Year 2000 compliance initiatives could have
a material adverse effect on the ability to administer your Certificate and
operate the Investment Options. Assuming the timely completion of computer
modifications by Equitable Life and third party service providers, there should
be no material adverse effect on the ability to perform these functions.
DISTRIBUTION OF THE CERTIFICATES
As the distributor of the Certificates effective May 1, 1998, EQ Financial
Consultants, Inc. (EQFC), an indirect, wholly owned subsidiary of Equitable
Life, has responsibility for sales and marketing functions for the Certificates.
Effective on the same date, EQFC also serves as the principal underwriter of the
Separate Account under the 1940 Act. EQFC 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. EQFC's principal business address is 1290 Avenue of
the Americas, New York, New York 10104. Prior to May 1, 1998, Equitable
Distributors, Inc. (EDI), also an indirect, wholly owned subsidiary of Equitable
Life, served as the distributor of the Certificates and the principal
underwriter of the Separate Account under the 1940 Act. Pursuant to a
"Distribution Agreement" between Equitable Life, certain of Equitable Life's
separate accounts, including the Separate Account, and EDI, Equitable Life paid
EDI distribution fees of $9,444,621 for 1997, $884,486 for 1996 and $68,676 for
1995 as the distributor of the Certificates and as the principal underwriter of
the Separate Account.
The Certificates will be sold by registered representatives of EQFC and its
affiliates, who are also our licensed insurance agents. EQFC may receive
compensation and reimbursement for its marketing services under the terms of its
distribution agreement with Equitable Life. The offering of the Certificates is
intended to be continuous.
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- --------------------------------------------------------------------------------
PART 5: DISTRIBUTION METHODS UNDER THE CERTIFICATES
- --------------------------------------------------------------------------------
The Certificates offer several distribution methods specifically designed to
provide retirement income. Under Traditional IRA and Roth IRA Certificates, the
Assured Payment Option or APO Plus may be elected in the application or as a
distribution option at a later date. In addition, Traditional IRA and Roth IRA
Certificates permit Lump Sum Withdrawals, Substantially Equal Payment
Withdrawals, and Systematic Withdrawals. Minimum Distribution Withdrawals are
available only under Traditional IRA Certificates. NQ Certificates permit Lump
Sum Withdrawals and Systematic Withdrawals. The Certificates also offer fixed
and variable annuity benefits and Income Manager payout annuity options. The
Assured Payment Option and APO plus may not be available in all states.
Traditional IRA Certificate Owners should consider how the distribution method
selected may affect the ability to comply with the minimum distribution rules
discussed in "Part 8: Tax Aspects of the Certificates."
For Traditional 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 begun your annuity payments before
that time).
ASSURED PAYMENT OPTION
(Available Only under Traditional IRA and Roth IRA Certificates)
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, for Traditional IRA
Certificates, 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 GIRO, 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 "Traditional Individual Retirement Annuities (Traditional
IRAs): Tax Considerations for the Assured Payment Option and APO Plus" in Part
8. The Assured Payment Option may be elected at ages as young as 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 Equitable Accumulator Traditional IRA or Roth IRA Certificate must be
allocated to the GIROs, 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 "Part 8: Tax Aspects of the
Certificates."
Subsequent Contributions under the Assured Payment Option
Under Traditional IRA Certificates, subsequent "regular" Traditional IRA
contributions may no longer be made for the taxable year in which you attain age
70 1/2 and thereafter. Subsequent Traditional IRA 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.
We will not accept "regular" IRA contributions to Roth IRAs. Rollover and direct
custodian-to-custodian transfer contributions can be made 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 and provided you meet certain requirements. See "Part 8: Tax Aspects
of the Certificates."
Payments
You may elect to receive monthly, quarterly or annual payments. However, all
payments are made on the 15th of the month. Payments to be made on an Expiration
Date during the fixed period represent distributions of
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the Maturity Values of serially maturing GIROs 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."
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. For Traditional IRA Certificates, 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 Traditional
IRA. See "Traditional Individual Retirement Annuities (Traditional IRAs):
Required Minimum Distributions" in Part 8. The ability to defer the payment
start date may not be available in all states.
For Traditional IRA Certificates, required minimum distributions will be
calculated based on the Annuity Account Value in each GIRO 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 Traditional IRA 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 Traditional IRA funds you may have. See "Lump Sum Withdrawals" below and
"Traditional Individual Retirement Annuities (Traditional IRAs): Required
Minimum Distributions" in Part 8.
See Appendix IV for an example of payments purchased under an Assured Payment
Option.
Fixed Period
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) will be
as follows:
- -------------------------------------------------------------
AGE* FIXED PERIOD
- -------------------------------------------------------------
59 1/2through 70 15 years
71 through 75 12 years
76 through 80 9 years
81 through 83 6 years
- -------------------------------------------------------------
If you defer the date payments will start, your fixed period will be as follows:
- -------------------------------------------------------------
FIXED PERIOD
BASED ON DEFERRAL PERIOD
----------------------------------------
1-36 37-60 61-72
AGE* MONTHS MONTHS MONTHS
- -------------------------------------------------------------
53 1/2through 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
- -------------------
* For Joint and Survivor, the fixed period is based on the age of the younger
Annuitant.
- --------------------------------------------------------------------------------
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 applicable fixed period, your entire contribution will be allocated by
us. A portion of the initial contribution will be allocated among the GIROs 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 anytime after issue of the 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
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currently invested in the Investment Funds and the Special Dollar Cost Averaging
Account, will be allocated by us among the GIROs, 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 and the Special Dollar Cost Averaging
Account. If amounts in the GIROs 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 Equitable Accumulator Traditional IRA or Roth IRA, as applicable,
described in Part 4. 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 GIROs 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 payments on a Single
Life or a Joint and 100% to Survivor basis. Your payments under the Life
Contingent Annuity 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.
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 under a Traditional IRA Certificate to satisfy minimum distribution
requirements under the Certificate), such withdrawals will be taken from all
remaining GIROs 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. 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, under
Traditional IRA Certificates, 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 to the
designated beneficiary. The death benefit amount is equal to the Annuity Account
Value in the Guaranteed Period Account or, if greater, the sum of the Guaranteed
Period Amounts in each GIRO, plus any amounts in the Modal Payment Portion of
the Guaranteed Period Account. Unless you have elected a Joint and Survivor form
under the Life Contingent Annuity, no payment will be made under the Life
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Contingent Annuity. The death benefit payable relates only to the GIROs 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 4, 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 own a Traditional IRA Certificate and
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 Traditional IRA Certificate.
For Traditional IRA Certificates, before terminating the Assured Payment Option,
you should consider the implications this may have under the minimum
distribution requirements. See "Traditional Individual Retirement Annuities
(Traditional IRAs): Tax Considerations for the Assured Payment Option and APO
Plus" in Part 8.
Income Annuity Options and Surrendering the Certificates
If you elect an annuity benefit as described under "Annuity Benefits" below, or
surrender the Certificate for its Cash Value as described under "Surrendering
the Certificates to Receive the Cash Value" in Part 4, 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 Traditional IRA
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 6.
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 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 amount of level guaranteed
lifetime income through allocation of amounts to the GIROs 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 annuity benefit, 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 payments under "Assured Payment Option"
above.
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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 under the Assured Payment Option where the
payments increase as described above. The difference between the amount required
for level payments and the amount required for the 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 the Assured Payment Option 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 amount of level 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 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 with increasing payments.
See Appendix IV for an example of the payments purchased under Assured Payment
Option and APO Plus.
For Traditional IRA Certificates, in calculating your required minimum
distributions your Annuity Account Value in the Investment Fund, the Annuity
Account Value in each GIRO, 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 "Traditional Individual Retirement
Annuities (Traditional IRAs): Required Minimum Distributions" in Part 8.
Allocation of Subsequent Contributions under 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, under Traditional IRA Certificates, 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 GIROs and the
Modal Payment Portion of the Guaranteed Period Account, if applicable, as
described under "Withdrawals under the Assured Payment Option" above.
For Traditional IRA Certificates, a Lump Sum Withdrawal taken to satisfy minimum
distribution
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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 to the designated beneficiary.
The death benefit amount is equal to (i) the Annuity Account Value in the
Guaranteed Period Account or, if greater, the sum of the Guaranteed Period
Amounts in each GIRO, plus (ii) any amounts in the Modal Payment Portion of the
Guaranteed Period Account, plus (iii) contributions allocated to the selected
Investment Fund, less amounts applied to increase payments under the Assured
Payment Option and, less any withdrawals. 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 GIROs 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 Equitable
Accumulator Traditional IRA or Roth IRA rules (see "Part 4: Provisions of the
Certificates and Services We Provide") or (ii) elect the Assured Payment Option.
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 GIRO. 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 GIROs 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 Certificates are annuity contracts, 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.
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 8:
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 8: Tax Aspects of
the Certificates."
Any withdrawal while the Special Dollar Cost Averaging program in the Special
Dollar Cost Averaging Account is in effect will cancel such program. See
"Special Dollar Cost Averaging" in Part 4.
LUMP SUM WITHDRAWALS
(Available under Traditional IRA, Roth IRA and NQ Certificates)
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" in Part 4.
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 4. 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 6.
SYSTEMATIC WITHDRAWALS
(Available under Traditional IRA, Roth IRA and NQ Certificates)
Under Traditional IRA and Roth IRA Certificates this option may be elected only
if you are between 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
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
Systematic Withdrawal is to be made, the withdrawal amount would be less
38
<PAGE>
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.
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 GIROs in order of the earliest Expiration Date(s)
first (a market value adjustment may apply).
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 6.
Systematic Withdrawals may not be elected if the Special Dollar Cost Averaging
program from the Special Dollar Cost Averaging Account is in effect.
SUBSTANTIALLY EQUAL PAYMENT WITHDRAWALS
(Available under Traditional IRA and Roth IRA Certificates)
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 "Part
8: Tax Aspects of the Certificates." 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 election
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. Substantially Equal Payment Withdrawals may not
be elected if the Special Dollar Cost Averaging program from the Special Dollar
Cost Averaging Account is in effect. 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. As indicated in the preceding paragraph, you may be liable
for the 10% penalty tax on Substantially Equal Payment Withdrawals made before
cancellation.
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 GIROs in order of the earliest Expiration
Date(s) first (a market value adjustment may apply).
Substantially Equal Payment Withdrawals are not subject to a withdrawal charge.
MINIMUM DISTRIBUTION WITHDRAWALS
(Available under Traditional IRA Certificates)
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 Traditional IRA Certificate you own,
subject to our rules then in effect. Currently,
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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 GIROs in order of the
earliest Expiration Date(s) first (a market value adjustment may apply).
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 6.
Example
- -------
The chart below illustrates the pattern of payments, under Minimum Distribution
Withdrawals for a male who purchases a Traditional IRA Certificate 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]
AGE AMOUNT WITHDRAWN
70 $6,250
75 $7,653
80 $8,667
85 $8,770
90 $6,931
95 $3,727
100 $1,179
Assumes 6.0% Rate of Return
[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 -- Traditional IRA Certificates" 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. It assumes no
allocation to the Special Dollar Cost Averaging 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
Traditional IRA. Such charges would effectively reduce the actual return.
HOW WITHDRAWALS AFFECT YOUR GUARANTEED MINIMUM INCOME
BENEFIT AND GUARANTEED MINIMUM DEATH BENEFIT
Except as described in the next sentence, each withdrawal 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 if based on the 6% Roll Up to Age 70 or 6% Roll
Up to Age 80, and your Guaranteed Minimum Income Benefit benefit base, will be
reduced on a dollar-for-dollar basis as long as the sum of your withdrawals in
any Contract Year is 6% or less of the beginning of Contract Year Guaranteed
Minimum Death Benefit. Once a withdrawal is made that causes cumulative
withdrawals in a Contract Year to exceed 6% of the beginning of Contract Year
Guaranteed Minimum Death Benefit, that withdrawal and any subsequent withdrawals
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 are 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 initial
contribution on the Contract Date. Thereafter, the Guaranteed Minimum Income
Benefit benefit base is credited with interest at 6% (4% for amounts in the
Alliance Money Market and Alliance Intermediate Government Securities Funds, and
the GIROs, except as indicated below) on each Contract Date anniversary through
the Annuitant's age 80 (age
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70 if the 6% Roll Up to Age 70 is elected), and 0% thereafter, and is adjusted
for any subsequent contributions and withdrawals. 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 4) 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 purchase factors to determine the Guaranteed Minimum Income
Benefit. The guaranteed minimum annuity purchase 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 purchase 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.
ANNUITY BENEFITS AND PAYOUT ANNUITY OPTIONS
The Equitable Accumulator Certificates offer annuity benefits and Income Manager
payout annuity options, described below, for providing retirement income.
ANNUITY BENEFITS
Annuity benefits under the Equitable 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 anytime 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.
Amounts in the GIROs 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 the end of a selected period of time (the "certain period"), payments
will continue to the beneficiary for the balance of the certain period. 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 the Annuitant's life. In addition, if the Annuitant dies
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. Currently this annuity option is available only as a fixed
annuity.
o Joint and Survivor Life Annuity: This annuity form guarantees payments for
the rest of the Annuitant's life and, after the Annuitant's death,
continuation of payments 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.
We offer the annuity distribution options outlined above in fixed form. In
variable form, only the following options are available: Life Annuity (except in
New York), Life Annuity -- Period Certain, Joint and Survivor Life Annuity and
Life Period Certain Annuity (100% to Survivor). Fixed annuity payments are
guaranteed by us and will be based either on the tables
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<PAGE>
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 your choice of Investment Funds of HRT 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 Funds
of other separate accounts we offer.
Under QP Certificates, the only annuity forms available are a Life Annuity 10
Year Period Certain, or a Joint and Survivor Life Annuity 10 Year Period
Certain.
For all Annuitants under Traditional IRA, Roth IRA and NQ Certificates, 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 income 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 Traditional IRA, Roth IRA and NQ Certificates, you may apply your Annuity
Account Value to an Income Manager (Life Annuity with a Period Certain) payout
annuity certificate, or an Income Manager (Period Certain) payout annuity
certificate.
Under QP Certificates, Income Manager payout annuity certificates are available
only after the trustee of the qualified plan changes ownership of the QP
Certificate to the Annuitant, and the Annuitant, as the new Certificate Owner,
converts such QP Certificate in a direct rollover to a Traditional IRA
Certificate according to our rules at the time of the change. The change of
ownership and rollover to a Traditional IRA Certificate may only occur when the
Annuitant will no longer be a Participant/Employee in the qualified plan.
The Income Manager (Life Annuity with a Period Certain) payout annuity
certificates provide guaranteed payments for the Annuitant's life or for the
Annuitant's life and the life of a joint Annuitant. Income Manager (Period
Certain) payout annuity certificates provide payments for a specified period.
The Certificate Owner and Annuitant must meet the issue age and payment
requirements. Income Manager payout annuity certificates provide guaranteed
level payments (Traditional IRA, Roth IRA and NQ Certificates) under both forms
of certificate, or guaranteed increasing payments (NQ Certificates) under only
Income Manager (Life Annuity with a Period Certain) payout annuity certificates.
If you apply a part of the Annuity Account Value under any of the above Income
Manager payout annuity certificates, 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 Equitable 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 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
Equitable Accumulator 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
an Income Manager (Life Annuity with a Period Certain) payout annuity
certificate.
You may also apply your Annuity Account Value to an Income Manager (Period
Certain) payout annuity certificate once withdrawal charges are no longer in
effect under your Equitable Accumulator Certificate. No withdrawal charges will
apply under this Income Manager (Period Certain) payout annuity certificate.
The 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 certificate we also require the return of your
Equitable 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.
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- --------------------------------------------------------------------------------
PART 6: 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.
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.
CONTRACT YEAR
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%
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 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 a Traditional IRA 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.
Although we treat contributions as withdrawn before earnings for purposes of
calculating the withdrawal charge, the Federal income tax law treats earnings
under Equitable Accumulator Certificates as withdrawn first. See "Part 8: Tax
Aspects of the Certificates."
The withdrawal charge is to help cover sales expenses.
For NQ 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 8 concerning recent IRS announcements on the use of annuities in CRTs.
We may also offer other Equitable Accumulator certificates, which have other
charges. A current prospectus for these other Equitable Accumulator
certificates, if available, may be obtained from your agent.
baseBUILDER Benefits Charge
If you elect the Combined Guaranteed Minimum Income Benefit and Guaranteed
Minimum Death Benefit, we deduct a charge annually on each Processing Date. The
charge is equal to a percentage of the Guaranteed Minimum Income Benefit benefit
base in effect on the Processing Date. For the baseBUILDER with the 6% Roll Up
to Age 80 Guaranteed Minimum Death Benefit and the Annual Ratchet to Age 80
Guaranteed Minimum Death Benefit (available for Annuitant issue ages 20 through
75), the percentage is equal to 0.30%. For the baseBUILDER with the 6% Roll Up
to Age 70 Guaranteed Minimum Death Benefit (available under Traditional IRA
Certificates for Annuitant issue ages 20 through 60), the percentage is equal to
0.15%. The Guaranteed Minimum Income Benefit benefit base is described under
"How Withdrawals Affect Your Guaranteed Minimum Income Benefit and Guaranteed
Minimum Death Benefit" in Part 5.
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This charge will be deducted from your Annuity Account Value in the Investment
Funds on a pro rata basis. If there is insufficient value in the Investment
Funds, all or a portion of such charge will be deducted from the GIROs in order
of the earliest Expiration Date(s) first. A market value adjustment may apply.
See "Market Value Adjustment for Transfers, Withdrawals or Surrender Prior to
the Expiration Date" in Part 2.
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 3.5% (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 net assets in each Investment Fund to
compensate us for mortality and expense risks, including the Guaranteed Minimum
Death Benefit. The daily charge is at the rate of 0.003032%, which is equivalent
to an annual rate of 1.10%, 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 net 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.
HRT CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HRT's assets, the 12b-1 fee,
direct operating expenses of HRT (such as trustees' fees, expenses of
independent auditors and legal counsel, bank and custodian charges and liability
insurance), and certain investment-related expenses of HRT (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:
- -------------------------------------------------------------
MAXIMUM
INVESTMENT
ADVISORY FEE
HRT PORTFOLIO (ANNUAL RATE)
- -------------------------------------------------------------
Alliance Conservative Investors 0.475%
Alliance Growth Investors 0.550%
Alliance Growth & Income 0.550%
Alliance Common Stock 0.475%
Alliance Global 0.675%
Alliance International 0.900%
Alliance Aggressive Stock 0.625%
Alliance Small Cap Growth 0.900%
Alliance Money Market 0.350%
Alliance Intermediate Government
Securities 0.500%
Alliance High Yield 0.600%
Alliance Equity Index 0.325%
- -------------------------------------------------------------
Investment advisory fees are established under HRT's investment advisory
agreements between HRT and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that HRT, on behalf of each Portfolio (other than
the Alliance Small Cap Growth Portfolio), may pay to EDI 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. With
respect to the Alliance Small Cap Growth Portfolio, EDI will receive an annual
fee not to exceed the lesser of (a) 0.25% of the average daily net assets of the
Portfolio attributable to Class IB shares and (b) an amount that, when added to
certain other expenses of the Class IB shares, would result in a ratio of
expenses to average daily net assets attributable to Class IB shares equalling
1.20%. Prior to October 8, 1997, EDI waived 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 HRT prospectus.
EQAT CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQAT's assets, the 12b-1 fee,
direct operating expenses of EQAT (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 EQAT
(such as brokerage commissions and other expenses related to the purchase and
sale of securi-
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ties), 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:
- -------------------------------------------------------------
MAXIMUM
INVESTMENT
MANAGEMENT AND
ADVISORY FEE
EQAT PORTFOLIO (ANNUAL RATE)
- -------------------------------------------------------------
BT Equity 500 Index 0.25%
BT Small Company Index 0.25%
BT International Equity Index 0.35%
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%
EQ/Putnam Balanced 0.55%
EQ/Putnam Growth and Income Value 0.55%
T. Rowe Price Equity Income 0.55%
T. Rowe Price International Stock 0.75%
Warburg Pincus Small Company Value 0.65%
- --------------------------------------------------------------
EQ Financial has entered into expense limitation agreements with EQAT, with
respect to each Portfolio, pursuant to which EQ Financial has agreed to waive or
limit its fees and to assume other expenses so that the total annual operating
expenses of each Portfolio (other than interest, taxes, and brokerage
commissions, in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of such Portfolio's
business and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act) are limited to certain amounts. See the prospectus for
EQAT for more information.
The Rule 12b-1 Plan provides that EQAT, on behalf of each Portfolio, may pay to
EDI 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
EQAT prospectus.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the withdrawal charge
or the mortality and expense risks 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 also offer Investment Funds investing
in Class IA shares of HRT and EQAT, which are not subject to the 12b-1 fee.
Group arrangements include those in which a trustee or an employer, for example,
purchases contracts covering a group of individuals on a group basis. Group
arrangements are not available for Traditional IRA and Roth IRA Certificates.
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 or sponsoring organization 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 GIROs 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 or 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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PART 7: VOTING RIGHTS
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THE TRUSTS' VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of HRT and EQAT. 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 the Trusts' Board of Trustees,
o to ratify the selection of independent auditors for the Trusts, and
o on any other matters described in the current prospectuses for the Trusts or
requiring a vote by shareholders under the 1940 Act.
Because HRT is a Massachusetts business trust and EQAT 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 the Trusts 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. EQAT shares currently are sold only to our
separate accounts. HRT shares are held by other separate accounts of ours and by
separate accounts of insurance companies 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
Certificate Owners, we currently do not foresee any disadvantages arising out of
this. HRT's Board of Trustees intends to monitor events in order to identify any
material irreconcilable conflicts that possibly may arise and to determine what
action, if any, should be taken in response. If we believe that HRT's response
to any of those events insufficiently protects our 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 8: TAX ASPECTS OF THE CERTIFICATES
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This Part of the prospectus generally covers our understanding of the current
Federal income tax rules that apply to NQ, Traditional IRA, and Roth IRA
Certificates owned by United States taxpayers.
This Part does not apply to NQ Certificates used as the investment vehicle for
qualified plans discussed throughout the prospectus and in Appendix II.
This prospectus does not provide detailed tax information and does not address
issues such as state income and other taxes, Federal income tax and withholding
rules for non-U.S. taxpayers, or Federal gift and estate taxes. A gift or estate
tax transfer may arise whenever payments or contract rights are provided to
someone other than the original owner of the Certificates. Please consult a tax
adviser when considering the tax aspects of the 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 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 and, if you are not a
United States resident, foreign tax laws, may also 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.
TRANSFERS AMONG INVESTMENT OPTIONS
Under current law, there will not be any tax liability if you transfer Annuity
Account Value among the Investment Funds, or between the Guaranteed Period
Account and one or more Investment Funds, or from the Special Dollar Cost
Averaging Account.
TAXATION OF NON-QUALIFIED ANNUITIES
This section generally covers our understanding of the current Federal income
tax laws that apply to a non-qualified annuity purchased with only after-tax
dollars and not subject to any special retirement plan rules.
Equitable Life has designed the NQ 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 you 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 you transfer a
Certificate, for example, as a gift to someone other than your 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 withdrawal which does not terminate
your total interest in the NQ Certificate is 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 NQ Certificate equals the contributions made, less any amounts
previously withdrawn which were not taxable. If your Equitable Accumulator NQ
Certificate was issued as a result of a tax-free exchange of another NQ life
insurance or deferred annuity contract as described in "Methods of Payment:
Section 1035 Exchanges" in Part 4, your investment in that original contract
generally is treated as the basis in the Equitable Accumulator NQ Certificate
regardless of the value of that original contract at the time of the exchange.
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 NQ Certificate, the distribution is taxable to
the extent it exceeds the investment in the NQ Certificate.
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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 NQ 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 you
attain age 59 1/2, (2) made on or after your death, (3) attributable to your
disability, (4) part of a series of substantially equal installments as an
annuity for your life (or life expectancy) or the joint lives (or joint life
expectancies) of you 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 4, 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 taxable distribution of the contract
within a specified period of time. This includes the surviving Joint Owner in a
nonspousal joint ownership situation. See "When an NQ Certificate Owner Dies
before the Annuitant" in Part 4.
CHARITABLE REMAINDER 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.
SPECIAL RULES FOR NQ CERTIFICATES ISSUED IN PUERTO RICO
Under current law Equitable Life treats income from NQ 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 NQ 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, you 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 your personal situation and the timing of the
different tax liabilities, you 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.
IRA TAX INFORMATION
The term "IRA" may generally refer to all individual retirement arrangements,
including individual retirement accounts and individual retirement annuities. In
addition to being available in both trusteed or custodial account form or
individual annuity form, there are many varieties of IRAs. There are
"Traditional IRAs" which are generally funded on a pre-tax basis. There are Roth
IRAs, newly available in 1998, which must be funded on an after-tax basis.
SEP-IRAs (including SARSEP-IRAs) and SIMPLE-
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IRAs are issued and funded in connection with employer-sponsored retirement
plans. Regardless of the type of IRA, your interest in the IRA cannot be
forfeited. You or your beneficiaries who survive you are the only ones who can
receive the benefits or payments.
The Equitable Accumulator Certificate is designed to qualify as an "individual
retirement annuity" under Section 408(b) of the Code. This prospectus contains
the information which the Internal Revenue Service (IRS) requires to be
disclosed to you before you purchase an individual retirement arrangement. This
section of Part 8 covers some of the special tax rules that apply to individual
retirement arrangements, including Traditional IRAs and Roth IRAs. Education
IRAs are not discussed in this prospectus because they are not available in
individual retirement annuity form.
Further information regarding individual retirement arrangements generally can
be found in Internal Revenue Service Publication 590, entitled "Individual
Retirement Arrangements (IRAs)," which is generally updated annually, and can be
obtained from any IRS district office.
There is no limit to the number of IRAs (including Roth IRAs) you may establish
or maintain as long as you meet the requirements for establishing and funding
the IRA. However, if you maintain multiple IRAs, you may be required to
aggregate IRA values or contributions for tax purposes. You should be aware that
all types of IRAs are subject to certain restrictions in order to qualify for
special treatment under the Federal tax law.
The Equitable Accumulator IRA Certificate has been approved by the IRS as to
form for use as a Traditional IRA. This IRS approval is a determination only as
to the form of the annuity, does not represent a determination of the merits of
the annuity as an investment, and may not address certain features under the
Equitable Accumulator IRA Certificate. The IRS does not yet have a procedure in
place for approving the form of Roth IRAs.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES (TRADITIONAL IRAS)
Cancellation
You can cancel a Certificate issued as a Traditional IRA by following the
directions in Part 4 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 Traditional 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 Traditional IRAs
Individuals may make three different types of contributions to purchase a
Traditional IRA, or as later additions to an existing Traditional IRA: "regular"
contributions out of earnings, tax-free "rollover" contributions from
tax-qualified plans, or direct custodian-to-custodian transfers from other
traditional individual retirement arrangements ("direct transfers").
The initial contribution to the Certificate must be either a rollover or a
direct custodian-to-custodian transfer. See "Rollovers and Transfers" discussed
below. Any subsequent contributions you make may be any of rollovers, direct
transfers or "regular" Traditional IRA contributions. See "Contributions under
the Certificates" in Part 4. The immediately following discussion relates to
"regular" Traditional IRA contributions. For the reasons noted in "Rollovers and
Transfers" below, you should consult with your tax adviser before making any
subsequent contributions to a Traditional IRA which is intended to serve as a
"conduit" IRA.
Generally, $2,000 is the maximum amount of contributions which you may make to
all IRAs (including Roth IRAs) in any taxable year. The above limit may be less
when your earnings are below $2,000. This limit does not apply to rollover
contributions or direct custodian-to-custodian transfers into a Traditional IRA.
If you are married and file a joint income tax return, your and your spouse's
compensation effectively can be aggregated for purposes of determining the
permissible amount of regular contributions to Traditional IRAs (and Roth IRAs
discussed below). Even if one spouse has no compensation or compensation under
$2,000, married individuals filing jointly can contribute up to $4,000 for any
taxable year to any combination of Traditional IRAs and Roth IRAs. (Any
contributions to Roth IRAs reduce the ability to contribute to Traditional IRAs
and vice versa.) The maximum amount may be less if earnings are less and the
other spouse has made IRA contributions. No more than a combined total of $2,000
can be contributed annually to either spouse's traditional and Roth individual
retirement arrangements. Each spouse owns his or her individual retirement
arrangements (Traditional and Roth IRA) even if contributions were fully funded
by the other spouse.
The amount of Traditional IRA contributions for a tax year that you can deduct
depends on whether you are covered by an employer-sponsored tax-favored
retirement plan. An employer-sponsored tax-favored retirement plan includes a
qualified plan, a tax-sheltered account or annuity under Section 403(b) of
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the Code (TSA) or a simplified employee pension plan. 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.
Regardless of adjusted gross income (AGI), you may make deductible contributions
to a Traditional IRA for each tax year up to the lesser of $2,000 or 100% of
compensation (MAXIMUM PERMISSIBLE DOLLAR DEDUCTION) if not covered by a
retirement plan.
If you are single and covered by a retirement plan during any part of the
taxable year, the deduction for IRA contributions phases out with AGI between
$30,000 and $40,000 in 1998. This amount will be indexed every year until 2005.
If you are married and file a joint return, and you are covered by a tax-favored
retirement plan during any part of the taxable year, the deduction for
Traditional IRA contributions phases out with AGI between $50,000 and $60,000 in
1998. This amount will be indexed every year until 2007. Married individuals
filing separately and living apart at all times are not treated as being married
for purposes of this deductible contribution calculation. Generally, the active
participation in an employer-sponsored retirement plan of an individual is
determined independently for each spouse. Where spouses have "married filing
jointly" status, however, the maximum deductible Traditional IRA contribution
for an individual who is not an active participant (but whose spouse is an
active participant) is phased out for taxpayers with AGI of between $150,000 and
$160,000.
To determine the deductible amount of the contribution with the phase out, you
determine AGI and subtract $30,000 if you are single, $50,000 if you are married
and file a joint return with your spouse. The resulting amount is your Excess
AGI. You then determine the limit on the deduction for Traditional IRA
contributions using the following formula:
Maximum Adjusted
$10,000 - Excess AGI x Permissible = Dollar
-------------------- Dollar Deduction
$10,000 Deduction Limit
If you are not eligible to deduct part or all of the Traditional IRA
contribution you may still make nondeductible contributions on which earnings
will accumulate on a tax-deferred basis. The deductible and nondeductible
contributions to your Traditional IRA (or the nonworking spouse's Traditional
IRA) may not, however, together exceed the maximum $2,000 per person limit. See
"Excess Contributions" below. You must keep your own records of deductible and
non-deductible contributions in order to prevent double taxation on the
distribution of previously taxed amounts. See "Distributions from Traditional
IRA Certificates" below.
If you are making nondeductible contributions in any taxable year, or you have
made nondeductible contributions to a Traditional IRA in prior years and are
receiving amounts from any Traditional IRA, you must file the required
information with the IRS. Moreover, if you are making nondeductible Traditional
IRA contributions, you must retain all income tax returns and records pertaining
to such contributions until interests in all Traditional IRAs are fully
distributed.
Traditional IRA 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 you attain 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 nonworking spouse until the year in
which the nonworking spouse reaches age 70 1/2.
EXCESS CONTRIBUTIONS
Excess contributions to a Traditional 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" Traditional 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 Traditional 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
Traditional 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 your 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 your gross income and would be subject to the 10% penalty tax. If excess
contributions are not withdrawn before the time for filing your Federal income
tax return for the year (including extensions), "regular" contributions may
still be withdrawn after that time if the Traditional 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
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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
your 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.
ROLLOVERS AND TRANSFERS
Rollover contributions may be made to a Traditional IRA from these sources: (i)
qualified plans, (ii) TSAs (including 403(b)(7) custodial accounts) and (iii)
other traditional 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 traditional 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 a Traditional 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. Any
amount contributed to a Traditional IRA 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.
Under some circumstances, amounts from a Certificate may be rolled over on a
tax-free basis to a qualified plan. To get this "conduit" Traditional IRA
treatment, the source of funds used to establish the Traditional IRA must be a
rollover contribution from the qualified plan and the entire amount received
from the Traditional 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, you may elect for each
Traditional 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 traditional individual retirement arrangements unless
the distribution was received under an inherited Traditional 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, Traditional 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 TRADITIONAL IRA CERTIFICATES
Income or gains on contributions under Traditional IRAs are not subject to
Federal income tax until benefits are distributed to you. 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 a Traditional IRA is fully
includable as ordinary income by you in your gross income.
If you have made nondeductible IRA contributions to any Traditional IRA (whether
or not this particular arrangement), those contributions are recovered tax free
when distributions are received. You must keep records of all such nondeductible
contributions. At the end of each tax year in which you have received a
distribution from any traditional individual retirement arrangement, you
determine a ratio of the total nondeductible Traditional IRA contributions (less
any amounts previously withdrawn tax free) to the total account balances of all
Traditional IRAs held by you at the end of the tax year (including rollover
Traditional IRAs) plus all Traditional IRA distributions made during such tax
year. The resulting ratio is then multiplied by all distributions from the
Traditional 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 taxable if (1) the amount received is a return of
excess contributions which are withdrawn, as described under "Excess
Contributions" above, (2) the entire
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amount received is rolled over to another traditional individual retirement
arrangement (see "Rollovers and Transfers" above) or (3) in certain limited
circumstances, where the Traditional IRA acts as a "conduit," the entire amount
is paid into a qualified plan or TSA that permits rollover contributions.
Distributions from a Traditional 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 Traditional 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 your interest in the
IRA over your 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, you must take the first required minimum distribution with respect to
the calendar year in which you turn age 70 1/2. You have the choice to take the
first required minimum distribution during the calendar year you turn 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 you turn age 70 1/2.) If you choose to delay taking the
first annual minimum distribution, then you 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 you a great deal of
flexibility to provide for yourself and your family.
An account-based minimum distribution approach may be a lump sum payment, or
periodic withdrawals made over a period which does not extend beyond your life
expectancy or the joint life expectancies of you and a designated beneficiary.
An annuity-based approach involves application of the Annuity Account Value to
an annuity for your life or the joint lives of you 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 traditional
individual retirement arrangements. The IRS, however, does not require that you
make the required distribution from each traditional 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 traditional individual
retirement arrangements that you maintain.
You may recompute your minimum distribution amount each year based on your
current life expectancy as well as that of your spouse. No recomputation is
permitted, however, for a beneficiary other than a spouse.
If you have been computing minimum distributions with respect to Traditional IRA
funds on an account-based approach (discussed above) you may subsequently apply
such funds to a life annuity-based payout, provided that you have elected to
recalculate life expectancy annually (and your spouse's life expectancy if a
spousal joint annuity is selected). For example, if you anticipate exercising
your Guaranteed Minimum Income Benefit or selecting any other form of life
annuity payout after you are age 70 1/2, you must have elected to recalculate
life expectancies.
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
Traditional IRA. See "Tax Penalty for Insufficient Distributions" below.
Except as described in the next sentence, if you die 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 your 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 your death applies if the beneficiary of the Traditional
IRA is your surviving spouse. In some circumstances, your surviving spouse may
elect to "make the Traditional IRA his or her own" and halt distributions until
he or she reaches age 70 1/2.)
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If you die before the Required Beginning Date and before distributions in the
form of an annuity begin, distributions of your entire interest under the
Certificate must be completed within five years after death, unless payments to
a designated beneficiary begin within one year of your 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 your surviving spouse is the designated beneficiary, your spouse may delay
the commencement of such payments up until you would have attained 70 1/2. In
the alternative, a surviving spouse may elect to roll over the inherited
Traditional IRA into the surviving spouse's own Traditional IRA.
TAXATION OF DEATH BENEFITS
Distributions received by a beneficiary are generally given the same tax
treatment you would have received if distribution had been made to you.
If your spouse is the sole primary beneficiary and elects to become the
successor Annuitant and Certificate Owner, 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 a Traditional 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 Traditional 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 Traditional 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 Traditional IRA funds you
may have. Alternatively, you may convert your Traditional IRA Life Contingent
Annuity under the Certificate to a non-qualified Life Contingent Annuity. This
would be viewed as a distribution of the value of the Life Contingent Annuity
from the Traditional IRA, and therefore, would be a taxable event. However,
since the Life Contingent Annuity would no longer be part of a Traditional 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.
Allocations of funds to the Life Contingent Annuity may prevent the Certificate
from later receiving "conduit" Traditional IRA treatment. See "Rollovers and
Transfers" above.
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PROHIBITED TRANSACTION
A Traditional 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, you must include in Federal gross income for
that year an amount equal to the fair market value of the Traditional 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 you have 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 Traditional 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 (5)
certain extraordinary medical expenses or medical insurance premiums for defined
unemployed individuals, (6) qualified first-time home buyer expense payments, or
(7) higher educational expense payments, all as defined in the Code.
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 Income Manager (Life Annuity with a Period Certain)
payout annuity certificates, both of which are described in Part 5. The version
of the Income Manager payout annuity certificates which would meet this
exception must provide level payments for life. If you are a Traditional 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
Income Manager payments are not subject to the 10% penalty tax, they are taxable
as discussed in "Distributions from Traditional IRA Certificates" above. Once
Substantially Equal Payment Withdrawals or Income Manager 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 Income Manager payments for purposes of determining whether the penalty
applies.
Where a taxpayer under age 59 1/2 purchases a traditional 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 Traditional 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 Traditional IRA
that you maintain. You should consult with your tax adviser concerning these
rules and their proper application to your situation.
ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRAS)
This section of Part 8 covers some of the special tax rules that apply to Roth
IRAs.
The Equitable Accumulator Roth IRA is designed to qualify as a Roth individual
retirement annuity under Sections 408A and 408(b) of the Code.
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Cancellation
You can cancel a Certificate issued as a Roth IRA by following the directions in
Part 4 under "Free Look Period." In addition, you can cancel an Equitable
Accumulator Roth IRA Certificate issued as a result of a full conversion of an
Equitable Accumulator Traditional IRA Certificate by following the instructions
in the request for full conversion form available from our Processing Office or
your agent. 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.
Contributions to Roth IRAs
The following discussion relates to contributions to Roth IRAs. Contributions to
Traditional IRAs are discussed above.
Individuals may make four different types of contributions to purchase a Roth
IRA, or as later additions to an existing Roth IRA: (1) "regular" after-tax
contributions out of earnings, (2) taxable "rollover" contributions from
Traditional IRAs ("conversion" contributions), (3) tax-free rollover
contributions from other Roth IRAs, or (4) tax-free direct
custodian-to-custodian transfers from other Roth IRAs ("direct transfers"). See
"Contributions under the Certificates" in Part 4. Since only direct transfer and
rollover contributions are permitted under the Roth IRA Certificate, regular
after-tax contributions are not discussed here.
ROLLOVERS AND DIRECT TRANSFERS -- WHAT IS THE DIFFERENCE BETWEEN ROLLOVER AND
DIRECT TRANSFER TRANSACTIONS?
Rollover contributions may be made to a Roth IRA from only two sources: (i)
another Roth IRA ("tax-free rollover contribution"), or (ii) another Traditional
IRA in a taxable "conversion" rollover ("conversion contribution"). No
contribution may be made to a Roth IRA from a qualified plan under Section
401(a) of the Code, or a tax-sheltered arrangement under Section 403(b) of the
Code. Currently we also do not accept rollover contributions from SEP-IRAs,
SARSEP-IRAs or SIMPLE-IRAs. The rollover contribution must be applied to the new
Roth IRA Certificate within 60 days of the date the proceeds from the other Roth
IRA or the Traditional IRA was received by you.
Direct transfer contributions may be made to a Roth IRA only from another Roth
IRA. The difference between a rollover transaction and a direct transfer
transaction is that in a rollover transaction the individual actually takes
possession of the funds rolled over, or constructively receives them in the case
of a change from one type of plan to another. In a direct transfer transaction,
the individual never takes possession of the funds, but directs the first Roth
IRA custodian, trustee or issuer to transfer the first Roth IRA funds directly
to Equitable Life, as the Roth IRA issuer. Direct transfer transactions can only
be made between identical plan types (for example, Roth IRA to Roth IRA);
rollover transactions may be made between identical plan types but must be made
between different plan types (for example, Traditional IRA to Roth IRA).
Although the economic effect of a Roth IRA to Roth IRA rollover transaction and
a Roth IRA to Roth IRA direct transfer transaction is the same -- both can be
accomplished on a completely tax-free basis -- Roth IRA to Roth IRA rollover
transactions are limited to once every 12-month period for the same funds.
Trustee-to-trustee or custodian-to-custodian direct transfers are not rollover
transactions and can be made more frequently than once a year.
The surviving spouse beneficiary of a deceased individual can roll over or
directly transfer an inherited Roth IRA to one or more other Roth IRAs. Also, in
some cases, Roth IRAs can be transferred on a tax-free basis between spouses or
former spouses incidental to a judicial decree of divorce or separation.
CONVERSION CONTRIBUTIONS TO ROTH IRAS
In a conversion rollover transaction, you withdraw (or are deemed to withdraw)
all or a portion of funds from a Traditional IRA you maintain and convert it to
a Roth IRA within 60 days after you receive (or are deemed to receive) the
Traditional IRA proceeds. Unlike a rollover from a Traditional IRA to another
Traditional IRA, the conversion rollover transaction is not tax exempt; the
distribution from the Traditional IRA is generally fully taxable. (If you have
ever made nondeductible regular contributions to any Traditional IRA -- whether
or not it is the Traditional IRA you are converting -- a pro rata portion of the
distribution is tax exempt.) For this reason, Equitable Life is required to
withhold 10% Federal income tax from the amount converted unless you elect out
of such withholding. See "Federal and State Income Tax Withholding and
Information Reporting" below.
However, even if you are under age 59 1/2 there is no premature distribution
penalty on the Traditional IRA withdrawal that you are converting to a Roth IRA.
Also, a special rule applies to Traditional IRA funds converted to a Roth IRA in
calendar year 1998 only. For 1998 Roth IRA conversion rollover transactions, you
include the gross income from the Traditional IRA conversion ratably over the
four-year period 1998-2001. See discussion of the pre-age 59 1/2 withdrawal
penalty and the special penalties that may apply to premature withdrawals of
converted funds under "Additional Taxes and Penalties" and "Penalty Tax on
Premature Distributions" below.
YOU CANNOT MAKE CONVERSION CONTRIBUTIONS TO A ROTH IRA FOR ANY TAXABLE YEAR IN
WHICH YOUR
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ADJUSTED GROSS INCOME EXCEEDS $100,000. (For this purpose, your adjusted gross
income is computed without the gross income stemming from the Traditional IRA
conversion.) You also cannot make conversion contributions to a Roth IRA for any
taxable year in which your Federal income tax filing status is "married filing
separately."
Finally, you cannot make conversion contributions to a Roth IRA to the extent
that the funds in your Traditional IRA are subject to the annual required
minimum distribution rule applicable to Traditional IRAs beginning at age 70
1/2. For the potential effects of violating these rules, see discussion of
"Additional Taxes and Penalties" and "Excess Contributions" below.
WITHDRAWALS, PAYMENTS AND TRANSFERS OF FUNDS OUT OF ROTH IRAS
NO RESTRICTIONS ON WITHDRAWALS. You can withdraw any or all of your funds from a
Roth IRA at any time; you do not need to wait for a special event like
retirement. However, these withdrawals may be subject to a withdrawal charge as
stated in your Certificate. See discussion in Part 6. Also, the withdrawal may
be taxable to an extent and, even if not taxable, may be subject to tax penalty
in certain circumstances. See the discussion below under "Distributions from
Roth IRAs," "Additional Taxes and Penalties," and "Penalty Tax on Premature
Distributions."
DISTRIBUTIONS FROM ROTH IRAS
Distributions include withdrawals from your Certificate, surrender of your
Certificate and annuity payments from your Certificate. Death benefits are also
distributions.
The following distributions from Roth IRAs are free of income tax:
(1) Rollovers from a Roth IRA to another Roth IRA.
(2) Direct transfers from a Roth IRA to another Roth IRA (see "Rollovers and
Direct Transfers" above).
(3) "Qualified Distributions" from Roth IRAs (see "Qualified Distributions from
Roth IRAs" below).
(4) Return of excess contributions (see "Additional Taxes and Penalties," and
"Excess Contributions" below).
Qualified Distributions from Roth IRAs
Distributions from Roth IRAs made because of one of the following four
qualifying events or reasons are not includable in income, provided a specified
five-year holding or aging period is met. The qualifying events or reasons are
(1) you attain age 59 1/2, (2) your death, (3) your disability, or (4) a
"qualified first-time homebuyer distribution" (as defined in the Code).
Qualified first-time homebuyer distributions are limited to $10,000 lifetime in
the aggregate from all Roth and Traditional IRAs of the taxpayer.
Five-Year Holding or Aging Period
The applicable five-year holding or aging period depends on the type of
contribution made to the Roth IRA. For Roth IRAs funded by regular
contributions, or rollover or direct transfer contributions which are not
directly or indirectly attributable to converted Traditional IRAs, any
distribution made after the five-taxable year period beginning with the first
taxable year for which you made a regular contribution to any Roth IRA (whether
or not the one from which the distribution is being made) meets the five-year
holding or aging period. The Equitable Accumulator Roth IRA does not accept
"regular" contributions. However, it does accept Roth IRA to Roth IRA rollovers
and direct transfers. If the source of your contribution is (indirectly) regular
contributions made to another Roth IRA and not conversion contributions, the
five-year holding or aging period discussed in the prior sentence applies to
you.
For Roth IRAs funded directly or indirectly by converted Traditional IRAs, the
applicable five-year holding period begins with the year of the conversion
rollover transaction to a Roth IRA.
Although there is currently no statutory prohibition against commingling regular
contributions and conversion contributions in any Roth IRA, or against
commingling conversion contributions made in more than one taxable year to Roth
IRAs, the IRS strongly encourages individuals to maintain separate Roth IRAs for
regular contributions and conversion contributions. It also strongly encourages
individuals to differentiate conversion Roth IRAs by conversion year. Under
pending legislation which could be enacted with a retroactive effective date,
aggregation of Roth IRAs by conversion year may be required. In the case of a
Roth IRA which contains conversion contributions and regular contributions, or
conversion contributions from more than one year, the five-year holding period
would be reset to begin with the most recent taxable year for which a conversion
contribution is made.
Non-Qualified Distributions from Roth IRAs
Non-qualified distributions from Roth IRAs are any distributions which do not
meet the qualifying event and five-year holding or aging period tests described
above and are potentially taxable as ordinary income. In contrast to Traditional
IRA distributions, which are assumed to be fully taxable, non-qualified
distributions receive return-of-investment-first treatment. That is, the
recipient is taxed only on the difference between the amount of the distribution
and the amount of Roth IRA contributions (less any distributions previously
recovered tax free).
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Like Traditional IRAs, taxable distributions from a Roth 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.
Although the IRS has not yet issued complete guidance on all aspects of Roth
IRAs, it appears that you will be required to keep your own records of regular
and conversion contributions to all Roth IRAs in order to assure appropriate
taxation. An individual making contributions to a Roth IRA in any taxable year,
or receiving amounts from any Roth IRA may be required to file the information
with the IRS and retain all income tax returns and records pertaining to such
contributions until interests in Roth IRAs are fully distributed.
REQUIRED MINIMUM DISTRIBUTIONS AT DEATH
If you die before annuitization or before the entire amount of the Roth IRA has
been distributed to you, distributions of your entire interest under the Roth
IRA must be completed to your designated beneficiary by December 31 of the fifth
year after your death, unless payments to a designated beneficiary begin by
December 31 of the year after your death and are made over the beneficiary's
life or over a period which does not extend beyond the beneficiary's life
expectancy. If your surviving spouse is the designated beneficiary, no
distributions to a beneficiary are required until after the surviving spouse's
death.
TAXATION OF DEATH BENEFIT
Distributions received by a beneficiary are generally given the same tax
treatment you would have received if distribution had been made to you.
ADDITIONAL TAXES AND PENALTIES
You are subject to additional taxation for using your Roth IRA funds in
prohibited transactions (as described below). There are also additional taxes
for making excess contributions and making certain pre-age 59 1/2 distributions.
Prohibited Transactions
A Roth IRA may not be borrowed against or used as collateral for a loan or other
obligation. If the Roth 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, you may be required to include in your Federal
gross income for that year an amount equal to the fair market value of your Roth
IRA Certificate as of the first day of that tax year. Also, an early
distribution penalty tax of 10% could apply if you have not reached age 59 1/2
before the first day of that tax year. See "Penalty Tax on Premature
Distributions" below.
EXCESS CONTRIBUTIONS
Excess contributions to a Roth 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
rollover Roth IRA contributions, "excess contributions" are amounts which are
not eligible to be rolled over (for example, conversion contributions from a
Traditional IRA if your adjusted gross income is in excess of $100,000 in the
conversion year).
As of the date of this prospectus, there is some uncertainty regarding the
adjustment of excess contributions to Roth IRAs. The rules applicable to
Traditional IRAs, which may apply, provide that an excess contribution
("regular" or rollover) which is withdrawn before the time for filing your
Federal income tax return for the tax year (including extensions) is not
includable in income and is not subject to the 10% penalty tax on early
distributions (discussed below under "Penalty Tax on Premature Distributions"),
provided any earnings attributable to the excess contribution are also
withdrawn. The withdrawn earnings on the excess contribution, however, could be
includable in your gross income for the tax year in which the excess
contribution from which they arose was made and could be subject to the 10%
penalty tax.
As of the date of this prospectus, pending legislation, if enacted, would
provide that a taxpayer has up until the due date of the Federal income tax
return for a tax year (including extensions) to correct an excess contribution
to a Roth IRA by doing a trustee-to-trustee transfer to a Traditional IRA of the
excess contribution and the applicable earnings, as long as no deduction is
taken for the contribution. There can be no assurance that such pending
legislation will be enacted or will not be modified. Please consult your tax
adviser for information on the status of any legislation concerning Roth IRAs.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
The taxable portion of distributions from a Roth IRA made before you reach age
59 1/2 will be subject to an additional 10% Federal income tax penalty unless
one of the following exceptions applies. There are exceptions for:
o Your death,
o Your disability,
o Distributions used to pay certain extraordinary medical expenses,
o Distributions used to pay medical insurance premiums for certain unemployed
individuals,
o Substantially equal payments made at least annually over your life (or your
life expectancy), or over the lives of you and your beneficiary (or your
joint life
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expectancies) using an IRS-approved distribution method,
o "Qualified first-time homebuyer distributions" as defined in the Code, and
o Distributions used to pay specified higher education expenses as defined in
the Code.
Under legislation pending as of the date of this prospectus, if amounts
converted from a Traditional IRA to a Roth IRA are withdrawn in the five-year
period beginning with the year of conversion, to the extent attributable to
amounts that were includable in income due to the conversion transaction, the
amount withdrawn from the Roth IRA would be subject to the 10% early withdrawal
penalty, EVEN IF THE AMOUNT WITHDRAWN FROM THE ROTH IRA IS NOT INCLUDABLE IN
INCOME BECAUSE OF THE RECOVERY-OF-INVESTMENT FIRST RULE. However, if the
recipient is eligible for one of the penalty exceptions described above (e.g.,
being age 59 1/2 or older) no penalty will apply.
Such pending legislation also provides that an additional 10% penalty applies,
apparently without exception, to withdrawals allocable to 1998 conversion
transactions before the five-year exclusion date, in order to recapture the
benefit of the prorated inclusion of Traditional IRA conversion income over the
four-year period. See "Contributions to Roth IRAs," and "Conversion
Contributions to Roth IRAs" above. It is not known whether this legislation will
be enacted in its current form, but it may be retroactive to January 1, 1998.
Because Roth IRAs have only been recently approved, you should consult with your
tax adviser as to whether they are an appropriate investment vehicle for you.
FEDERAL AND STATE INCOME TAX WITHHOLDING AND INFORMATION REPORTING
Equitable Life is required to withhold Federal income tax from Traditional IRA
distributions and the taxable portion of payments from annuity contracts, unless
the recipient elects not to be subject to income tax withholding. For this
reason we are generally required to withhold on conversion rollovers of
Traditional IRAs to Roth IRAs, as the deemed withdrawal from the Traditional IRA
is taxable. Withholding may also apply to any taxable amounts paid under a free
look or cancellation. Generally, no withholding is required on distributions
which are not taxable (for example, a direct transfer from one Roth IRA to
another Roth IRA you own). In the case of distributions from a Roth IRA, we may
not be able to calculate the portion of the distribution (if any) subject to
tax. We may be required to withhold on the gross amount of the distribution
unless you elect out of withholding as described below. This may result in tax
being withheld even though the Roth IRA distribution is not taxable in whole or
in part.
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. See your tax adviser if you think you may be affected by such rules.
Any income tax withheld is a credit against your income tax liability. 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 1998, 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. 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.
58
<PAGE>
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.
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.
59
<PAGE>
- --------------------------------------------------------------------------------
PART 9: OTHER INFORMATION
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997 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.
LEGAL PROCEEDINGS
Equitable Life and its affiliates are parties to various legal proceedings, none
of which, in our view, are likely to have a material adverse effect upon the
Separate Account, our ability to meet our obligations under the Certificates or
the Certificates' distribution.
60
<PAGE>
- --------------------------------------------------------------------------------
PART 10: 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 Tables 1 and 2, reflects all applicable fees and charges,
including the optional baseBUILDER benefits charge, but not the charges for any
applicable taxes such as premium taxes.
The second method, presented in Tables 3, 4 and 5, also reflects all applicable
fees and charges, but does not reflect the withdrawal charge, the optional
baseBUILDER benefits 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.
No Certificates with the product features, fees and expenses described in this
prospectus were offered prior to the date of this prospectus. Accordingly, the
performance data for the Investment Funds have been adjusted for the Certificate
expenses, as described herein, that would have been incurred had these
Certificates been available prior to such date. In addition, the investment
results prior to October 1996, when HRT Class IB shares were not available, have
been adjusted to reflect 12b-1 fees.
In all cases the results shown in the tables are based on the actual historical
investment experience of the corresponding Portfolios of HRT or EQAT, as the
case may be (see "HRT Portfolios," below). Certain of the Investment Funds began
operations on a date after the inception date of the corresponding Portfolio, as
indicated in Table 1. When we advertise the performance of an Investment Fund we
will separately include the historical performance of the Investment Fund,
determined in the manner shown in Table 1, since the Investment Fund's inception
date, as and to the extent required by regulatory authorities.
HRT Portfolios
The performance data for the Alliance Money Market and Alliance Common Stock
Funds that invest in corresponding HRT 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 HRT, as well as an assumed charge
of 0.06% for direct operating expenses.
EQAT Portfolios
EQAT commenced operations on May 1, 1997. The Investment Funds of the Separate
Account that invest in Class IB shares of Portfolios of EQAT commenced
operations on May 1, September 2, and December 31, 1997.
See "Part 2: The Guaranteed Period Account" for information on the Guaranteed
Period Account, and "Part 3: The Special Dollar Cost Averaging Account" for
information on the Special Dollar Cost Averaging Account.
The performance data in Tables 1 and 2 (which reflect the first calculation
method described above) illustrate the average annual total return of the
Investment Funds, and the growth of an investment in the Investment Funds,
respectively, over the periods shown, assuming a single initial contribution of
$1,000 and the surrender of a Certificate, at the end of each period on December
31, 1997. 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, 1997 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.
61
<PAGE>
TABLE 1
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1997*
<TABLE>
<CAPTION>
- ------------------------------------------ ------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
------------------------------------------------------------------------------------
SINCE
INVESTMENT SINCE
ONE THREE FIVE TEN FUND PORTFOLIO
INVESTMENT FUND YEAR YEARS YEARS YEARS INCEPTION** INCEPTION***
- ------------------------------------------ ------------ ------------ ------------ ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Alliance Conservative Investors 4.43% 9.40% 6.33% -- 7.49% 6.82%
Alliance Growth Investors 7.92 15.12 10.70 -- 12.77 12.39
Alliance Growth & Income 17.73 20.29 -- -- 17.90 11.16
Alliance Common Stock 20.16 25.30 18.57 15.88% 22.25 13.76
Alliance Global 2.77 11.59 13.70 11.68 10.65 9.00
Alliance International (11.60) -- -- -- 2.07 2.50
Alliance Aggressive Stock 2.04 17.94 12.44 16.89 16.05 17.16
Alliance Small Cap Growth -- -- -- -- 18.38 18.38
Alliance Money Market 3.26 2.02 2.20 3.79 1.53 5.01
Alliance Intermediate Government
Securities (1.42) 4.63 3.46 -- 3.15 4.74
Alliance High Yield 9.58 17.08 13.44 10.72 14.27 9.96
Alliance Equity Index 23.45 27.04 -- -- 22.18 19.62
MFS Emerging Growth Companies -- -- -- -- 14.32 14.32
MFS Research -- -- -- -- 7.99 7.99
Merrill Lynch Basic Value Equity -- -- -- -- 8.97 8.97
Merrill Lynch World Strategy -- -- -- -- (3.24) (3.24)
Morgan Stanley Emerging Markets Equity -- -- -- -- (21.39) (27.59)
EQ/Putnam Balanced -- -- -- -- 6.43 6.43
EQ/Putnam Growth & Income Value -- -- -- -- 8.15 8.15
T. Rowe Price Equity Income -- -- -- -- 14.01 14.01
T. Rowe Price International Stock -- -- -- -- (9.41) (9.41)
Warburg Pincus Small Company Value -- -- -- -- 11.04 11.04
- -------------------
See footnotes on page 63.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 2
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON DECEMBER 31, 1997*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
------------------------------------------------------------------------------------
ONE THREE FIVE TEN SINCE
INVESTMENT FUND YEAR YEARS YEARS YEARS INCEPTION***
- ------------------------------------------ ----------------- ----------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors $1,044 $1,309 $1,359 -- $1,811
Alliance Growth Investors 1,079 1,526 1,663 -- 2,861
Alliance Growth & Income 1,177 1,741 -- -- 1,697
Alliance Common Stock 1,202 1,967 2,344 $4,364 17,039
Alliance Global 1,028 1,390 1,900 3,017 2,580
Alliance International 884 -- -- -- 1,077
Alliance Aggressive Stock 1,020 1,641 1,797 4,762 6,690
Alliance Small Cap Growth -- -- -- -- 1,184
Alliance Money Market 967 1,062 1,115 1,450 2,296
Alliance Intermediate Government
Securities 986 1,145 1,185 -- 1,383
Alliance High Yield 1,096 1,605 1,879 2,769 2,842
</TABLE>
62
<PAGE>
TABLE 2 (CONTINUED)
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON DECEMBER 31, 1997*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
------------------------------------------------------------------------------------
ONE THREE FIVE TEN SINCE
INVESTMENT FUND YEAR YEARS YEARS YEARS INCEPTION***
- ------------------------------------------ ----------------- ----------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Alliance Equity Index $1,235 $2,050 -- -- $2,048
MFS Emerging Growth Companies -- -- -- -- 1,143
MFS Research -- -- -- -- 1,080
Merrill Lynch Basic Value Equity -- -- -- -- 1,090
Merrill Lynch World Strategy -- -- -- -- 968
Morgan Stanley Emerging Markets Equity -- -- -- -- 724
EQ/Putnam Balanced -- -- -- -- 1,064
EQ/Putnam Growth & Income Value -- -- -- -- 1,082
T. Rowe Price Equity Income -- -- -- -- 1,140
T. Rowe Price International Stock -- -- -- -- 906
Warburg Pincus Small Company Value -- -- -- -- 1,110
</TABLE>
- -------------------
* For all the Investment Funds shown other than the Alliance Equity Index
Fund, the tables reflect the withdrawal charge and the optional baseBUILDER
benefits charge. The values shown for the Alliance Equity Index Fund reflect
the withdrawal charge.
** The "Since Inception" dates for the Investment Funds are as follows:
Alliance Conservative Investors, Alliance Growth Investors, Alliance Growth
& Income, Alliance Common Stock, Alliance Global, Alliance International,
Alliance Aggressive Stock, Alliance Money Market, and Alliance Intermediate
Government Securities (May 1, 1995); Alliance Small Cap Growth, Alliance
High Yield, MFS Emerging Growth Companies, MFS Research, Merrill Lynch Basic
Value Equity, Merrill Lynch World Strategy, EQ/Putnam Balanced, EQ/Putnam
Growth & Income Value, T. Rowe Price Equity Income, T. Rowe Price
International Stock, and Warburg Pincus Small Company Value (May 1, 1997);
and Morgan Stanley Emerging Markets Equity (September 2, 1997).
*** The "Since Inception" dates for the Portfolios of HRT and EQAT 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 Small Cap Growth (May 1, 1997); Alliance Money Market
(July 13, 1981); Alliance Intermediate Government Securities (April 1,
1991); Alliance High Yield (January 2, 1987); Alliance Equity Index (March
1, 1994); MFS Emerging Growth Companies (May 1, 1997); MFS Research (May 1,
1997); Merrill Lynch Basic Value Equity (May 1, 1997); Merrill Lynch World
Strategy (May 1, 1997); Morgan Stanley Emerging Markets Equity (August 20,
1997); EQ/Putnam Balanced (May 1, 1997); EQ/Putnam Growth & Income Value
(May 1, 1997); T. Rowe Price Equity Income (May 1, 1997); T. Rowe Price
International Stock (May 1, 1997); and Warburg Pincus Small Company Value
(May 1, 1997).
- --------------------------------------------------------------------------------
Tables 3, 4 and 5 (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, administration charge, or any withdrawal or optional
benefit 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 Convertibles 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.
63
<PAGE>
ALLIANCE AGGRESSIVE STOCK: January 27, 1986; 50% Russell 2000 Small Stock Index
and 50% Standard & Poor's Mid-Cap Total Return Index.
ALLIANCE SMALL CAP GROWTH: May 1, 1997; Russell 2000 Growth 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 High Yield Master Index.
ALLIANCE EQUITY INDEX FUND: March 1, 1994; Standard & Poor's 500 Index.
MFS EMERGING GROWTH COMPANIES: May 1, 1997; Russell 2000 Index.
MFS RESEARCH: May 1, 1997; Standard & Poor's 500 Index.
MERRILL LYNCH BASIC VALUE EQUITY: May 1, 1997; Standard & Poor's 500 Index.
MERRILL LYNCH WORLD STRATEGY: May 1, 1997; 36% Standard & Poor's 500 Index/24%
Morgan Stanley Capital International Europe, Australia, Far East Index/21%
Salomon Brothers U.S. Treasury Bond 1 Year+/14% Salomon Brothers World
Government Bond (excluding U.S.)/and 5% Three-Month U.S. Treasury Bill.
MORGAN STANLEY EMERGING MARKETS EQUITY: August 20, 1997; Morgan Stanley Capital
International Emerging Markets Free Price Return Index.
EQ/PUTNAM BALANCED: May 1, 1997; 60% Standard & Poor's 500 Index and 40% Lehman
Government/ Corporate Bond Index.
EQ PUTNAM GROWTH & INCOME VALUE: May 1, 1997; Standard & Poor's 500 Index.
T. ROWE PRICE EQUITY INCOME: May 1, 1997; Standard & Poor's 500 Index.
T. ROWE PRICE INTERNATIONAL STOCK: May 1, 1997; Morgan Stanley Capital
International Europe, Australia, Far East Index.
WARBURG PINCUS SMALL COMPANY VALUE: May 1, 1997; Russell 2000 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
Equitable Accumulator performance relative to other variable annuity products.
TABLE 3
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1997:*
<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 11.43% 10.98% 7.06% -- -- -- 7.78%
Lipper Income 15.51 15.54 11.61 -- -- -- 10.57
Benchmark 16.71 17.18 11.87 -- -- -- 11.39
ALLIANCE GROWTH INVESTORS 14.92 16.55 11.35 -- -- -- 13.86
Lipper Flexible Portfolio 18.23 17.09 11.52 -- -- -- 11.10
Benchmark 26.28 25.64 17.02 -- -- -- 14.48
ALLIANCE GROWTH & INCOME 24.73 21.63 -- -- -- -- 14.06
Lipper Growth & Income 25.47 25.18 -- -- -- -- 17.47
Benchmark 29.54 28.62 -- -- -- -- 20.14
ALLIANCE COMMON STOCK 27.16 26.55 19.11 16.10% 15.37% 15.68% 13.98
Lipper Growth 24.35 24.72 16.01 15.40 13.99 15.20 13.97
Benchmark 33.36 31.15 20.27 18.05 17.52 16.66 15.44
ALLIANCE GLOBAL 9.77 13.11 14.27 11.92 -- -- 9.91
Lipper Global 12.99 14.18 13.94 7.21 -- -- 3.84
Benchmark 15.76 16.62 15.34 10.57 -- -- 8.22
ALLIANCE INTERNATIONAL (4.60) -- -- -- -- -- 4.67
Lipper International 5.47 -- -- -- -- -- 11.42
Benchmark 1.78 -- -- -- -- -- 6.15
</TABLE>
64
<PAGE>
TABLE 3 (CONTINUED)
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1997:*
<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 AGGRESSIVE STOCK 9.04% 19.31% 13.05% 17.08% -- -- 17.45%
Lipper Mid-Cap 12.11 15.54 9.27 14.32 -- -- 15.87
Benchmark 27.31 24.88 17.11 17.74 -- -- 15.12
ALLIANCE SMALL CAP
GROWTH -- -- -- -- -- -- 25.38**
Lipper Small Cap -- -- -- -- -- -- 26.66**
Benchmark -- -- -- -- -- -- 27.66**
ALLIANCE MONEY MARKET 3.74 3.81 3.02 4.09 4.91% -- 5.48
Lipper Money Market 3.95 4.05 3.29 4.41 5.39 -- 5.77
Benchmark 5.23 5.41 4.71 5.61 6.33 -- 6.87
ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES 5.58 6.33 4.24 -- -- -- 5.31
Lipper Gen. U.S. Government 7.60 8.03 5.65 -- -- -- 6.95
Benchmark 7.72 8.65 6.39 -- -- -- 7.47
ALLIANCE HIGH YIELD 16.58 18.49 14.04 10.99 -- -- 10.25
Lipper High Yield 12.87 14.23 10.68 10.33 -- -- 9.46
Benchmark 12.83 14.54 11.72 12.09 -- -- 11.39
ALLIANCE EQUITY INDEX 30.45 28.26 -- -- -- -- 21.41
Lipper S&P Index 31.06 29.07 -- -- -- -- 21.98
Benchmark 33.36 31.15 -- -- -- -- 23.84
MFS EMERGING GROWTH
COMPANIES -- -- -- -- -- -- 21.32**
Lipper Mid-Cap -- -- -- -- -- -- 20.88**
Benchmark -- -- -- -- -- -- 28.68**
MFS RESEARCH -- -- -- -- -- -- 14.99**
Lipper Growth -- -- -- -- -- -- 21.89**
Benchmark -- -- -- -- -- -- 22.55**
MERRILL LYNCH BASIC
VALUE EQUITY -- -- -- -- -- -- 15.97**
Lipper Growth -- -- -- -- -- -- 20.28**
Benchmark -- -- -- -- -- -- 22.55**
MERRILL LYNCH WORLD STRATEGY -- -- -- -- -- -- 3.76**
Lipper Global -- -- -- -- -- -- 8.52**
Benchmark -- -- -- -- -- -- 10.81**
MORGAN STANLEY
EMERGING MARKETS
EQUITY -- -- -- -- -- -- (20.59)**
Lipper Emerging Markets -- -- -- -- -- -- N/A
Benchmark -- -- -- -- -- -- (21.43)**
EQ/PUTNAM BALANCED -- -- -- -- -- -- 13.43**
Lipper Balanced -- -- -- -- -- -- 14.79**
Benchmark -- -- -- -- -- -- 17.17**
EQ/PUTNAM GROWTH &
INCOME VALUE -- -- -- -- -- -- 15.15**
Lipper Growth & Income -- -- -- -- -- -- 20.28**
Benchmark -- -- -- -- -- -- 22.55**
</TABLE>
65
<PAGE>
TABLE 3 (CONTINUED)
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1997:*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. ROWE PRICE EQUITY
INCOME -- -- -- -- -- -- 21.01%**
Lipper Equity Income -- -- -- -- -- -- 20.91**
Benchmark -- -- -- -- -- -- 22.55**
T. ROWE PRICE
INTERNATIONAL
STOCK -- -- -- -- -- -- (2.41)**
Lipper International -- -- -- -- -- -- 3.41**
Benchmark -- -- -- -- -- -- 2.85**
WARBURG PINCUS SMALL
COMPANY VALUE -- -- -- -- -- -- 18.04**
Lipper Small Cap -- -- -- -- -- -- 26.66**
Benchmark -- -- -- -- -- -- 28.68**
- ----------------------
See footnotes on page 68.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 4
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1997:*
<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 11.43% 36.67% 40.65% -- -- -- 85.49%
Lipper Income 15.51 54.60 73.34 -- -- -- 129.83
Benchmark 16.71 60.91 75.18 -- -- -- 143.55
ALLIANCE GROWTH INVESTORS 14.92 58.34 71.17 -- -- -- 191.55
Lipper Flexible Portfolio 18.23 61.05 73.02 -- -- -- 140.59
Benchmark 26.28 98.32 119.42 -- -- -- 205.24
ALLIANCE GROWTH & INCOME 24.73 79.95 -- -- -- -- 74.91
Lipper Growth & Income 25.47 96.46 -- -- -- -- 98.58
Benchmark 29.54 112.80 -- -- -- -- 118.17
ALLIANCE COMMON STOCK 27.16 102.66 139.73 344.83% 753.99% 1,740.23% 1,670.44
Lipper Growth 24.35 94.70 111.15 321.71 625.81 1,602.96 1,659.17
Benchmark 33.36 125.60 151.62 425.67 1,026.40 2,080.13 2,248.74
ALLIANCE GLOBAL 9.77 44.72 94.85 208.26 -- -- 165.87
Lipper Global 12.99 49.53 93.26 100.58 -- -- 47.66
Benchmark 15.76 58.59 104.13 173.01 -- -- 126.45
ALLIANCE INTERNATIONAL (4.60) -- -- -- -- -- 13.35
Lipper International 5.47 -- -- -- -- -- 35.07
Benchmark 1.78 -- -- -- -- -- 17.83
ALLIANCE AGGRESSIVE STOCK 9.04 69.84 84.69 384.08 -- -- 581.19
Lipper Mid-Cap 12.11 56.12 59.26 311.80 -- -- 478.26
Benchmark 27.31 94.76 120.25 412.08 -- -- 436.52
ALLIANCE SMALL CAP
GROWTH -- -- -- -- -- -- 25.38**
Lipper Small Cap -- -- -- -- -- -- 26.66**
Benchmark -- -- -- -- -- -- 27.66**
ALLIANCE MONEY MARKET 3.74 11.88 16.03 49.32 105.23 -- 140.79
Lipper Money Market 3.95 12.64 17.61 54.00 120.14 -- 151.25
Benchmark 5.23 `17.13 25.87 72.64 150.97 -- 199.34
ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES 5.58 20.23 23.07 -- -- -- 41.84
Lipper Gen. U.S. Government 7.60 26.12 31.70 -- -- -- 57.40
Benchmark 7.72 28.25 36.31 -- -- -- 62.74
</TABLE>
66
<PAGE>
TABLE 4 (CONTINUED)
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1997:*
<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 HIGH YIELD 16.58% 66.34% 92.84% 183.74% -- -- 192.34%
Lipper High Yield 12.87 49.17 66.26 169.15 -- -- 173.12
Benchmark 12.83 50.26 74.04 213.08 -- -- 227.68
ALLIANCE EQUITY INDEX 30.45 110.98 -- -- -- -- 110.43
Lipper S&P Index 31.06 115.03 -- -- -- -- 114.07
Benchmark 33.36 125.60 -- -- -- -- 127.24
MFS EMERGING GROWTH
COMPANIES -- -- -- -- -- -- 21.32**
Lipper Mid-Cap -- -- -- -- -- -- 20.88**
Benchmark -- -- -- -- -- -- 28.68**
MFS RESEARCH -- -- -- -- -- -- 14.99**
Lipper Growth -- -- -- -- -- -- 21.89**
Benchmark -- -- -- -- -- -- 22.55**
MERRILL LYNCH BASIC
VALUE EQUITY -- -- -- -- -- -- 15.97**
Lipper Growth -- -- -- -- -- -- 20.28**
Benchmark -- -- -- -- -- -- 22.55**
MERRILL LYNCH WORLD
STRATEGY -- -- -- -- -- -- 3.76**
Lipper Global -- -- -- -- -- -- 8.52**
Benchmark -- -- -- -- -- -- 10.81
MORGAN STANLEY
EMERGING MARKETS
EQUITY -- -- -- -- -- -- (20.59)**
Lipper Emerging Markets -- -- -- -- -- -- N/A
Benchmark -- -- -- -- -- -- (21.43)**
EQ/PUTNAM BALANCED -- -- -- -- -- -- 13.43**
Lipper Balanced -- -- -- -- -- -- 14.79**
Benchmark -- -- -- -- -- -- 17.17**
EQ/PUTNAM GROWTH &
INCOME VALUE -- -- -- -- -- -- 15.15**
Lipper Growth & Income -- -- -- -- -- -- 20.28**
Benchmark -- -- -- -- -- -- 22.55
T.ROWE PRICE EQUITY
INCOME -- -- -- -- -- -- 21.01**
Lipper Equity Income -- -- -- -- -- -- 20.91**
Benchmark -- -- -- -- -- -- 22.55**
T. ROWE PRICE
INTERNATIONAL
STOCK -- -- -- -- -- -- (2.41)**
Lipper International -- -- -- -- -- -- 3.41**
Benchmark -- -- -- -- -- -- 2.85**
WARBURG PINCUS SMALL
COMPANY VALUE -- -- -- -- -- -- 18.04**
Lipper Small Cap -- -- -- -- -- -- 26.66**
Benchmark -- -- -- -- -- -- 28.68**
- ----------------------
See footnotes on page 68.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
TABLE 5
YEAR-BY-YEAR RATES OF RETURN*
- -------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990
-------------------------------------------------------------
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.67% 4.66%
ALLIANCE
GROWTH
INVESTORS -- -- -- -- -- 3.42 8.89
ALLIANCE
GROWTH &
INCOME -- -- -- -- -- -- --
ALLIANCE
COMMON
STOCK*** (3.53)% 31.30% 15.50% 5.73% 20.48% 23.60 (9.59)
ALLIANCE GLOBAL -- -- -- (13.75) 9.11 24.72 (7.58)
ALLIANCE
INTERNATIONAL -- -- -- -- -- -- --
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.28 5.58 (0.48) 41.22 6.43
ALLIANCE MONEY
MARKET*** 9.09 6.74 4.91 4.93 5.61 7.45 6.50
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- -- --
ALLIANCE HIGH
YIELD -- -- -- 3.03 7.99 3.46 (2.70)
ALLIANCE
EQUITY INDEX -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997
-----------------------------------------------------------
ALLIANCE
CONSERVATIVE
INVESTORS 17.97% 4.03% 9.04% (5.63)% 18.49% 3.52% 11.43%
ALLIANCE
GROWTH
INVESTORS 46.53 3.22 13.43 (4.70) 24.36 10.80 14.92
ALLIANCE
GROWTH &
INCOME -- -- (0.66) (2.16) 22.10 18.16 24.73
ALLIANCE
COMMON
STOCK*** 35.69 1.57 22.83 (3.70) 30.34 22.28 27.16
ALLIANCE GLOBAL
28.47 (2.10) 30.01 3.56 16.92 12.76 9.77
ALLIANCE
INTERNATIONAL -- -- -- -- 9.97 8.04 (4.60)
ALLIANCE
AGGRESSIVE
STOCK 83.89 (4.71) 14.89 (5.35) 29.54 20.24 9.04
ALLIANCE MONEY
MARKET*** 4.49 1.94 1.32 2.36 4.06 3.64 3.74
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES 10.92 3.90 8.78 (5.90) 11.52 2.11 5.58
ALLIANCE HIGH
YIELD 22.48 10.51 21.19 (4.33) 18.01 20.91 16.58
ALLIANCE
EQUITY INDEX -- -- -- (0.26) 34.31 20.42 30.45
- ----------------
*Returns do not reflect the withdrawal charge, the optional baseBUILDER benefits
charge, and any charge for tax such as premium taxes. There are no returns
shown in Table 5 for the Alliance Small Cap Growth Fund and the Investment
Funds investing in EQAT as such Funds have less than one year of performance.
**Unannualized.
<TABLE>
<CAPTION>
***Prior to 1984 the Year-by-Year Rates of 1976 1977 1978 1979 1980 1981 1982 1983
Return were:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE COMMON STOCK 7.73% (10.69)% 6.51% 27.77% 47.74% (7.37)% 15.70% 24.11%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.49 11.22 7.22
- -----------------------------------------------------------------------------------------------------------------------------
</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 10, 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
68
<PAGE>
Personal Finance, Financial Planning, National Underwriter, Pension &
Investments, USA Today, Investor's Business Daily, The New York Times, and The
Wall Street Journal.
ALLIANCE MONEY MARKET FUND, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND AND
ALLIANCE HIGH YIELD FUND YIELD INFORMATION
The current yield and effective yield of the Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund and Alliance High Yield Fund
may appear in reports and promotional material to current or prospective
Certificate Owners.
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). Current yields for the Alliance Intermediate
Government Securities Fund and Alliance High Yield 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 weekly for the Alliance Money Market Fund and monthly for the
Alliance Intermediate Government Securities Fund and Alliance High Yield Fund.
Alliance Money Market Fund, Alliance Intermediate Government Securities Fund and
Alliance High Yield Fund yields and effective yields assume the deduction of all
Certificate charges and expenses other than the withdrawal charge, the optional
baseBUILDER benefits 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 that no Certificate charges are
deducted. See "Part 5: Alliance Money Market Fund, Alliance Intermediate
Government Securities Fund and Alliance High Yield Fund Yield Information" in
the SAI.
69
<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 was allocated on
February 15, 1999 to a GIRO with an Expiration Date of February 15, 2008 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 was made on February
15, 2003.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSUMED
GUARANTEED RATE ON FEBRUARY 15, 2003
5.00% 9.00%
-----------------------------------------------------------
<S> <C> <C>
As of February 15, 2003 (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, 2003 (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.
70
<PAGE>
APPENDIX II: PURCHASE CONSIDERATIONS FOR QP CERTIFICATES
- --------------------------------------------------------------------------------
Any trustee considering a purchase of a QP Certificate should discuss with its
tax adviser whether this is an appropriate investment vehicle for the employer's
plan. Trustees should consider whether the plan provisions permit the investment
of plan assets in the QP Certificate, the distribution of such an annuity, the
purchase of the Guaranteed Minimum Income Benefit, and the payment of death
benefits in accordance with the requirements of the Code. The form of
Certificate and this prospectus should be reviewed in full, and the following
factors, among others, should be noted. This QP Certificate accepts transfer
contributions only and not regular, ongoing payroll contributions. For 401(k)
plans under defined contribution plans, no employee after-tax contributions are
accepted. Under defined benefit plans, we will not accept rollovers from a
defined contribution plan to a defined benefit plan. We will only accept
transfers from a defined benefit plan or a change of investment vehicles in the
plan.
For defined benefit plans, the maximum percentage of actuarial value of the plan
Participant/Employee's "Normal Retirement Benefit" which can be funded by a QP
Certificate is 80%. The Annuity Account Value under a QP Certificate may at any
time be more or less than the lump sum actuarial equivalent of the "Accrued
Benefit" for a defined benefit plan Participant/Employee. Equitable Life does
not guarantee that the Annuity Account Value under a QP Certificate will at any
time equal the actuarial value of 80% of a Participant/Employee's Accrued
Benefit. If overfunding of a plan occurs, withdrawals from the QP Certificate
may be required. A withdrawal charge and/or market value adjustment may apply.
Further, Equitable will not perform or provide any plan recordkeeping services
with respect to the QP Certificates. The plan's administrator will be solely
responsible for performing or providing for all such services. There is no loan
feature offered under the QP Certificates, so if the plan provides for loans and
a Participant/Employee 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 QP Certificates and the features
of the QP Certificates may appeal more to plan Participants/Employees who are
older and tend to be highly paid, and because certain features of the QP
Certificates are available only to plan Participants/Employees who meet certain
minimum and/or maximum age requirements, plan trustees should discuss with their
advisers whether the purchase of the QP Certificates would cause the plan to
engage in prohibited discrimination in contributions, benefits or otherwise.
71
<PAGE>
APPENDIX III: GUARANTEED MINIMUM DEATH BENEFIT EXAMPLE
- --------------------------------------------------------------------------------
Under the Certificates the death benefit is equal to the Annuity Account Value
or, if greater, the Guaranteed Minimum Death Benefit (see "Guaranteed Minimum
Death Benefit" in Part 4).
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 or the GIROs), 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 6% ROLL UP TO AGE 80 ANNUAL RATCHET TO AGE 80
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 7 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% ROLL UP TO AGE 80
(1) For Contract Years 1 through 7, the Guaranteed
Minimum Death Benefit equals the initial contribution increased by 6%.
ANNUAL RATCHET TO AGE 80
(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.
72
<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 February 14, 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 GIROs and the current purchase rate for the
Life Contingent Annuity, on February 14, 1997, the initial payment would be
$6,730.77 and would increase in each three-year period to a final payment of
$9,854.53. The first payment under the Life Contingent Annuity would be
$10,839.98.
The Guaranteed Rates as of February 14, 1997 for GIROs maturing on February 15,
1998 through 2012 are: 4.40%, 4.69%, 4.86%, 5.00%, 5.11%, 5.22%, 5.32%, 5.41%,
5.50%, 5.57%, 5.56%, 5.56%, 5.56%, 5.56% and 5.56%, respectively.
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 GIROs and
the current purchase rate for the Life Contingent Annuity, on February 14, 1997,
the same initial payment of $6,730.77 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 $78,949.12 is needed to purchase the initial payment
stream, and the remaining $21,050.87 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 $21,050.87 and $26,518.03 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
GIROs and purchase rates for the Life Contingent Annuity as of February 14,
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.
<TABLE>
<CAPTION>
ANNUAL PAYMENTS
----------------------------------------------------------------------------------------------------------------------
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 $ 6,730.77 $6,730.77 $ 6,730.77
4-6 7,403.85 7,100.57 7,520.00
7-9 8,144.23 7,483.79 8,345.92
10-12 8,958.66 7,868.31 9,191.42
13-15 9,854.53 8,217.67 10,010.94
16 10,839.98 8,475.41 10,731.67
----------------------------------------------------------------------------------------------------------------------
</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 GIROs under the former than the latter. In this
illustration, $80,458.33 is allocated under the Assured Payment Option to the
GIROs and under APO Plus, $68,020.34 is allocated to the GIROs. In addition,
under APO Plus $21,050.87 is allocated to the Investment Fund. The balance of
the $100,000 ($19,541.67 and $10,928.78, 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.
73
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Part 1: Minimum Distribution Withdrawals-- Traditional IRA Certificates 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, Alliance Intermediate Government Securities Fund and Alliance High
Yield Fund Yield Information 3
- -------------------------------------------------------------------------------------------------------------------------------
Part 6: Long-Term Market Trends 4
- -------------------------------------------------------------------------------------------------------------------------------
Part 7: Key Factors in Retirement Planning 6
- -------------------------------------------------------------------------------------------------------------------------------
Part 8: Financial Statements 10
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO OBTAIN AN EQUITABLE ACCUMULATOR STATEMENT OF ADDITIONAL
INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Equitable Accumulator
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Equitable Accumulator SAI dated May 1, 1998:
----------------------------------------------------------------------------
Name
----------------------------------------------------------------------------
Address
----------------------------------------------------------------------------
City State Zip
(EDISAI 5/98)
74
<PAGE>
SUPPLEMENT DATED MAY 1, 1998 TO
INCOME MANAGER(R) ROLLOVER IRA PROSPECTUS
DATED DECEMBER 31, 1997
This supplement dated May 1, 1998, updates certain information in the Rollover
IRA prospectus dated December 31, 1997, of The Equitable Life Assurance Society
of the United States (EQUITABLE LIFE). 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,
1998. If you do not presently have a copy of the prospectus, you may obtain an
additional copy, as well as a copy of the SAI, from us, free of charge, if you
write to Equitable Life, 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 this supplement. The SAI has been incorporated by
reference into this supplement.
In this supplement, each section of the prospectus in which a change has been
made is identified and the number of each page on which a change occurs is also
noted. Special terms used in this supplement have the same meaning as in the
prospectus, unless otherwise noted.
THROUGHOUT THE PROSPECTUS, REPLACE "HR TRUST" WITH "HRT" AND "EQ TRUST" WITH
"EQAT."
ON PAGE 7 UNDER THE SUB-HEADING "NOTES" REPLACE FOOTNOTE (6) WITH THE FOLLOWING
FOOTNOTE:
(6) All EQAT Portfolios commenced operations on May 1, 1997, except the
Morgan Stanley Emerging Markets Equity Portfolio, which commenced
operations on August 20, 1997, and the following Portfolios, which had
initial seed capital invested on December 31, 1997: BT Equity 500 Index,
BT Small Company Index, and BT International Equity Index.
The maximum investment management and advisory fees for each EQAT
Portfolio cannot be increased without a vote of that Portfolio's
shareholders. The amounts shown as "Other Expenses" will fluctuate from
year to year depending on actual expenses, however, EQ Financial
Consultants, Inc. ("EQ Financial"), EQAT's manager, has entered into an
expense limitation agreement with respect to each Portfolio ("Expense
Limitation Agreement"), pursuant to which EQ Financial has agreed to
waive or limit its fees and assume other expenses. Under the Expense
Limitation Agreement, total annual operating expenses of each Portfolio
(other than interest, taxes, brokerage commissions, capitalized
expenditures, extraordinary expenses, and 12b-1 fees) are limited for the
respective average daily net assets of each Portfolio as follows: BT
Equity 500 Index - 0.30%; BT Small Company Index - 0.35%; BT
International Equity - 0.55%; MFS Research, MFS Emerging Growth
Companies, Merrill Lynch Basic Value Equity, EQ/Putnam Growth & Income
Value, T. Rowe Price Equity Income - 0.60%; Merrill Lynch World Strategy
and T. Rowe Price International - 0.95%; Morgan Stanley Emerging Markets
Equity - 1.50%; EQ/Putnam Balanced - 0.65%; and Warburg Pincus Small
Company - 0.75%.
Absent the expense limitation, the "Other Expenses" for 1997 on an
annualized basis for each of the following Portfolios would have been as
follows: MFS Emerging Growth Companies - 1.02%; MFS Research - 0.98%;
Merrill Lynch Basic Value Equity - 1.09%; Merrill Lynch World Strategy -
2.10%; Morgan Stanley Emerging Markets Equity - 1.21%; EQ/Putnam Balanced
- 1.75%; EQ/Putnam Growth & Income Value - 0.95%; T. Rowe Price Equity
Income - 0.94%; T. Rowe Price International Stock - 1.56%; and Warburg
Pincus Small Company Value - 0.80%. For EQAT Portfolios which had initial
seed capital invested on December 31, 1997, the "Other Expenses" for 1998
are estimated to be as follows (absent the expense limitation): BT Equity
500 Index - 0.29%; BT Small Company Index - 0.23%; and BT International
Equity Index - 0.47%. See "EQAT Charges to Portfolios" in Part 5.
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society
of the United States, New York, New York 10104.
All rights reserved. Income Manager is a registered service mark of
The Equitable Life Assurance Society of the United States.
<PAGE>
Each Portfolio may at a later date make a reimbursement to EQ Financial
for any of the management fees waived or limited and other expenses
assumed and paid by EQ Financial pursuant to the Expense Limitation
Agreement provided that, among other things, such Portfolio has reached
sufficient size to permit such reimbursement to be made and provided that
the Portfolio's current annual operating expenses do not exceed the
operating expense limit determined for such Portfolio. See the EQAT
prospectus for more information.
ON PAGE 9 ADD THE FOLLOWING SECTION AFTER THE "APO PLUS ELECTION" TABLE.
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
Equitable Life commenced offering the Certificates on May 1, 1997. The
following table shows the Accumulation Unit Values, as of the applicable
dates each Investment Fund was first available under the Certificates as
noted below and on the last business day of the periods shown.
<TABLE>
<CAPTION>
MAY 1, 1997 DECEMBER 31, 1997 MARCH 31, 1998
----------- ----------------- --------------
<S> <C> <C> <C>
Alliance Conservative Investors 17.33 19.23 20.21
Alliance Growth Investors 26.23 30.22 33.00
Alliance Growth & Income 14.67 17.80 19.84
Alliance Common Stock 153.35 194.74 220.37
Alliance Global 24.87 27.76 31.72
Alliance International 11.86 11.46 13.07
Alliance Aggressive Stock 62.84 72.00 81.87
Alliance Small Cap Growth 10.00 12.55 14.28
Alliance Money Market 25.17 25.85 26.10
Alliance Intermediate Government Securities 13.88 14.58 14.76
Alliance High Yield 26.91 30.63 32.18
BT Equity 500 Index* -- 10.00 11.12
BT Small Company Index* -- 10.00 10.90
BT International Equity Index* -- 10.00 11.33
MFS Emerging Growth Companies 10.00 12.15 14.59
MFS Research 10.00 11.52 13.34
Merrill Lynch Basic Value Equity 10.00 11.61 13.38
Merrill Lynch World Strategy 10.00 10.39 11.19
Morgan Stanley Emerging Markets Equity** -- 7.95 8.28
EQ/Putnam Balanced 10.00 11.36 12.21
EQ/Putnam Growth & Income Value 10.00 11.53 12.75
-----------------------
* The BT Equity 500 Index, BT Small Company Index, and BT International Equity Index Funds were first offered under the
Certificates on December 31, 1997.
** The Morgan Stanley Emerging Markets Equity Fund was first offered under the Certificates on August 20, 1997.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MAY 1, 1997 DECEMBER 31, 1997 MARCH 31, 1998
----------- ----------------- --------------
<S> <C> <C> <C>
T. Rowe Price Equity Income 10.00 12.12 13.18
T. Rowe Price International Stock 10.00 9.77 10.98
Warburg Pincus Small Company Value 10.00 11.82 12.67
UNDER APO PLUS
Alliance Common Stock 153.35 194.74 220.37
Alliance Equity Index 17.62 21.38 24.25
</TABLE>
ON PAGE 10 UNDER THE HEADING "EQUITABLE LIFE" REPLACE THE THIRD PARAGRAPH WITH
THE FOLLOWING PARAGRAPH:
Equitable Life, the Holding Company and their subsidiaries managed
approximately $274.1 billion of assets as of December 31, 1997.
ON PAGES 10 AND 11 REPLACE SECTIONS "HRT," "HRT'S MANAGER AND ADVISER," "EQAT,"
AND "EQAT'S MANAGER AND ADVISERS" WITH THE FOLLOWING SECTIONS:
THE TRUSTS
The Trusts are open-end management investment companies registered under the
1940 Act, more commonly called mutual funds. As a "series" type of mutual
fund, each Trust issues several different series of stock, each of which
relates to a different Portfolio of that Trust. The Hudson River Trust (HRT)
commenced operations in January, 1976 with a predecessor of its Alliance
Common Stock Portfolio. EQ Advisors Trust (EQAT) commenced operations on May
1, 1997. The Trusts do not impose sales charges or "loads" for buying and
selling their shares. All dividends and other distributions on a Portfolio's
shares are reinvested in full and fractional shares of the Portfolio to which
they relate. Each Investment Fund invests in Class IB shares of a
corresponding Portfolio. All of the Portfolios, except for the Morgan Stanley
Emerging Markets Equity Portfolio, are diversified for 1940 Act purposes. The
Board of Trustees of HRT and EQAT may establish additional Portfolios or
eliminate existing Portfolios at any time. More detailed information about
the Trusts, their investment objectives, policies, restrictions, risks,
expenses, their respective Rule 12b-1 Plans relating to their respective
Class IB shares, and other aspects of their operations, appears in the HRT
prospectus (beginning after this prospectus supplement), the EQAT prospectus
(beginning after the HRT prospectus), or in their respective Statements of
Additional Information, which are available upon request.
HRT'S MANAGER AND ADVISER
HRT is managed and its Portfolios are advised by Alliance Capital Management
L.P. (ALLIANCE), which is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended (ADVISERS ACT).
In its role as manager of HRT, Alliance has overall responsibility for the
general management and administration of HRT, including selecting the
portfolio managers for HRT's Portfolios, monitoring their investment programs
and results, reviewing brokerage matters, performing fund accounting,
overseeing compliance by HRT with various Federal and state statutes, and
carrying out the directives of its Board of Trustees. With the approval of
HRT's Trustees, Alliance may enter into agreements with other companies to
assist with its administrative and management responsibilities to HRT.
3
<PAGE>
As adviser for all HRT Portfolios, Alliance is responsible for developing the
Portfolios' investment programs, making investment decisions for the
Portfolios, placing all orders for the purchase and sale of those investments
and performing certain limited related administrative functions.
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance, a leading international investment adviser, provides investment
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 is a publicly traded limited partnership incorporated in Delaware.
On December 31, 1997, Alliance was managing approximately $218.7 billion in
assets. Alliance employs 223 investment professionals, including 83 research
analysts. Portfolio managers have average investment experience of more than
14 years.
Alliance is an indirect, majority-owned subsidiary of Equitable Life, and its
main office is located at 1345 Avenue of the Americas, New York, NY 10105.
Additional information regarding Alliance is located in the HRT prospectus
which directly follows this prospectus supplement.
EQAT'S MANAGER
EQ Financial Consultants, Inc. (EQ FINANCIAL), subject to the supervision and
direction of the Board of Trustees of EQAT, has overall responsibility for
the general management and administration of EQAT. EQ Financial is an
investment adviser registered under the Advisers Act, and a broker-dealer
registered under the Exchange Act. EQ Financial currently furnishes
specialized investment advice to other clients, including individuals,
pension and profit-sharing plans, trusts, charitable organizations,
corporations, and other business entities. EQ Financial is a Delaware
corporation and an indirect, wholly owned subsidiary of Equitable Life.
EQ Financial is responsible for providing management and administrative
services to EQAT and selects the investment advisers for EQAT's Portfolios,
monitors the EQAT advisers' investment programs and results, reviews
brokerage matters, oversees compliance by EQAT with various Federal and state
statutes, and carries out the directives of its Board of Trustees. EQ
Financial Consultants, Inc.'s main office is located at 1290 Avenue of the
Americas, New York, NY 10104.
Pursuant to a service agreement, Chase Global Funds Services Company assists
EQ Financial in the performance of its administrative responsibilities to
EQAT with other necessary administrative, fund accounting and compliance
services.
EQAT'S INVESTMENT ADVISERS
Bankers Trust Company, Massachusetts Financial Services Company, Merrill
Lynch Asset Management, L.P., Morgan Stanley Asset Management Inc., Putnam
Investment Management, Inc., T. Rowe Price Associates, Inc. and Rowe
Price-Fleming International, Inc., and Warburg Pincus Asset Management, Inc.
serve as EQAT advisers only for their respective EQAT Portfolios.
Each EQAT adviser furnishes EQAT's manager, EQ Financial, with an investment
program (updated periodically) for each of its Portfolios, makes investment
decisions on behalf of its EQAT Portfolios, places all orders for the
purchase and sale of investments for the Portfolio's account with brokers or
dealers selected by such adviser and may perform certain limited related
administrative functions.
4
<PAGE>
The assets of each Portfolio are allocated currently among the EQAT advisers.
If an EQAT Portfolio shall at any time have more than one EQAT adviser, the
allocation of an EQAT Portfolio's assets among EQAT advisers may be changed
at any time by EQ Financial.
BANKERS TRUST COMPANY
Bankers Trust Company (BANKERS TRUST) is a wholly owned subsidiary of Bankers
Trust New York Corporation which was founded in 1903. Bankers Trust conducts
a variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional markets. Bankers Trust advises BT Equity 500 Index, a domestic
equity portfolio, BT Small Company Index, an aggressive equity portfolio, and
BT International Equity Index, an international equity portfolio. As of
December 31, 1997, Bankers Trust had approximately $317.8 billion in assets
under management worldwide. The executive offices of Bankers Trust are
located at 130 Liberty Street (One Bankers Trust Plaza), New York, NY 10006.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company (MFS) is America's oldest mutual
fund organization, whose assets under management as of December 31, 1997 were
approximately $70.2 billion on behalf of more than 2.7 million investors. MFS
advises MFS Research, a domestic equity portfolio, and MFS Emerging Growth
Companies, an aggressive equity portfolio. MFS is an indirect subsidiary of
Sun Life Assurance Company of Canada and is located at 500 Boylston Street,
Boston, MA 02116.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
Founded in 1976, Merrill Lynch Asset Management, L.P. (MLAM) is a dedicated
asset management affiliate of Merrill Lynch & Co., Inc., a financial
management and advisory company with more than a century of experience. As of
December 31, 1997, MLAM along with its advisory affiliates held approximately
$278 billion in investment company and other portfolio assets under
management. MLAM advises Merrill Lynch Basic Value Equity, a domestic equity
portfolio with a value approach to investing, and Merrill Lynch World
Strategy, a global flexible asset allocation portfolio that invests in
equities and fixed income securities worldwide. The company is located at 800
Scudders Mill Road, Plainsboro, NJ 08543-9011.
MORGAN STANLEY ASSET MANAGEMENT INC.
Morgan Stanley Asset Management Inc. (MSAM) provides a broad range of
portfolio management services to customers in the United States and abroad
and serves as an investment adviser to numerous open-end and closed-end
investment companies. MSAM, together with its affiliated institutional
investment management companies, had approximately $146 billion in assets
under management and fiduciary care as of December 31, 1997. MSAM advises
Morgan Stanley Emerging Markets Equity, an international equity portfolio.
MSAM is a subsidiary of Morgan Stanley, Dean Witter & Co. and is located at
1221 Avenue of the Americas, New York, NY 10020.
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam Investment Management, Inc. (PUTNAM) has been managing mutual funds
since 1937. As of December 31, 1997, Putnam and its affiliates managed more
than $235 billion in assets. Putnam advises EQ/Putnam Balanced, a balanced
stock and bond portfolio and EQ/Putnam Growth & Income Value, a domestic
equity portfolio. Putnam is an indirect subsidiary of Marsh & McLennan
Companies, Inc. and is located at One Post Office Square, Boston, MA 02109.
5
<PAGE>
T. ROWE PRICE ASSOCIATES, INC. AND ROWE PRICE-FLEMING INTERNATIONAL, INC.
Founded in 1937, T. Rowe Price Associates, Inc. (T. ROWE PRICE) provides
investment management to both individuals and institutions. With its
affiliates, assets under management were over $126 billion as of December 31,
1997. T. Rowe Price advises T. Rowe Price Equity Income, a domestic equity
portfolio. The company is located at 100 East Pratt Street, Baltimore, MD
21202.
Rowe Price-Fleming International, Inc., (PRICE-FLEMING) was founded as a
joint venture between T. Rowe Price and Robert Fleming Holdings, Ltd., a
diversified British investment organization. Price-Fleming's predominately
non-U.S. assets under management were the equivalent to approximately $30
billion as of December 31, 1997. Price-Fleming advises T. Rowe Price
International Stock, an international equity portfolio and is located at 100
East Pratt Street, Baltimore, MD 21202.
WARBURG PINCUS ASSET MANAGEMENT INC.
Warburg Pincus Asset Management, Inc. (WPAM) is a professional investment
advisory firm which provides services to investment companies, employee
benefit plans, endowment funds, foundations, and other institutions and
individuals. Assets under management were approximately $19.6 billion as of
December 31, 1997. WPAM is indirectly controlled by Warburg, Pincus & Co., a
New York partnership, which serves as a holding company of WPAM. WPAM advises
Warburg Pincus Small Company Value, an aggressive equity portfolio. The
company is located at 466 Lexington Avenue, New York, NY 10017.
Additional information regarding each of the companies which serve as an EQAT
adviser appears in the EQAT prospectus beginning after the HRT prospectus.
ON PAGE 25 AFTER THE LAST BULLETED PARAGRAPH UNDER THE HEADING "SERVICES WE
PROVIDE" INSERT THE FOLLOWING SUB-SECTION:
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer
your Certificate and operate the Investment Options. Some of these systems
belong to service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000,
and Equitable Life believes it has identified those of its systems critical
to business operations that are not Year 2000 compliant. By year end 1998,
Equitable Life expects that the work of modifying or replacing non-compliant
systems will substantially be completed and expects a comprehensive test of
its Year 2000 compliance will be performed in the first half of 1999.
Equitable Life is in the process of seeking assurances from third party
service providers that they are acting to address the Year 2000 issue with
the goal of avoiding any material adverse effect on services provided to
Certificate Owners and on operations of the Investment Options. Any
significant unresolved difficulty related to the Year 2000 compliance
initiatives could have a material adverse effect on the ability to administer
your Certificate and operate the Investment Options. Assuming the timely
completion of computer modifications by Equitable Life and third-party
service providers, there should be no material adverse effect on the ability
to perform these functions.
6
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Part 1: Minimum Distribution Withdrawals -
Traditional IRA Certificates 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, Alliance Intermediate
Government Securities Fund and Alliance High Yield
Fund Yield Information 3
Part 6: Long-Term Market Trends 4
Part 7: Financial Statements 6
HOW TO OBTAIN AN INCOME MANAGER ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Income Manager Rollover IRA SAI dated May 1, 1998 for the
Rollover IRA Prospectus dated December 31, 1997:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
7
IM-98-RI1297
<PAGE>
SUPPLEMENT DATED MAY 1, 1998 TO
INCOME MANAGER(R) ACCUMULATOR(SM) PROSPECTUS
DATED DECEMBER 31, 1997
This supplement dated May 1, 1998, updates certain information in the
Accumulator prospectus dated December 31, 1997, of The Equitable Life Assurance
Society of the United States (EQUITABLE LIFE). 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,
1998. If you do not presently have a copy of the prospectus, you may obtain an
additional copy, as well as a copy of the SAI, from us, free of charge, if you
write to Equitable Life, 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 this supplement. The SAI has been incorporated by
reference into this supplement.
In this supplement, each section of the prospectus in which a change has been
made is identified and the number of each page on which a change occurs is also
noted. Special terms used in this supplement have the same meaning as in the
prospectus, unless otherwise noted.
THROUGHOUT THE PROSPECTUS, REPLACE "HR TRUST" WITH "HRT" AND "EQ TRUST" WITH
"EQAT."
ON PAGE 6 UNDER THE SUB-HEADING "NOTES" REPLACE FOOTNOTE (6) WITH THE FOLLOWING
FOOTNOTE:
(6) All EQAT Portfolios commenced operations on May 1, 1997, except the
Morgan Stanley Emerging Markets Equity Portfolio, which commenced
operations on August 20, 1997, and the following Portfolios, which had
initial seed capital invested on December 31, 1997: BT Equity 500 Index,
BT Small Company Index, and BT International Equity Index.
The maximum investment management and advisory fees for each EQAT
Portfolio cannot be increased without a vote of that Portfolio's
shareholders. The amounts shown as "Other Expenses" will fluctuate from
year to year depending on actual expenses, however, EQ Financial
Consultants, Inc. ("EQ Financial"), EQAT's manager, has entered into an
expense limitation agreement with respect to each Portfolio ("Expense
Limitation Agreement"), pursuant to which EQ Financial has agreed to
waive or limit its fees and assume other expenses. Under the Expense
Limitation Agreement, total annual operating expenses of each Portfolio
(other than interest, taxes, brokerage commissions, capitalized
expenditures, extraordinary expenses, and 12b-1 fees) are limited for the
respective average daily net assets of each Portfolio as follows: BT
Equity 500 Index - 0.30%; BT Small Company Index - 0.35%; BT
International Equity - 0.55%; MFS Research, MFS Emerging Growth
Companies, Merrill Lynch Basic Value Equity, EQ/Putnam Growth & Income
Value, T. Rowe Price Equity Income - 0.60%; Merrill Lynch World Strategy
and T. Rowe Price International - 0.95%; Morgan Stanley Emerging Markets
Equity - 1.50%; EQ/Putnam Balanced - 0.65%; and Warburg Pincus Small
Company - 0.75%.
Absent the expense limitation, the "Other Expenses" for 1997 on an
annualized basis for each of the following Portfolios would have been as
follows: MFS Emerging Growth Companies - 1.02%; MFS Research - 0.98%;
Merrill Lynch Basic Value Equity - 1.09%; Merrill Lynch World Strategy -
2.10%; Morgan Stanley Emerging Markets Equity - 1.21%; EQ/Putnam Balanced
- 1.75%; EQ/Putnam Growth & Income Value - 0.95%; T. Rowe Price Equity
Income - 0.94%; T. Rowe Price International Stock - 1.56%; and Warburg
Pincus Small Company Value - 0.80%. For EQAT Portfolios which had initial
seed capital invested on December 31, 1997, the "Other Expenses" for 1998
are estimated to be as follows (absent the expense limitation): BT Equity
500 Index - 0.29%; BT Small Company Index - 0.23%; and BT International
Equity Index - 0.47%. See "EQAT Charges to Portfolios" in Part 4.
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of
the United States, New York, New York 10104.
All rights reserved. Income Manager is a registered service mark
and Accumulator is a service mark
of The Equitable Life Assurance Society of the United States.
<PAGE>
Each Portfolio may at a later date make a reimbursement to EQ Financial
for any of the management fees waived or limited and other expenses
assumed and paid by EQ Financial pursuant to the Expense Limitation
Agreement provided that, among other things, such Portfolio has reached
sufficient size to permit such reimbursement to be made and provided that
the Portfolio's current annual operating expenses do not exceed the
operating expense limit determined for such Portfolio. See the EQAT
prospectus for more information.
ON PAGE 8 ADD THE FOLLOWING SECTION AFTER THE "GUARANTEED MINIMUM DEATH BENEFIT
ONLY BENEFIT (PLAN B) ELECTION" TABLE.
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
Equitable Life commenced offering the Certificates on May 1, 1997. The
following table shows the Accumulation Unit Values, as of the applicable
dates each Investment Fund was first available under the Certificates as
noted below and on the last business day of the periods shown.
<TABLE>
<CAPTION>
MAY 1, 1997 DECEMBER 31, 1997 MARCH 31, 1998
----------- ----------------- --------------
<S> <C> <C> <C>
Alliance Conservative Investors 17.33 19.23 20.21
Alliance Growth Investors 26.23 30.22 33.00
Alliance Growth & Income 14.67 17.80 19.84
Alliance Common Stock 153.35 194.74 220.37
Alliance Global 24.87 27.76 31.72
Alliance International 11.86 11.46 13.07
Alliance Aggressive Stock 62.84 72.00 81.87
Alliance Small Cap Growth 10.00 12.55 14.28
Alliance Money Market 25.17 25.85 26.10
Alliance Intermediate Government Securities 13.88 14.58 14.76
Alliance High Yield 26.91 30.63 32.18
BT Equity 500 Index* -- 10.00 11.12
BT Small Company Index* -- 10.00 10.90
BT International Equity Index* -- 10.00 11.33
MFS Emerging Growth Companies 10.00 12.15 14.59
MFS Research 10.00 11.52 13.34
Merrill Lynch Basic Value Equity 10.00 11.61 13.38
Merrill Lynch World Strategy 10.00 10.39 11.19
Morgan Stanley Emerging Markets Equity** -- 7.95 8.28
EQ/Putnam Balanced 10.00 11.36 12.21
EQ/Putnam Growth & Income Value 10.00 11.53 12.75
</TABLE>
- ----------
* The BT Equity 500 Index, BT Small Company Index, and BT International
Equity Index Funds were first offered under the Certificates on
December 31, 1997.
** The Morgan Stanley Emerging Markets Equity Fund was first offered under
the Certificates on August 20, 1997.
2
<PAGE>
<TABLE>
<CAPTION>
MAY 1, 1997 DECEMBER 31, 1997 MARCH 31, 1998
----------- ----------------- --------------
<S> <C> <C> <C>
T. Rowe Price Equity Income 10.00 12.12 13.18
T. Rowe Price International Stock 10.00 9.77 10.98
Warburg Pincus Small Company Value 10.00 11.82 12.67
</TABLE>
ON PAGE 9 UNDER THE HEADING "EQUITABLE LIFE" REPLACE THE THIRD PARAGRAPH WITH
THE FOLLOWING PARAGRAPH:
Equitable Life, the Holding Company and their subsidiaries managed
approximately $274.1 billion of assets as of December 31, 1997.
ON PAGES 9 AND 10 REPLACE SECTIONS "HRT," "HRT'S MANAGER AND ADVISER," "EQAT,"
AND "EQAT'S MANAGER AND ADVISERS" WITH THE FOLLOWING SECTIONS:
THE TRUSTS
The Trusts are open-end management investment companies registered under the
1940 Act, more commonly called mutual funds. As a "series" type of mutual
fund, each Trust issues several different series of stock, each of which
relates to a different Portfolio of that Trust. The Hudson River Trust (HRT)
commenced operations in January, 1976 with a predecessor of its Alliance
Common Stock Portfolio. EQ Advisors Trust (EQAT) commenced operations on May
1, 1997. The Trusts do not impose sales charges or "loads" for buying and
selling their shares. All dividends and other distributions on a Portfolio's
shares are reinvested in full and fractional shares of the Portfolio to which
they relate. Each Investment Fund invests in Class IB shares of a
corresponding Portfolio. All of the Portfolios, except for the Morgan Stanley
Emerging Markets Equity Portfolio, are diversified for 1940 Act purposes. The
Board of Trustees of HRT and EQAT may establish additional Portfolios or
eliminate existing Portfolios at any time. More detailed information about
the Trusts, their investment objectives, policies, restrictions, risks,
expenses, their respective Rule 12b-1 Plans relating to their respective
Class IB shares, and other aspects of their operations, appears in the HRT
prospectus (beginning after this prospectus supplement), the EQAT prospectus
(beginning after the HRT prospectus), or in their respective Statements of
Additional Information, which are available upon request.
HRT'S MANAGER AND ADVISER
HRT is managed and its Portfolios are advised by Alliance Capital Management
L.P. (ALLIANCE), which is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended (ADVISERS ACT).
In its role as manager of HRT, Alliance has overall responsibility for the
general management and administration of HRT, including selecting the
portfolio managers for HRT's Portfolios, monitoring their investment programs
and results, reviewing brokerage matters, performing fund accounting,
overseeing compliance by HRT with various Federal and state statutes, and
carrying out the directives of its Board of Trustees. With the approval of
HRT's Trustees, Alliance may enter into agreements with other companies to
assist with its administrative and management responsibilities to HRT.
As adviser for all HRT Portfolios, Alliance is responsible for developing the
Portfolios' investment programs, making investment decisions for the
Portfolios, placing all orders for the purchase and sale of those investments
and performing certain limited related administrative functions.
3
<PAGE>
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance, a leading international investment adviser, provides investment
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 is a publicly traded limited partnership incorporated in Delaware.
On December 31, 1997, Alliance was managing approximately $218.7 billion in
assets. Alliance employs 223 investment professionals, including 83 research
analysts. Portfolio managers have average investment experience of more than
14 years.
Alliance is an indirect, majority-owned subsidiary of Equitable Life, and its
main office is located at 1345 Avenue of the Americas, New York, NY 10105.
Additional information regarding Alliance is located in the HRT prospectus
which directly follows this prospectus supplement.
EQAT'S MANAGER
EQ Financial Consultants, Inc. (EQ FINANCIAL), subject to the supervision and
direction of the Board of Trustees of EQAT, has overall responsibility for
the general management and administration of EQAT. EQ Financial is an
investment adviser registered under the Advisers Act, and a broker-dealer
registered under the Exchange Act. EQ Financial currently furnishes
specialized investment advice to other clients, including individuals,
pension and profit-sharing plans, trusts, charitable organizations,
corporations, and other business entities. EQ Financial is a Delaware
corporation and an indirect, wholly owned subsidiary of Equitable Life.
EQ Financial is responsible for providing management and administrative
services to EQAT and selects the investment advisers for EQAT's Portfolios,
monitors the EQAT advisers' investment programs and results, reviews
brokerage matters, oversees compliance by EQAT with various Federal and state
statutes, and carries out the directives of its Board of Trustees. EQ
Financial Consultants, Inc.'s main office is located at 1290 Avenue of the
Americas, New York, NY 10104.
Pursuant to a service agreement, Chase Global Funds Services Company assists
EQ Financial in the performance of its administrative responsibilities to
EQAT with other necessary administrative, fund accounting and compliance
services.
EQAT'S INVESTMENT ADVISERS
Bankers Trust Company, Massachusetts Financial Services Company, Merrill
Lynch Asset Management, L.P., Morgan Stanley Asset Management Inc., Putnam
Investment Management, Inc., T. Rowe Price Associates, Inc. and Rowe
Price-Fleming International, Inc., and Warburg Pincus Asset Management, Inc.
serve as EQAT advisers only for their respective EQAT Portfolios.
Each EQAT adviser furnishes EQAT's manager, EQ Financial, with an investment
program (updated periodically) for each of its Portfolios, makes investment
decisions on behalf of its EQAT Portfolios, places all orders for the
purchase and sale of investments for the Portfolio's account with brokers or
dealers selected by such adviser and may perform certain limited related
administrative functions.
The assets of each Portfolio are allocated currently among the EQAT advisers.
If an EQAT Portfolio shall at any time have more than one EQAT adviser, the
allocation of an EQAT Portfolio's assets among EQAT advisers may be changed
at any time by EQ Financial.
4
<PAGE>
BANKERS TRUST COMPANY
Bankers Trust Company (BANKERS TRUST) is a wholly owned subsidiary of Bankers
Trust New York Corporation which was founded in 1903. Bankers Trust conducts
a variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional markets. Bankers Trust advises BT Equity 500 Index, a domestic
equity portfolio, BT Small Company Index, an aggressive equity portfolio, and
BT International Equity Index, an international equity portfolio. As of
December 31, 1997, Bankers Trust had approximately $317.8 billion in assets
under management worldwide. The executive offices of Bankers Trust are
located at 130 Liberty Street (One Bankers Trust Plaza), New York, NY 10006.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company (MFS) is America's oldest mutual
fund organization, whose assets under management as of December 31, 1997 were
approximately $70.2 billion on behalf of more than 2.7 million investors. MFS
advises MFS Research, a domestic equity portfolio, and MFS Emerging Growth
Companies, an aggressive equity portfolio. MFS is an indirect subsidiary of
Sun Life Assurance Company of Canada and is located at 500 Boylston Street,
Boston, MA 02116.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
Founded in 1976, Merrill Lynch Asset Management, L.P. (MLAM) is a dedicated
asset management affiliate of Merrill Lynch & Co., Inc., a financial
management and advisory company with more than a century of experience. As of
December 31, 1997, MLAM along with its advisory affiliates held approximately
$278 billion in investment company and other portfolio assets under
management. MLAM advises Merrill Lynch Basic Value Equity, a domestic equity
portfolio with a value approach to investing, and Merrill Lynch World
Strategy, a global flexible asset allocation portfolio that invests in
equities and fixed income securities worldwide. The company is located at 800
Scudders Mill Road, Plainsboro, NJ 08543-9011.
MORGAN STANLEY ASSET MANAGEMENT INC.
Morgan Stanley Asset Management Inc. (MSAM) provides a broad range of
portfolio management services to customers in the United States and abroad
and serves as an investment adviser to numerous open-end and closed-end
investment companies. MSAM, together with its affiliated institutional
investment management companies, had approximately $146 billion in assets
under management and fiduciary care as of December 31, 1997. MSAM advises
Morgan Stanley Emerging Markets Equity, an international equity portfolio.
MSAM is a subsidiary of Morgan Stanley, Dean Witter & Co. and is located at
1221 Avenue of the Americas, New York, NY 10020.
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam Investment Management, Inc. (PUTNAM) has been managing mutual funds
since 1937. As of December 31, 1997, Putnam and its affiliates managed more
than $235 billion in assets. Putnam advises EQ/Putnam Balanced, a balanced
stock and bond portfolio and EQ/Putnam Growth & Income Value, a domestic
equity portfolio. Putnam is an indirect subsidiary of Marsh & McLennan
Companies, Inc. and is located at One Post Office Square, Boston, MA 02109.
5
<PAGE>
T. ROWE PRICE ASSOCIATES, INC. AND ROWE PRICE-FLEMING INTERNATIONAL, INC.
Founded in 1937, T. Rowe Price Associates, Inc. (T. ROWE PRICE) provides
investment management to both individuals and institutions. With its
affiliates, assets under management were over $126 billion as of December 31,
1997. T. Rowe Price advises T. Rowe Price Equity Income, a domestic equity
portfolio. The company is located at 100 East Pratt Street, Baltimore, MD
21202.
Rowe Price-Fleming International, Inc., (PRICE-FLEMING) was founded as a
joint venture between T. Rowe Price and Robert Fleming Holdings, Ltd., a
diversified British investment organization. Price-Fleming's predominately
non-U.S. assets under management were the equivalent to approximately $30
billion as of December 31, 1997. Price-Fleming advises T. Rowe Price
International Stock, an international equity portfolio and is located at 100
East Pratt Street, Baltimore, MD 21202.
WARBURG PINCUS ASSET MANAGEMENT INC.
Warburg Pincus Asset Management, Inc. (WPAM) is a professional investment
advisory firm which provides services to investment companies, employee
benefit plans, endowment funds, foundations, and other institutions and
individuals. Assets under management were approximately $19.6 billion as of
December 31, 1997. WPAM is indirectly controlled by Warburg, Pincus & Co., a
New York partnership, which serves as a holding company of WPAM. WPAM advises
Warburg Pincus Small Company Value, an aggressive equity portfolio. The
company is located at 466 Lexington Avenue, New York, NY 10017.
Additional information regarding each of the companies which serve as an EQAT
adviser appears in the EQAT prospectus beginning after the HRT prospectus.
ON PAGE 26 AFTER THE LAST BULLETED PARAGRAPH UNDER THE HEADING "SERVICES WE
PROVIDE" INSERT THE FOLLOWING SUB-SECTION:
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer
your Certificate and operate the Investment Options. Some of these systems
belong to service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000,
and Equitable Life believes it has identified those of its systems critical
to business operations that are not Year 2000 compliant. By year end 1998,
Equitable Life expects that the work of modifying or replacing non-compliant
systems will substantially be completed and expects a comprehensive test of
its Year 2000 compliance will be performed in the first half of 1999.
Equitable Life is in the process of seeking assurances from third party
service providers that they are acting to address the Year 2000 issue with
the goal of avoiding any material adverse effect on services provided to
Certificate Owners and on operations of the Investment Options. Any
significant unresolved difficulty related to the Year 2000 compliance
initiatives could have a material adverse effect on the ability to administer
your Certificate and operate the Investment Options. Assuming the timely
completion of computer modifications by Equitable Life and third-party
service providers, there should be no material adverse effect on the ability
to perform these functions.
6
<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, Alliance Intermediate
Government Securities Fund and Alliance High Yield
Fund Yield Information 3
Part 5: Long-Term Market Trends 4
Part 6: Financial Statements 6
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL INFORMATION FOR SEPARATE
ACCOUNT NO. 45
Send this request form to:
Equitable Life
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI dated May 1, 1998 for the Accumulator
Prospectus dated December 31, 1997:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
IM-98-ACC1297 7
<PAGE>
SUPPLEMENT DATED MAY 1, 1998 TO
INCOME MANAGER(R) ROLLOVER IRA AND CHOICE INCOME PLAN PROSPECTUS
DATED OCTOBER 17, 1996, AS PREVIOUSLY SUPPLEMENTED
ON MAY 1 AND DECEMBER 31, 1997
This supplement dated May 1, 1998, updates certain information in the Rollover
IRA and Choice Income Plan prospectus dated October 17, 1996, as previously
supplemented on May 1 and December 31, 1997, of The Equitable Life Assurance
Society of the United States (EQUITABLE LIFE). You should read this supplement
in conjunction with the prospectus and May 1 and December 31, 1997 supplements.
You should keep the supplements 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, 1998. If you do not presently have a
copy of the prospectus and May 1 and December 31, 1997 supplements, you may
obtain additional copies, as well as a copy of the SAI, from us, free of charge,
if you write to Equitable Life, 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 this supplement. The SAI has been
incorporated by reference into this supplement.
In this supplement, each section of the prospectus and/or May 1 and December 31,
1997 supplements in which a change has been made is identified and the number of
each page on which a change occurs is also noted. Special terms used in this
supplement have the same meaning as in the prospectus and May 1 and December 31,
1997 supplements, unless otherwise noted.
THROUGHOUT THE PROSPECTUS AND SUPPLEMENTS, REPLACE "HR TRUST" WITH "HRT" AND "EQ
TRUST" WITH "EQAT."
ON PAGE 4 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER THE SUB-HEADING "NOTES"
REPLACE FOOTNOTE (7) WITH THE FOLLOWING FOOTNOTE:
(7) All EQAT Portfolios commenced operations on May 1, 1997, except the
Morgan Stanley Emerging Markets Equity Portfolio, which commenced
operations on August 20, 1997, and the following Portfolios, which had
initial seed capital invested on December 31, 1997: BT Equity 500 Index,
BT Small Company Index, and BT International Equity Index.
The maximum investment management and advisory fees for each EQAT
Portfolio cannot be increased without a vote of that Portfolio's
shareholders. The amounts shown as "Other Expenses" will fluctuate from
year to year depending on actual expenses, however, EQ Financial
Consultants, Inc. ("EQ Financial"), EQAT's manager, has entered into an
expense limitation agreement with respect to each Portfolio ("Expense
Limitation Agreement"), pursuant to which EQ Financial has agreed to
waive or limit its fees and assume other expenses. Under the Expense
Limitation Agreement, total annual operating expenses of each Portfolio
(other than interest, taxes, brokerage commissions, capitalized
expenditures, extraordinary expenses, and 12b-1 fees) are limited for the
respective average daily net assets of each Portfolio as follows: BT
Equity 500 Index - 0.30%; BT Small Company Index - 0.35%; BT
International Equity - 0.55%; MFS Research, MFS Emerging Growth
Companies, Merrill Lynch Basic Value Equity, EQ/Putnam Growth & Income
Value, T. Rowe Price Equity Income - 0.60%; Merrill Lynch World Strategy
and T. Rowe Price International - 0.95%; Morgan Stanley Emerging Markets
Equity - 1.50%; EQ/Putnam Balanced - 0.65%; and Warburg Pincus Small
Company - 0.75%.
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of the United
States, New York, New York 10104.
All rights reserved. Income Manager is a registered service mark
of The Equitable Life Assurance Society of the United States.
<PAGE>
Absent the expense limitation, the "Other Expenses" for 1997 on an
annualized basis for each of the following Portfolios would have been as
follows: MFS Emerging Growth Companies - 1.02%; MFS Research - 0.98%;
Merrill Lynch Basic Value Equity - 1.09%; Merrill Lynch World Strategy -
2.10%; Morgan Stanley Emerging Markets Equity - 1.21%; EQ/Putnam Balanced
- 1.75%; EQ/Putnam Growth & Income Value - 0.95%; T. Rowe Price Equity
Income - 0.94%; T. Rowe Price International Stock - 1.56%; and Warburg
Pincus Small Company Value - 0.80%. For EQAT Portfolios which had initial
seed capital invested on December 31, 1997, the "Other Expenses" for 1998
are estimated to be as follows (absent the expense limitation): BT Equity
500 Index - 0.29%; BT Small Company Index - 0.23%; and BT International
Equity Index - 0.47%. See "EQAT Charges to Portfolios" in Part 7.
Each Portfolio may at a later date make a reimbursement to EQ Financial
for any of the management fees waived or limited and other expenses
assumed and paid by EQ Financial pursuant to the Expense Limitation
Agreement provided that, among other things, such Portfolio has reached
sufficient size to permit such reimbursement to be made and provided that
the Portfolio's current annual operating expenses do not exceed the
operating expense limit determined for such Portfolio. See the EQAT
prospectus for more information.
ON PAGE 5 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER THE HEADING "ACCUMULATION
UNIT VALUES"
REPLACE THE LAST SENTENCE OF THE PARAGRAPH WITH THE FOLLOWING SENTENCE:
The following table shows the Accumulation Unit Values, as of the applicable
dates each Investment Fund was first available under the Certificates as
noted below and on the last business day of the periods shown.
ADD THE FOLLOWING INFORMATION TO THE TABLE:
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Alliance Conservative Investors 19.26 20.25
Alliance Growth Investors 30.31 33.12
Alliance Growth & Income 17.83 19.89
Alliance Common Stock 195.37 221.24
Alliance Global 27.85 31.84
Alliance International 11.48 13.10
Alliance Aggressive Stock 72.23 82.18
Alliance Small Cap Growth 12.57 14.31
Alliance Money Market 25.85 26.12
Alliance Intermediate Government Securities 14.60 14.79
Alliance High Yield 30.73 32.30
BT Equity 500 Index* 10.00 11.12
BT Small Company Index* 10.00 10.90
BT International Equity Index* 10.00 11.33
MFS Emerging Growth Companies 12.15 14.59
MFS Research 11.52 13.34
- ----------
* The BT Equity 500 Index, BT Small Company Index and BT International Equity
Index Funds were first offered under the Certificates on December 31, 1997.
2
<PAGE>
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Merrill Lynch Basic Value Equity 11.61 13.38
Merrill Lynch World Strategy 10.39 11.19
Morgan Stanley Emerging Markets Equity 7.95 8.28
EQ/Putnam Balanced 11.36 12.21
EQ/Putnam Growth & Income Value 11.53 12.75
T. Rowe Price Equity Income 12.12 13.18
T. Rowe Price International Stock 9.77 10.98
Warburg Pincus Small Company Value 11.82 12.67
ON PAGE 10 OF THE PROSPECTUS AFTER THE LAST BULLETED PARAGRAPH UNDER THE HEADING
"SERVICES WE PROVIDE" INSERT THE FOLLOWING SUB-SECTION:
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer
your Certificate and operate the Investment Options. Some of these systems
belong to service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000,
and Equitable Life believes it has identified those of its systems critical
to business operations that are not Year 2000 compliant. By year end 1998,
Equitable Life expects that the work of modifying or replacing non-compliant
systems will substantially be completed and expects a comprehensive test of
its Year 2000 compliance will be performed in the first half of 1999.
Equitable Life is in the process of seeking assurances from third party
service providers that they are acting to address the Year 2000 issue with
the goal of avoiding any material adverse effect on services provided to
Certificate Owners and on operations of the Investment Options. Any
significant unresolved difficulty related to the Year 2000 compliance
initiatives could have a material adverse effect on the ability to administer
your Certificate and operate the Investment Options. Assuming the timely
completion of computer modifications by Equitable Life and third-party
service providers, there should be no material adverse effect on the ability
to perform these functions.
ON PAGE 5 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER REVISIONS FOR "EQUITABLE
LIFE" REPLACE THE SECOND PARAGRAPH WITH THE FOLLOWING PARAGRAPH:
Equitable Life, the Holding Company and their subsidiaries managed
approximately $274.1 billion of assets as of December 31, 1997.
ON PAGE 6 OF THE DECEMBER 31, 1997 SUPPLEMENT AND PAGES 7 AND 8 OF THE MAY 1,
1997 SUPPLEMENT REPLACE THE REVISED SECTIONS "HRT," "HRT'S INVESTMENT ADVISER,"
"EQAT," AND "EQAT'S MANAGER & ADVISERS" WITH THE FOLLOWING SECTIONS:
THE TRUSTS
The Trusts are open-end management investment companies registered under the
1940 Act, more commonly called mutual funds. As a "series" type of mutual
fund, each Trust issues several different series of stock, each of which
relates to a different Portfolio of that Trust. The Hudson River Trust
3
<PAGE>
(HRT) commenced operations in January, 1976 with a predecessor of its
Alliance Common Stock Portfolio. Investment Funds that invest in HRT
Portfolios purchase Class IA shares of a corresponding HRT Portfolio. EQ
Advisors Trust (EQAT) commenced operations on May 1, 1997. Investment Funds
that invest in EQAT Portfolios purchase Class IB shares of a corresponding
EQAT Portfolio. The Trusts do not impose sales charges or "loads" for buying
and selling their shares. All dividends and other distributions on a
Portfolio's shares are reinvested in full and fractional shares of the
Portfolio to which they relate. All of the Portfolios, except for the Morgan
Stanley Emerging Markets Equity Portfolio, are diversified for 1940 Act
purposes. The Board of Trustees of HRT and EQAT may establish additional
Portfolios or eliminate existing Portfolios at any time. More detailed
information about the Trusts, their investment objectives, policies,
restrictions, risks, expenses, their respective Rule 12b-1 Plans relating to
their respective Class IB shares, and other aspects of their operations,
appears in the HRT prospectus (beginning after this prospectus supplement),
the EQAT prospectus (beginning after the HRT prospectus), or in their
respective Statements of Additional Information, which are available upon
request.
HRT'S MANAGER AND ADVISER
HRT is managed and its Portfolios are advised by Alliance Capital Management
L.P. (ALLIANCE), which is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended (ADVISERS ACT).
In its role as manager of HRT, Alliance has overall responsibility for the
general management and administration of HRT, including selecting the
portfolio managers for HRT's Portfolios, monitoring their investment programs
and results, reviewing brokerage matters, performing fund accounting,
overseeing compliance by HRT with various Federal and state statutes, and
carrying out the directives of its Board of Trustees. With the approval of
HRT's Trustees, Alliance may enter into agreements with other companies to
assist with its administrative and management responsibilities to HRT.
As adviser for all HRT Portfolios, Alliance is responsible for developing the
Portfolios' investment programs, making investment decisions for the
Portfolios, placing all orders for the purchase and sale of those investments
and performing certain limited related administrative functions.
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance, a leading international investment adviser, provides investment
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 is a publicly traded limited partnership incorporated in Delaware.
On December 31, 1997, Alliance was managing approximately $218.7 billion in
assets. Alliance employs 223 investment professionals, including 83 research
analysts. Portfolio managers have average investment experience of more than
14 years.
Alliance is an indirect, majority-owned subsidiary of Equitable Life, and its
main office is located at 1345 Avenue of the Americas, New York, NY 10105.
Additional information regarding Alliance is located in the HRT prospectus
which directly follows this prospectus supplement.
4
<PAGE>
EQAT'S MANAGER
EQ Financial Consultants, Inc. (EQ FINANCIAL), subject to the supervision and
direction of the Board of Trustees of EQAT, has overall responsibility for
the general management and administration of EQAT. EQ Financial is an
investment adviser registered under the Advisers Act, and a broker-dealer
registered under the Exchange Act. EQ Financial currently furnishes
specialized investment advice to other clients, including individuals,
pension and profit-sharing plans, trusts, charitable organizations,
corporations, and other business entities. EQ Financial is a Delaware
corporation and an indirect, wholly owned subsidiary of Equitable Life.
EQ Financial is responsible for providing management and administrative
services to EQAT and selects the investment advisers for EQAT's Portfolios,
monitors the EQAT advisers' investment programs and results, reviews
brokerage matters, oversees compliance by EQAT with various Federal and state
statutes, and carries out the directives of its Board of Trustees. EQ
Financial Consultants, Inc.'s main office is located at 1290 Avenue of the
Americas, New York, NY 10104.
Pursuant to a service agreement, Chase Global Funds Services Company assists
EQ Financial in the performance of its administrative responsibilities to
EQAT with other necessary administrative, fund accounting and compliance
services.
EQAT'S INVESTMENT ADVISERS
Bankers Trust Company, Massachusetts Financial Services Company, Merrill
Lynch Asset Management, L.P., Morgan Stanley Asset Management Inc., Putnam
Investment Management, Inc., T. Rowe Price Associates, Inc. and Rowe
Price-Fleming International, Inc., and Warburg Pincus Asset Management, Inc.
serve as EQAT advisers only for their respective EQAT Portfolios.
Each EQAT adviser furnishes EQAT's manager, EQ Financial, with an investment
program (updated periodically) for each of its Portfolios, makes investment
decisions on behalf of its EQAT Portfolios, places all orders for the
purchase and sale of investments for the Portfolio's account with brokers or
dealers selected by such adviser and may perform certain limited related
administrative functions.
The assets of each Portfolio are allocated currently among the EQAT advisers.
If an EQAT Portfolio shall at any time have more than one EQAT adviser, the
allocation of an EQAT Portfolio's assets among EQAT advisers may be changed
at any time by EQ Financial.
BANKERS TRUST COMPANY
Bankers Trust Company (BANKERS TRUST) is a wholly owned subsidiary of Bankers
Trust New York Corporation which was founded in 1903. Bankers Trust conducts
a variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional markets. Bankers Trust advises BT Equity 500 Index, a domestic
equity portfolio, BT Small Company Index, an aggressive equity portfolio, and
BT International Equity Index, an international equity portfolio. As of
December 31, 1997, Bankers Trust had approximately $317.8 billion in assets
under management worldwide. The executive offices of Bankers Trust are
located at 130 Liberty Street (One Bankers Trust Plaza), New York, NY 10006.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company (MFS) is America's oldest mutual
fund organization, whose assets under management as of December 31, 1997 were
approximately $70.2 billion on behalf of more than 2.7 million investors. MFS
advises MFS Research, a domestic equity portfolio, and MFS
5
<PAGE>
Emerging Growth Companies, an aggressive equity portfolio. MFS is an indirect
subsidiary of Sun Life Assurance Company of Canada and is located at 500
Boylston Street, Boston, MA 02116.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
Founded in 1976, Merrill Lynch Asset Management, L.P. (MLAM) is a dedicated
asset management affiliate of Merrill Lynch & Co., Inc., a financial
management and advisory company with more than a century of experience. As of
December 31, 1997, MLAM along with its advisory affiliates held approximately
$278 billion in investment company and other portfolio assets under
management. MLAM advises Merrill Lynch Basic Value Equity, a domestic equity
portfolio with a value approach to investing, and Merrill Lynch World
Strategy, a global flexible asset allocation portfolio that invests in
equities and fixed income securities worldwide. The company is located at 800
Scudders Mill Road, Plainsboro, NJ 08543-9011.
MORGAN STANLEY ASSET MANAGEMENT INC.
Morgan Stanley Asset Management Inc. (MSAM) provides a broad range of
portfolio management services to customers in the United States and abroad
and serves as an investment adviser to numerous open-end and closed-end
investment companies. MSAM, together with its affiliated institutional
investment management companies, had approximately $146 billion in assets
under management and fiduciary care as of December 31, 1997. MSAM advises
Morgan Stanley Emerging Markets Equity, an international equity portfolio.
MSAM is a subsidiary of Morgan Stanley, Dean Witter & Co. and is located at
1221 Avenue of the Americas, New York, NY 10020.
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam Investment Management, Inc. (PUTNAM) has been managing mutual funds
since 1937. As of December 31, 1997, Putnam and its affiliates managed more
than $235 billion in assets. Putnam advises EQ/Putnam Balanced, a balanced
stock and bond portfolio and EQ/Putnam Growth & Income Value, a domestic
equity portfolio. Putnam is an indirect subsidiary of Marsh & McLennan
Companies, Inc. and is located at One Post Office Square, Boston, MA 02109.
T. ROWE PRICE ASSOCIATES, INC. AND ROWE PRICE-FLEMING INTERNATIONAL, INC.
Founded in 1937, T. Rowe Price Associates, Inc. (T. ROWE PRICE) provides
investment management to both individuals and institutions. With its
affiliates, assets under management were over $126 billion as of December 31,
1997. T. Rowe Price advises T. Rowe Price Equity Income, a domestic equity
portfolio. The company is located at 100 East Pratt Street, Baltimore, MD
21202.
Rowe Price-Fleming International, Inc., (PRICE-FLEMING) was founded as a
joint venture between T. Rowe Price and Robert Fleming Holdings, Ltd., a
diversified British investment organization. Price-Fleming's predominately
non-U.S. assets under management were the equivalent to approximately $30
billion as of December 31, 1997. Price-Fleming advises T. Rowe Price
International Stock, an international equity portfolio and is located at 100
East Pratt Street, Baltimore, MD 21202.
6
<PAGE>
WARBURG PINCUS ASSET MANAGEMENT INC.
Warburg Pincus Asset Management, Inc. (WPAM) is a professional investment
advisory firm which provides services to investment companies, employee
benefit plans, endowment funds, foundations, and other institutions and
individuals. Assets under management were approximately $19.6 billion as of
December 31, 1997. WPAM is indirectly controlled by Warburg, Pincus & Co., a
New York partnership, which serves as a holding company of WPAM. WPAM advises
Warburg Pincus Small Company Value, an aggressive equity portfolio. The
company is located at 466 Lexington Avenue, New York, NY 10017.
Additional information regarding each of the companies which serve as an EQAT
adviser appears in the EQAT prospectus beginning after the HRT prospectus.
7
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
----
Part 1: Minimum Distribution Withdrawals --
Traditional IRA Certificates 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, Alliance Intermediate
Government Securities Fund and Alliance High Yield
Fund Yield Information 3
Part 6: Long-Term Market Trends 5
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
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me a Rollover IRA SAI dated May 1, 1998 for the Rollover IRA and
Choice Income Plan Prospectus dated October 17, 1996 as supplemented on May 1
and December 31, 1997:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
IM-98-IRA1096 8
<PAGE>
SUPPLEMENT DATED MAY 1, 1998 TO
INCOME MANAGER(R) ACCUMULATOR(SM) PROSPECTUS
DATED OCTOBER 17, 1996, AS PREVIOUSLY SUPPLEMENTED
ON MAY 1 AND DECEMBER 31, 1997
This supplement dated May 1, 1998, updates certain information in the
Accumulator prospectus dated October 17, 1996, as previously supplemented on May
1 and December 31, 1997, of The Equitable Life Assurance Society of the United
States (EQUITABLE LIFE). You should read this supplement in conjunction with the
prospectus and May 1 and December 31, 1997 supplements. You should keep the
supplements 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, 1998. If you do not presently have a copy of the prospectus
and May 1 and December 31, 1997 supplements, you may obtain additional copies,
as well as a copy of the SAI, from us, free of charge, if you write to Equitable
Life, 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 this supplement. The SAI has been incorporated by reference into this
supplement.
In this supplement, each section of the prospectus and/or May 1 and December 31,
1997 supplements in which a change has been made is identified and the number of
each page on which a change occurs is also noted. Special terms used in this
supplement have the same meaning as in the prospectus and May 1 and December 31,
1997 supplements, unless otherwise noted.
THROUGHOUT THE PROSPECTUS AND SUPPLEMENTS, REPLACE "HR TRUST" WITH "HRT" AND "EQ
TRUST" WITH "EQAT."
ON PAGE 3 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER THE SUB-HEADING "NOTES"
REPLACE FOOTNOTE (7) WITH THE FOLLOWING FOOTNOTE:
(7) All EQAT Portfolios commenced operations on May 1, 1997, except the
Morgan Stanley Emerging Markets Equity Portfolio, which commenced
operations on August 20, 1997, and the following Portfolios, which had
initial seed capital invested on December 31, 1997: BT Equity 500 Index,
BT Small Company Index, and BT International Equity Index.
The maximum investment management and advisory fees for each EQAT
Portfolio cannot be increased without a vote of that Portfolio's
shareholders. The amounts shown as "Other Expenses" will fluctuate from
year to year depending on actual expenses, however, EQ Financial
Consultants, Inc. ("EQ Financial"), EQAT's manager, has entered into an
expense limitation agreement with respect to each Portfolio ("Expense
Limitation Agreement"), pursuant to which EQ Financial has agreed to
waive or limit its fees and assume other expenses. Under the Expense
Limitation Agreement, total annual operating expenses of each Portfolio
(other than interest, taxes, brokerage commissions, capitalized
expenditures, extraordinary expenses, and 12b-1 fees) are limited for the
respective average daily net assets of each Portfolio as follows: BT
Equity 500 Index - 0.30%; BT Small Company Index - 0.35%; BT
International Equity - 0.55%; MFS Research, MFS Emerging Growth
Companies, Merrill Lynch Basic Value Equity, EQ/Putnam Growth & Income
Value, T. Rowe Price Equity Income - 0.60%; Merrill Lynch World Strategy
and T. Rowe Price International - 0.95%; Morgan Stanley Emerging Markets
Equity - 1.50%; EQ/Putnam Balanced - 0.65%; and Warburg Pincus Small
Company - 0.75%.
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of
the United States, New York, New York 10104.
All rights reserved. Income Manager is a registered service mark and
Accumulator is a service mark of
The Equitable Life Assurance Society of the United States.
<PAGE>
Absent the expense limitation, the "Other Expenses" for 1997 on an
annualized basis for each of the following Portfolios would have been as
follows: MFS Emerging Growth Companies - 1.02%; MFS Research - 0.98%;
Merrill Lynch Basic Value Equity - 1.09%; Merrill Lynch World Strategy -
2.10%; Morgan Stanley Emerging Markets Equity - 1.21%; EQ/Putnam Balanced
- 1.75%; EQ/Putnam Growth & Income Value - 0.95%; T. Rowe Price Equity
Income - 0.94%; T. Rowe Price International Stock - 1.56%; and Warburg
Pincus Small Company Value - 0.80%. For EQAT Portfolios which had initial
seed capital invested on December 31, 1997, the "Other Expenses" for 1998
are estimated to be as follows (absent the expense limitation): BT Equity
500 Index - 0.29%; BT Small Company Index - 0.23%; and BT International
Equity Index - 0.47%. See "EQAT Charges to Portfolios" in Part 6.
Each Portfolio may at a later date make a reimbursement to EQ Financial
for any of the management fees waived or limited and other expenses
assumed and paid by EQ Financial pursuant to the Expense Limitation
Agreement provided that, among other things, such Portfolio has reached
sufficient size to permit such reimbursement to be made and provided that
the Portfolio's current annual operating expenses do not exceed the
operating expense limit determined for such Portfolio. See the EQAT
prospectus for more information.
ON PAGE 4 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER THE HEADING "ACCUMULATION
UNIT VALUES"
REPLACE THE LAST SENTENCE OF THE PARAGRAPH WITH THE FOLLOWING SENTENCE:
The following table shows the Accumulation Unit Values, as of the applicable
dates each Investment Fund was first available under the Certificates as
noted below and on the last business day of the periods shown.
ADD THE FOLLOWING INFORMATION TO THE TABLE:
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Alliance Conservative Investors 19.26 20.25
Alliance Growth Investors 30.31 33.12
Alliance Growth & Income 17.83 19.89
Alliance Common Stock 195.37 221.24
Alliance Global 27.85 31.84
Alliance International 11.48 13.10
Alliance Aggressive Stock 72.23 82.18
Alliance Small Cap Growth 12.57 14.31
Alliance Money Market 25.85 26.12
Alliance Intermediate Government Securities 14.60 14.79
Alliance High Yield 30.73 32.30
BT Equity 500 Index* 10.00 11.12
BT Small Company Index* 10.00 10.90
BT International Equity Index* 10.00 11.33
MFS Emerging Growth Companies 12.15 14.59
MFS Research 11.52 13.34
- ----------
* The BT Equity 500 Index, BT Small Company Index and BT International Equity
Index Funds were first offered under the Certificates on December 31, 1997.
2
<PAGE>
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Merrill Lynch Basic Value Equity 11.61 13.38
Merrill Lynch World Strategy 10.39 11.19
Morgan Stanley Emerging Markets Equity 7.95 8.28
EQ/Putnam Balanced 11.36 12.21
EQ/Putnam Growth & Income Value 11.53 12.75
T. Rowe Price Equity Income 12.12 13.18
T. Rowe Price International Stock 9.77 10.98
Warburg Pincus Small Company Value 11.82 12.67
ON PAGE 9 OF THE PROSPECTUS AFTER THE LAST BULLETED PARAGRAPH UNDER THE HEADING
"SERVICES WE PROVIDE" INSERT THE FOLLOWING SUB-SECTION:
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer
your Certificate and operate the Investment Options. Some of these systems
belong to service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000,
and Equitable Life believes it has identified those of its systems critical
to business operations that are not Year 2000 compliant. By year end 1998,
Equitable Life expects that the work of modifying or replacing non-compliant
systems will substantially be completed and expects a comprehensive test of
its Year 2000 compliance will be performed in the first half of 1999.
Equitable Life is in the process of seeking assurances from third party
service providers that they are acting to address the Year 2000 issue with
the goal of avoiding any material adverse effect on services provided to
Certificate Owners and on operations of the Investment Options. Any
significant unresolved difficulty related to the Year 2000 compliance
initiatives could have a material adverse effect on the ability to administer
your Certificate and operate the Investment Options. Assuming the timely
completion of computer modifications by Equitable Life and third party
service providers, there should be no material adverse effect on the ability
to perform these functions.
ON PAGE 4 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER REVISIONS FOR "EQUITABLE
LIFE" REPLACE THE SECOND PARAGRAPH WITH THE FOLLOWING PARAGRAPH:
Equitable Life, the Holding Company and their subsidiaries managed
approximately $274.1 billion of assets as of December 31, 1997.
ON PAGE 5 OF THE DECEMBER 31, 1997 SUPPLEMENT AND PAGES 7 AND 8 OF THE MAY 1,
1997 SUPPLEMENT REPLACE THE REVISED SECTIONS "HRT," "HRT'S INVESTMENT ADVISER,"
"EQAT," AND "EQAT'S MANAGER & ADVISERS" WITH THE FOLLOWING SECTIONS:
THE TRUSTS
The Trusts are open-end management investment companies registered under the
1940 Act, more commonly called mutual funds. As a "series" type of mutual
fund, each Trust issues several different series of stock, each of which
relates to a different Portfolio of that Trust. The Hudson River Trust
3
<PAGE>
(HRT) commenced operations in January 1976 with a predecessor of its
Alliance Common Stock Portfolio. Investment Funds that invest in HRT
Portfolios purchase Class IA shares of a corresponding HRT Portfolio. EQ
Advisors Trust (EQAT) commenced operations on May 1, 1997. Investment Funds
that invest in EQAT Portfolios purchase Class IB shares of a corresponding
EQAT Portfolio. The Trusts do not impose sales charges or "loads" for buying
and selling their shares. All dividends and other distributions on a
Portfolio's shares are reinvested in full and fractional shares of the
Portfolio to which they relate. All of the Portfolios, except for the Morgan
Stanley Emerging Markets Equity Portfolio, are diversified for 1940 Act
purposes. The Board of Trustees of HRT and EQAT may establish additional
Portfolios or eliminate existing Portfolios at any time. More detailed
information about the Trusts, their investment objectives, policies,
restrictions, risks, expenses, their respective Rule 12b-1 Plans relating to
their respective Class IB shares, and other aspects of their operations,
appears in the HRT prospectus (beginning after this prospectus supplement),
the EQAT prospectus (beginning after the HRT prospectus), or in their
respective Statements of Additional Information, which are available upon
request.
HRT'S MANAGER AND ADVISER
HRT is managed and its Portfolios are advised by Alliance Capital Management
L.P. (ALLIANCE), which is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended (ADVISERS ACT).
In its role as manager of HRT, Alliance has overall responsibility for the
general management and administration of HRT, including selecting the
portfolio managers for HRT's Portfolios, monitoring their investment programs
and results, reviewing brokerage matters, performing fund accounting,
overseeing compliance by HRT with various Federal and state statutes, and
carrying out the directives of its Board of Trustees. With the approval of
HRT's Trustees, Alliance may enter into agreements with other companies to
assist with its administrative and management responsibilities to HRT.
As adviser for all HRT Portfolios, Alliance is responsible for developing the
Portfolios' investment programs, making investment decisions for the
Portfolios, placing all orders for the purchase and sale of those investments
and performing certain limited related administrative functions.
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance, a leading international investment adviser, provides investment
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 is a publicly traded limited partnership incorporated in Delaware.
On December 31, 1997, Alliance was managing approximately $218.7 billion in
assets. Alliance employs 223 investment professionals, including 83 research
analysts. Portfolio managers have average investment experience of more than
14 years.
Alliance is an indirect, majority-owned subsidiary of Equitable Life, and its
main office is located at 1345 Avenue of the Americas, New York, NY 10105.
Additional information regarding Alliance is located in the HRT prospectus
which directly follows this prospectus supplement.
4
<PAGE>
EQAT'S MANAGER
EQ Financial Consultants, Inc. (EQ FINANCIAL), subject to the supervision and
direction of the Board of Trustees of EQAT, has overall responsibility for
the general management and administration of EQAT. EQ Financial is an
investment adviser registered under the Advisers Act, and a broker-dealer
registered under the Exchange Act. EQ Financial currently furnishes
specialized investment advice to other clients, including individuals,
pension and profit-sharing plans, trusts, charitable organizations,
corporations, and other business entities. EQ Financial is a Delaware
corporation and an indirect, wholly owned subsidiary of Equitable Life.
EQ Financial is responsible for providing management and administrative
services to EQAT and selects the investment advisers for EQAT's Portfolios,
monitors the EQAT advisers' investment programs and results, reviews
brokerage matters, oversees compliance by EQAT with various Federal and state
statutes, and carries out the directives of its Board of Trustees. EQ
Financial Consultants, Inc.'s main office is located at 1290 Avenue of the
Americas, New York, NY 10104.
Pursuant to a service agreement, Chase Global Funds Services Company assists
EQ Financial in the performance of its administrative responsibilities to
EQAT with other necessary administrative, fund accounting and compliance
services.
EQAT'S INVESTMENT ADVISERS
Bankers Trust Company, Massachusetts Financial Services Company, Merrill
Lynch Asset Management, L.P., Morgan Stanley Asset Management Inc., Putnam
Investment Management, Inc., T. Rowe Price Associates, Inc. and Rowe
Price-Fleming International, Inc., and Warburg Pincus Asset Management, Inc.
serve as EQAT advisers only for their respective EQAT Portfolios.
Each EQAT adviser furnishes EQAT's manager, EQ Financial, with an investment
program (updated periodically) for each of its Portfolios, makes investment
decisions on behalf of its EQAT Portfolios, places all orders for the
purchase and sale of investments for the Portfolio's account with brokers or
dealers selected by such adviser and may perform certain limited related
administrative functions.
The assets of each Portfolio are allocated currently among the EQAT advisers.
If an EQAT Portfolio shall at any time have more than one EQAT adviser, the
allocation of an EQAT Portfolio's assets among EQAT advisers may be changed
at any time by EQ Financial.
BANKERS TRUST COMPANY
Bankers Trust Company (BANKERS TRUST) is a wholly owned subsidiary of Bankers
Trust New York Corporation which was founded in 1903. Bankers Trust conducts
a variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional markets. Bankers Trust advises BT Equity 500 Index, a domestic
equity portfolio, BT Small Company Index, an aggressive equity portfolio, and
BT International Equity Index, an international equity portfolio. As of
December 31, 1997, Bankers Trust had approximately $317.8 billion in assets
under management worldwide. The executive offices of Bankers Trust are
located at 130 Liberty Street (One Bankers Trust Plaza), New York, NY 10006.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company (MFS) is America's oldest mutual
fund organization, whose assets under management as of December 31, 1997 were
approximately $70.2 billion on behalf of more than 2.7 million investors. MFS
advises MFS Research, a domestic equity portfolio, and MFS
5
<PAGE>
Emerging Growth Companies, an aggressive equity portfolio. MFS is an indirect
subsidiary of Sun Life Assurance Company of Canada and is located at 500
Boylston Street, Boston, MA 02116.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
Founded in 1976, Merrill Lynch Asset Management, L.P. (MLAM) is a dedicated
asset management affiliate of Merrill Lynch & Co., Inc., a financial
management and advisory company with more than a century of experience. As of
December 31, 1997, MLAM along with its advisory affiliates held approximately
$278 billion in investment company and other portfolio assets under
management. MLAM advises Merrill Lynch Basic Value Equity, a domestic equity
portfolio with a value approach to investing, and Merrill Lynch World
Strategy, a global flexible asset allocation portfolio that invests in
equities and fixed income securities worldwide. The company is located at 800
Scudders Mill Road, Plainsboro, NJ 08543-9011.
MORGAN STANLEY ASSET MANAGEMENT INC.
Morgan Stanley Asset Management Inc. (MSAM) provides a broad range of
portfolio management services to customers in the United States and abroad
and serves as an investment adviser to numerous open-end and closed-end
investment companies. MSAM, together with its affiliated institutional
investment management companies, had approximately $146 billion in assets
under management and fiduciary care as of December 31, 1997. MSAM advises
Morgan Stanley Emerging Markets Equity, an international equity portfolio.
MSAM is a subsidiary of Morgan Stanley, Dean Witter & Co. and is located at
1221 Avenue of the Americas, New York, NY 10020.
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam Investment Management, Inc. (PUTNAM) has been managing mutual funds
since 1937. As of December 31, 1997, Putnam and its affiliates managed more
than $235 billion in assets. Putnam advises EQ/Putnam Balanced, a balanced
stock and bond portfolio and EQ/Putnam Growth & Income Value, a domestic
equity portfolio. Putnam is an indirect subsidiary of Marsh & McLennan
Companies, Inc. and is located at One Post Office Square, Boston, MA 02109.
T. ROWE PRICE ASSOCIATES, INC. AND ROWE PRICE-FLEMING INTERNATIONAL, INC.
Founded in 1937, T. Rowe Price Associates, Inc. (T. ROWE PRICE) provides
investment management to both individuals and institutions. With its
affiliates, assets under management were over $126 billion as of December 31,
1997. T. Rowe Price advises T. Rowe Price Equity Income, a domestic equity
portfolio. The company is located at 100 East Pratt Street, Baltimore, MD
21202.
Rowe Price-Fleming International, Inc., (PRICE-FLEMING) was founded as a
joint venture between T. Rowe Price and Robert Fleming Holdings, Ltd., a
diversified British investment organization. Price-Fleming's predominately
non-U.S. assets under management were the equivalent to approximately $30
billion as of December 31, 1997. Price-Fleming advises T. Rowe Price
International Stock, an international equity portfolio and is located at 100
East Pratt Street, Baltimore, MD 21202.
6
<PAGE>
WARBURG PINCUS ASSET MANAGEMENT, INC.
Warburg Pincus Asset Management, Inc. (WPAM) is a professional investment
advisory firm which provides services to investment companies, employee
benefit plans, endowment funds, foundations, and other institutions and
individuals. Assets under management were approximately $19.6 billion as of
December 31, 1997. WPAM is indirectly controlled by Warburg, Pincus & Co., a
New York partnership, which serves as a holding company of WPAM. WPAM advises
Warburg Pincus Small Company Value, an aggressive equity portfolio. The
company is located at 466 Lexington Avenue, New York, NY 10017.
Additional information regarding each of the companies which serve as an EQAT
adviser appears in the EQAT prospectus beginning after the HRT prospectus.
7
<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, Alliance Intermediate
Government Securities Fund and Alliance High Yield
Fund Yield Information 3
Part 5: Long-Term Market Trends 4
Part 6: Financial Statements 6
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL INFORMATION FOR SEPARATE
ACCOUNT NO. 45
Send this request form to:
Equitable Life
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI dated May 1, 1998 for the Accumulator
Prospectus dated October 17, 1996 as supplemented on May 1 and December 31,
1997:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
IM-98-ACC1096 8
<PAGE>
SUPPLEMENT DATED MAY 1, 1998 TO
INCOME MANAGER(R) ROLLOVER IRA AND CHOICE INCOME PLAN PROSPECTUS
DATED MAY 1, 1996, AS PREVIOUSLY SUPPLEMENTED
ON MAY 1 AND DECEMBER 31, 1997
This supplement dated May 1, 1998, updates certain information in the Rollover
IRA and Choice Income Plan prospectus dated May 1, 1996, as previously
supplemented on May 1 and December 31, 1997, of The Equitable Life Assurance
Society of the United States (EQUITABLE LIFE). You should read this supplement
in conjunction with the prospectus and May 1 and December 31, 1997 supplements.
You should keep the supplements 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, 1998. If you do not presently have a
copy of the prospectus and May 1 and December 31, 1997 supplements, you may
obtain additional copies, as well as a copy of the SAI, from us, free of charge,
if you write to Equitable Life, 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 this supplement. The SAI has been
incorporated by reference into this supplement.
In this supplement, each section of the prospectus and/or May 1 and December 31,
1997 supplements in which a change has been made is identified and the number of
each page on which a change occurs is also noted. Special terms used in this
supplement have the same meaning as in the prospectus and May 1 and December 31,
1997 supplements, unless otherwise noted.
THROUGHOUT THE PROSPECTUS AND SUPPLEMENTS, REPLACE "HR TRUST" WITH "HRT" AND "EQ
TRUST" WITH "EQAT."
ON PAGE 4 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER THE SUB-HEADING "NOTES"
REPLACE FOOTNOTE (8) WITH THE FOLLOWING FOOTNOTE:
(8) All EQAT Portfolios commenced operations on May 1, 1997, except the
Morgan Stanley Emerging Markets Equity Portfolio, which commenced
operations on August 20, 1997, and the following Portfolios, which had
initial seed capital invested on December 31, 1997: BT Equity 500 Index,
BT Small Company Index, and BT International Equity Index.
The maximum investment management and advisory fees for each EQAT
Portfolio cannot be increased without a vote of that Portfolio's
shareholders. The amounts shown as "Other Expenses" will fluctuate from
year to year depending on actual expenses, however, EQ Financial
Consultants, Inc. ("EQ Financial"), EQAT's manager, has entered into an
expense limitation agreement with respect to each Portfolio ("Expense
Limitation Agreement"), pursuant to which EQ Financial has agreed to
waive or limit its fees and assume other expenses. Under the Expense
Limitation Agreement, total annual operating expenses of each Portfolio
(other than interest, taxes, brokerage commissions, capitalized
expenditures, extraordinary expenses, and 12b-1 fees) are limited for the
respective average daily net assets of each Portfolio as follows: BT
Equity 500 Index - 0.30%; BT Small Company Index - 0.35%; BT
International Equity - 0.55%; MFS Research, MFS Emerging Growth
Companies, Merrill Lynch Basic Value Equity, EQ/Putnam Growth & Income
Value, T. Rowe Price Equity Income - 0.60%; Merrill Lynch World Strategy
and T. Rowe Price International - 0.95%; Morgan Stanley Emerging Markets
Equity - 1.50%; EQ/Putnam Balanced - 0.65%; and Warburg Pincus Small
Company - 0.75%.
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of
the United States, New York, New York 10104.
All rights reserved. Income Manager is a registered service mark
of The Equitable Life Assurance Society of the United States.
<PAGE>
Absent the expense limitation, the "Other Expenses" for 1997 on an
annualized basis for each of the following Portfolios would have been as
follows: MFS Emerging Growth Companies - 1.02%; MFS Research - 0.98%;
Merrill Lynch Basic Value Equity - 1.09%; Merrill Lynch World Strategy -
2.10%; Morgan Stanley Emerging Markets Equity - 1.21%; EQ/Putnam Balanced
- 1.75%; EQ/Putnam Growth & Income Value - 0.95%; T. Rowe Price Equity
Income - 0.94%; T. Rowe Price International Stock - 1.56%; and Warburg
Pincus Small Company Value - 0.80%. For EQAT Portfolios which had initial
seed capital invested on December 31, 1997, the "Other Expenses" for 1998
are estimated to be as follows (absent the expense limitation): BT Equity
500 Index - 0.29%; BT Small Company Index - 0.23%; and BT International
Equity Index - 0.47%. See "EQAT Charges to Portfolios" in Part 7.
Each Portfolio may at a later date make a reimbursement to EQ Financial
for any of the management fees waived or limited and other expenses
assumed and paid by EQ Financial pursuant to the Expense Limitation
Agreement provided that, among other things, such Portfolio has reached
sufficient size to permit such reimbursement to be made and provided that
the Portfolio's current annual operating expenses do not exceed the
operating expense limit determined for such Portfolio. See the EQAT
prospectus for more information.
ON PAGE 5 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER THE HEADING "ACCUMULATION
UNIT VALUES"
REPLACE THE LAST SENTENCE OF THE PARAGRAPH WITH THE FOLLOWING SENTENCE:
The following table shows the Accumulation Unit Values, as of the applicable
dates each Investment Fund was first available under the Certificates as
noted below and on the last business day of the periods shown.
ADD THE FOLLOWING INFORMATION TO THE TABLE:
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Alliance Conservative Investors 19.26 20.25
Alliance Growth Investors 30.31 33.12
Alliance Growth & Income 17.83 19.89
Alliance Common Stock 195.37 221.24
Alliance Global 27.85 31.84
Alliance International 11.48 13.10
Alliance Aggressive Stock 72.23 82.18
Alliance Small Cap Growth 12.57 14.31
Alliance Money Market 25.85 26.12
Alliance Intermediate Government Securities 14.60 14.79
Alliance High Yield 30.73 32.30
BT Equity 500 Index* 10.00 11.12
BT Small Company Index* 10.00 10.90
BT International Equity Index* 10.00 11.33
MFS Emerging Growth Companies 12.15 14.59
MFS Research 11.52 13.34
- -------------
* The BT Equity 500 Index, BT Small Company Index and BT International Equity
Index Funds were first offered under the Certificates on December 31, 1997.
2
<PAGE>
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Merrill Lynch Basic Value Equity 11.61 13.38
Merrill Lynch World Strategy 10.39 11.19
Morgan Stanley Emerging Markets Equity 7.95 8.28
EQ/Putnam Balanced 11.36 12.21
EQ/Putnam Growth & Income Value 11.53 12.75
T. Rowe Price Equity Income 12.12 13.18
T. Rowe Price International Stock 9.77 10.98
Warburg Pincus Small Company Value 11.82 12.67
ON PAGE 10 OF THE PROSPECTUS AFTER THE LAST BULLETED PARAGRAPH UNDER THE HEADING
"SERVICES WE PROVIDE" INSERT THE FOLLOWING SUB-SECTION:
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer
your Certificate and operate the Investment Options. Some of these systems
belong to service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000,
and Equitable Life believes it has identified those of its systems critical
to business operations that are not Year 2000 compliant. By year end 1998,
Equitable Life expects that the work of modifying or replacing non-compliant
systems will substantially be completed and expects a comprehensive test of
its Year 2000 compliance will be performed in the first half of 1999.
Equitable Life is in the process of seeking assurances from third party
service providers that they are acting to address the Year 2000 issue with
the goal of avoiding any material adverse effect on services provided to
Certificate Owners and on operations of the Investment Options. Any
significant unresolved difficulty related to the Year 2000 compliance
initiatives could have a material adverse effect on the ability to administer
your Certificate and operate the Investment Options. Assuming the timely
completion of computer modifications by Equitable Life and third-party
service providers, there should be no material adverse effect on the ability
to perform these functions.
ON PAGE 5 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER REVISIONS FOR "EQUITABLE
LIFE" REPLACE THE SECOND PARAGRAPH WITH THE FOLLOWING PARAGRAPH:
Equitable Life, the Holding Company and their subsidiaries managed
approximately $274.1 billion of assets as of December 31, 1997.
ON PAGE 6 OF THE DECEMBER 31, 1997 SUPPLEMENT AND PAGES 7 AND 8 OF THE MAY 1,
1997 SUPPLEMENT REPLACE THE REVISED SECTIONS "HRT," "HRT'S INVESTMENT ADVISER,"
"EQAT," AND "EQAT'S MANAGER & ADVISERS" WITH THE FOLLOWING SECTIONS:
THE TRUSTS
The Trusts are open-end management investment companies registered under the
1940 Act, more commonly called mutual funds. As a "series" type of mutual
fund, each Trust issues several different series of stock, each of which
relates to a different Portfolio of that Trust. The Hudson River Trust
3
<PAGE>
(HRT) commenced operations in January, 1976 with a predecessor of its
Alliance Common Stock Portfolio. Investment Funds that invest in HRT
Portfolios purchase Class IA shares of a corresponding HRT Portfolio. EQ
Advisors Trust (EQAT) commenced operations on May 1, 1997. Investment Funds
that invest in EQAT Portfolios purchase Class IB shares of a corresponding
EQAT Portfolio. The Trusts do not impose sales charges or "loads" for buying
and selling their shares. All dividends and other distributions on a
Portfolio's shares are reinvested in full and fractional shares of the
Portfolio to which they relate. All of the Portfolios, except for the Morgan
Stanley Emerging Markets Equity Portfolio, are diversified for 1940 Act
purposes. The Board of Trustees of HRT and EQAT may establish additional
Portfolios or eliminate existing Portfolios at any time. More detailed
information about the Trusts, their investment objectives, policies,
restrictions, risks, expenses, their respective Rule 12b-1 Plans relating to
their respective Class IB shares, and other aspects of their operations,
appears in the HRT prospectus (beginning after this prospectus supplement),
the EQAT prospectus (beginning after the HRT prospectus), or in their
respective Statements of Additional Information, which are available upon
request.
HRT'S MANAGER AND ADVISER
HRT is managed and its Portfolios are advised by Alliance Capital Management
L.P. (ALLIANCE), which is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended (ADVISERS ACT).
In its role as manager of HRT, Alliance has overall responsibility for the
general management and administration of HRT, including selecting the
portfolio managers for HRT's Portfolios, monitoring their investment programs
and results, reviewing brokerage matters, performing fund accounting,
overseeing compliance by HRT with various Federal and state statutes, and
carrying out the directives of its Board of Trustees. With the approval of
HRT's Trustees, Alliance may enter into agreements with other companies to
assist with its administrative and management responsibilities to HRT.
As adviser for all HRT Portfolios, Alliance is responsible for developing the
Portfolios' investment programs, making investment decisions for the
Portfolios, placing all orders for the purchase and sale of those investments
and performing certain limited related administrative functions.
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance, a leading international investment adviser, provides investment
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 is a publicly traded limited partnership incorporated in Delaware.
On December 31, 1997, Alliance was managing approximately $218.7 billion in
assets. Alliance employs 223 investment professionals, including 83 research
analysts. Portfolio managers have average investment experience of more than
14 years.
Alliance is an indirect, majority-owned subsidiary of Equitable Life, and its
main office is located at 1345 Avenue of the Americas, New York, NY 10105.
Additional information regarding Alliance is located in the HRT prospectus
which directly follows this prospectus supplement.
4
<PAGE>
EQAT'S MANAGER
EQ Financial Consultants, Inc. (EQ FINANCIAL), subject to the supervision and
direction of the Board of Trustees of EQAT, has overall responsibility for
the general management and administration of EQAT. EQ Financial is an
investment adviser registered under the Advisers Act, and a broker-dealer
registered under the Exchange Act. EQ Financial currently furnishes
specialized investment advice to other clients, including individuals,
pension and profit-sharing plans, trusts, charitable organizations,
corporations, and other business entities. EQ Financial is a Delaware
corporation and an indirect, wholly owned subsidiary of Equitable Life.
EQ Financial is responsible for providing management and administrative
services to EQAT and selects the investment advisers for EQAT's Portfolios,
monitors the EQAT advisers' investment programs and results, reviews
brokerage matters, oversees compliance by EQAT with various Federal and state
statutes, and carries out the directives of its Board of Trustees. EQ
Financial Consultants, Inc.'s main office is located at 1290 Avenue of the
Americas, New York, NY 10104.
Pursuant to a service agreement, Chase Global Funds Services Company assists
EQ Financial in the performance of its administrative responsibilities to
EQAT with other necessary administrative, fund accounting and compliance
services.
EQAT'S INVESTMENT ADVISERS
Bankers Trust Company, Massachusetts Financial Services Company, Merrill
Lynch Asset Management, L.P., Morgan Stanley Asset Management Inc., Putnam
Investment Management, Inc., T. Rowe Price Associates, Inc. and Rowe
Price-Fleming International, Inc., and Warburg Pincus Asset Management, Inc.
serve as EQAT advisers only for their respective EQAT Portfolios.
Each EQAT adviser furnishes EQAT's manager, EQ Financial, with an investment
program (updated periodically) for each of its Portfolios, makes investment
decisions on behalf of its EQAT Portfolios, places all orders for the
purchase and sale of investments for the Portfolio's account with brokers or
dealers selected by such adviser and may perform certain limited related
administrative functions.
The assets of each Portfolio are allocated currently among the EQAT advisers.
If an EQAT Portfolio shall at any time have more than one EQAT adviser, the
allocation of an EQAT Portfolio's assets among EQAT advisers may be changed
at any time by EQ Financial.
BANKERS TRUST COMPANY
Bankers Trust Company (BANKERS TRUST) is a wholly owned subsidiary of Bankers
Trust New York Corporation which was founded in 1903. Bankers Trust conducts
a variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional markets. Bankers Trust advises BT Equity 500 Index, a domestic
equity portfolio, BT Small Company Index, an aggressive equity portfolio, and
BT International Equity Index, an international equity portfolio. As of
December 31, 1997, Bankers Trust had approximately $317.8 billion in assets
under management worldwide. The executive offices of Bankers Trust are
located at 130 Liberty Street (One Bankers Trust Plaza), New York, NY 10006.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company (MFS) is America's oldest mutual
fund organization, whose assets under management as of December 31, 1997 were
approximately $70.2 billion on behalf of more than 2.7 million investors. MFS
advises MFS Research, a domestic equity portfolio, and MFS
5
<PAGE>
Emerging Growth Companies, an aggressive equity portfolio. MFS is an indirect
subsidiary of Sun Life Assurance Company of Canada and is located at 500
Boylston Street, Boston, MA 02116.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
Founded in 1976, Merrill Lynch Asset Management, L.P. (MLAM) is a dedicated
asset management affiliate of Merrill Lynch & Co., Inc., a financial
management and advisory company with more than a century of experience. As of
December 31, 1997, MLAM along with its advisory affiliates held approximately
$278 billion in investment company and other portfolio assets under
management. MLAM advises Merrill Lynch Basic Value Equity, a domestic equity
portfolio with a value approach to investing, and Merrill Lynch World
Strategy, a global flexible asset allocation portfolio that invests in
equities and fixed income securities worldwide. The company is located at 800
Scudders Mill Road, Plainsboro, NJ 08543-9011.
MORGAN STANLEY ASSET MANAGEMENT INC.
Morgan Stanley Asset Management Inc. (MSAM) provides a broad range of
portfolio management services to customers in the United States and abroad
and serves as an investment adviser to numerous open-end and closed-end
investment companies. MSAM, together with its affiliated institutional
investment management companies, had approximately $146 billion in assets
under management and fiduciary care as of December 31, 1997. MSAM advises
Morgan Stanley Emerging Markets Equity, an international equity portfolio.
MSAM is a subsidiary of Morgan Stanley, Dean Witter & Co. and is located at
1221 Avenue of the Americas, New York, NY 10020.
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam Investment Management, Inc. (PUTNAM) has been managing mutual funds
since 1937. As of December 31, 1997, Putnam and its affiliates managed more
than $235 billion in assets. Putnam advises EQ/Putnam Balanced, a balanced
stock and bond portfolio and EQ/Putnam Growth & Income Value, a domestic
equity portfolio. Putnam is an indirect subsidiary of Marsh & McLennan
Companies, Inc. and is located at One Post Office Square, Boston, MA 02109.
T. ROWE PRICE ASSOCIATES, INC. AND ROWE PRICE-FLEMING INTERNATIONAL, INC.
Founded in 1937, T. Rowe Price Associates, Inc. (T. ROWE PRICE) provides
investment management to both individuals and institutions. With its
affiliates, assets under management were over $126 billion as of December 31,
1997. T. Rowe Price advises T. Rowe Price Equity Income, a domestic equity
portfolio. The company is located at 100 East Pratt Street, Baltimore, MD
21202.
Rowe Price-Fleming International, Inc., (PRICE-FLEMING) was founded as a
joint venture between T. Rowe Price and Robert Fleming Holdings, Ltd., a
diversified British investment organization. Price-Fleming's predominately
non-U.S. assets under management were the equivalent to approximately $30
billion as of December 31, 1997. Price-Fleming advises T. Rowe Price
International Stock, an international equity portfolio and is located at 100
East Pratt Street, Baltimore, MD 21202.
6
<PAGE>
WARBURG PINCUS ASSET MANAGEMENT INC.
Warburg Pincus Asset Management, Inc. (WPAM) is a professional investment
advisory firm which provides services to investment companies, employee
benefit plans, endowment funds, foundations, and other institutions and
individuals. Assets under management were approximately $19.6 billion as of
December 31, 1997. WPAM is indirectly controlled by Warburg, Pincus & Co., a
New York partnership, which serves as a holding company of WPAM. WPAM advises
Warburg Pincus Small Company Value, an aggressive equity portfolio. The
company is located at 466 Lexington Avenue, New York, NY 10017.
Additional information regarding each of the companies which serve as an EQAT
adviser appears in the EQAT prospectus beginning after the HRT prospectus.
7
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
----
Part 1: Minimum Distribution Withdrawals -
Traditional IRA Certificates 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, Alliance Intermediate
Government Securities Fund and Alliance High Yield
Fund Yield Information 3
Part 6: Long-Term Market Trends 5
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
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me a Rollover IRA SAI dated May 1, 1998 for the Rollover IRA and
Choice Income Plan Prospectus dated May 1, 1996 as supplemented on May 1and
December 31, 1997:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
IM-98-IRA596 8
<PAGE>
SUPPLEMENT DATED MAY 1, 1998 TO
INCOME MANAGER(R) ACCUMULATOR(SM) PROSPECTUS
DATED MAY 1, 1996, AS PREVIOUSLY SUPPLEMENTED
ON MAY 1 AND DECEMBER 31, 1997
This supplement dated May 1, 1998, updates certain information in the
Accumulator prospectus dated May 1, 1996, as previously supplemented on May 1
and December 31, 1997, of The Equitable Life Assurance Society of the United
States (EQUITABLE LIFE). You should read this supplement in conjunction with the
prospectus and May 1 and December 31, 1997 supplements. You should keep the
supplements 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, 1998. If you do not presently have a copy of the prospectus
and May 1 and December 31, 1997 supplements, you may obtain additional copies,
as well as a copy of the SAI, from us, free of charge, if you write to Equitable
Life, 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 this supplement. The SAI has been incorporated by reference into this
supplement.
In this supplement, each section of the prospectus and/or May 1 and December 31,
1997 supplements in which a change has been made is identified and the number of
each page on which a change occurs is also noted. Special terms used in this
supplement have the same meaning as in the prospectus and May 1 and December 31,
1997 supplements, unless otherwise noted.
THROUGHOUT THE PROSPECTUS AND SUPPLEMENTS, REPLACE "HR TRUST" WITH "HRT" AND "EQ
TRUST" WITH "EQAT."
ON PAGE 3 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER THE SUB-HEADING "NOTES"
REPLACE FOOTNOTE (8) WITH THE FOLLOWING FOOTNOTE:
(8) All EQAT Portfolios commenced operations on May 1, 1997, except the
Morgan Stanley Emerging Markets Equity Portfolio, which commenced
operations on August 20, 1997, and the following Portfolios, which had
initial seed capital invested on December 31, 1997: BT Equity 500 Index,
BT Small Company Index, and BT International Equity Index.
The maximum investment management and advisory fees for each EQAT
Portfolio cannot be increased without a vote of that Portfolio's
shareholders. The amounts shown as "Other Expenses" will fluctuate from
year to year depending on actual expenses, however, EQ Financial
Consultants, Inc. ("EQ Financial"), EQAT's manager, has entered into an
expense limitation agreement with respect to each Portfolio ("Expense
Limitation Agreement"), pursuant to which EQ Financial has agreed to
waive or limit its fees and assume other expenses. Under the Expense
Limitation Agreement, total annual operating expenses of each Portfolio
(other than interest, taxes, brokerage commissions, capitalized
expenditures, extraordinary expenses, and 12b-1 fees) are limited for the
respective average daily net assets of each Portfolio as follows: BT
Equity 500 Index - 0.30%; BT Small Company Index - 0.35%; BT
International Equity - 0.55%; MFS Research, MFS Emerging Growth
Companies, Merrill Lynch Basic Value Equity, EQ/Putnam Growth & Income
Value, T. Rowe Price Equity Income - 0.60%; Merrill Lynch World Strategy
and T. Rowe Price International - 0.95%; Morgan Stanley Emerging Markets
Equity - 1.50%; EQ/Putnam Balanced - 0.65%; and Warburg Pincus Small
Company - 0.75%.
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Copyright 1998 The Equitable Life Assurance Society of
the United States, New York, New York 10104.
All rights reserved. Income Manager is a registered service mark and
Accumulator is a service mark of The Equitable Life Assurance Society
of the United States.
<PAGE>
Absent the expense limitation, the "Other Expenses" for 1997 on an
annualized basis for each of the following Portfolios would have been as
follows: MFS Emerging Growth Companies - 1.02%; MFS Research - 0.98%;
Merrill Lynch Basic Value Equity - 1.09%; Merrill Lynch World Strategy -
2.10%; Morgan Stanley Emerging Markets Equity - 1.21%; EQ/Putnam Balanced
- 1.75%; EQ/Putnam Growth & Income Value - 0.95%; T. Rowe Price Equity
Income - 0.94%; T. Rowe Price International Stock - 1.56%; and Warburg
Pincus Small Company Value - 0.80%. For EQAT Portfolios which had initial
seed capital invested on December 31, 1997, the "Other Expenses" for 1998
are estimated to be as follows (absent the expense limitation): BT Equity
500 Index - 0.29%; BT Small Company Index - 0.23%; and BT International
Equity Index - 0.47%. See "EQAT Charges to Portfolios" in Part 6.
Each Portfolio may at a later date make a reimbursement to EQ Financial
for any of the management fees waived or limited and other expenses
assumed and paid by EQ Financial pursuant to the Expense Limitation
Agreement provided that, among other things, such Portfolio has reached
sufficient size to permit such reimbursement to be made and provided that
the Portfolio's current annual operating expenses do not exceed the
operating expense limit determined for such Portfolio. See the EQAT
prospectus for more information.
ON PAGE 4 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER THE HEADING "ACCUMULATION
UNIT VALUES"
REPLACE THE LAST SENTENCE OF THE PARAGRAPH WITH THE FOLLOWING SENTENCE:
The following table shows the Accumulation Unit Values, as of the applicable
dates each Investment Fund was first available under the Certificates as
noted below and on the last business day of the periods shown.
ADD THE FOLLOWING INFORMATION TO THE TABLE:
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Alliance Conservative Investors 19.26 20.25
Alliance Growth Investors 30.31 33.12
Alliance Growth & Income 17.83 19.89
Alliance Common Stock 195.37 221.24
Alliance Global 27.85 31.84
Alliance International 11.48 13.10
Alliance Aggressive Stock 72.23 82.18
Alliance Small Cap Growth 12.57 14.31
Alliance Money Market 25.85 26.12
Alliance Intermediate Government Securities 14.60 14.79
Alliance High Yield 30.73 32.30
BT Equity 500 Index* 10.00 11.12
BT Small Company Index* 10.00 10.90
BT International Equity Index* 10.00 11.33
MFS Emerging Growth Companies 12.15 14.59
MFS Research 11.52 13.34
- ----------
* The BT Equity 500 Index, BT Small Company Index and BT International Equity
Index Funds were first offered under the Certificates on December 31, 1997.
2
<PAGE>
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
Merrill Lynch Basic Value Equity 11.61 13.38
Merrill Lynch World Strategy 10.39 11.19
Morgan Stanley Emerging Markets Equity 7.95 8.28
EQ/Putnam Balanced 11.36 12.21
EQ/Putnam Growth & Income Value 11.53 12.75
T. Rowe Price Equity Income 12.12 13.18
T. Rowe Price International Stock 9.77 10.98
Warburg Pincus Small Company Value 11.82 12.67
ON PAGE 9 OF THE PROSPECTUS AFTER THE LAST BULLETED PARAGRAPH UNDER THE HEADING
"SERVICES WE PROVIDE" INSERT THE FOLLOWING SUB-SECTION:
YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer
your Certificate and operate the Investment Options. Some of these systems
belong to service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000,
and Equitable Life believes it has identified those of its systems critical
to business operations that are not Year 2000 compliant. By year end 1998,
Equitable Life expects that the work of modifying or replacing non-compliant
systems will substantially be completed and expects a comprehensive test of
its Year 2000 compliance will be performed in the first half of 1999.
Equitable Life is in the process of seeking assurances from third party
service providers that they are acting to address the Year 2000 issue with
the goal of avoiding any material adverse effect on services provided to
Certificate Owners and on operations of the Investment Options. Any
significant unresolved difficulty related to the Year 2000 compliance
initiatives could have a material adverse effect on the ability to administer
your Certificate and operate the Investment Options. Assuming the timely
completion of computer modifications by Equitable Life and third party
service providers, there should be no material adverse effect on the ability
to perform these functions.
ON PAGE 4 OF THE DECEMBER 31, 1997 SUPPLEMENT UNDER REVISIONS FOR "EQUITABLE
LIFE" REPLACE THE SECOND PARAGRAPH WITH THE FOLLOWING PARAGRAPH:
Equitable Life, the Holding Company and their subsidiaries managed
approximately $274.1 billion of assets as of December 31, 1997.
ON PAGE 5 OF THE DECEMBER 31, 1997 SUPPLEMENT AND PAGES 7 AND 8 OF THE MAY 1,
1997 SUPPLEMENT REPLACE THE REVISED SECTIONS "HRT," "HRT'S INVESTMENT ADVISER,"
"EQAT," AND "EQAT'S MANAGER & ADVISERS" WITH THE FOLLOWING SECTIONS:
THE TRUSTS
The Trusts are open-end management investment companies registered under the
1940 Act, more commonly called mutual funds. As a "series" type of mutual
fund, each Trust issues several different series of stock, each of which
relates to a different Portfolio of that Trust. The Hudson River Trust
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<PAGE>
(HRT) commenced operations in January 1976 with a predecessor of its
Alliance Common Stock Portfolio. Investment Funds that invest in HRT
Portfolios purchase Class IA shares of a corresponding HRT Portfolio. EQ
Advisors Trust (EQAT) commenced operations on May 1, 1997. Investment Funds
that invest in EQAT Portfolios purchase Class IB shares of a corresponding
EQAT Portfolio. The Trusts do not impose sales charges or "loads" for buying
and selling their shares. All dividends and other distributions on a
Portfolio's shares are reinvested in full and fractional shares of the
Portfolio to which they relate. All of the Portfolios, except for the Morgan
Stanley Emerging Markets Equity Portfolio, are diversified for 1940 Act
purposes. The Board of Trustees of HRT and EQAT may establish additional
Portfolios or eliminate existing Portfolios at any time. More detailed
information about the Trusts, their investment objectives, policies,
restrictions, risks, expenses, their respective Rule 12b-1 Plans relating to
their respective Class IB shares, and other aspects of their operations,
appears in the HRT prospectus (beginning after this prospectus supplement),
the EQAT prospectus (beginning after the HRT prospectus), or in their
respective Statements of Additional Information, which are available upon
request.
HRT'S MANAGER AND ADVISER
HRT is managed and its Portfolios are advised by Alliance Capital Management
L.P. (ALLIANCE), which is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended (ADVISERS ACT).
In its role as manager of HRT, Alliance has overall responsibility for the
general management and administration of HRT, including selecting the
portfolio managers for HRT's Portfolios, monitoring their investment programs
and results, reviewing brokerage matters, performing fund accounting,
overseeing compliance by HRT with various Federal and state statutes, and
carrying out the directives of its Board of Trustees. With the approval of
HRT's Trustees, Alliance may enter into agreements with other companies to
assist with its administrative and management responsibilities to HRT.
As adviser for all HRT Portfolios, Alliance is responsible for developing the
Portfolios' investment programs, making investment decisions for the
Portfolios, placing all orders for the purchase and sale of those investments
and performing certain limited related administrative functions.
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance, a leading international investment adviser, provides investment
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 is a publicly traded limited partnership incorporated in Delaware.
On December 31, 1997, Alliance was managing approximately $218.7 billion in
assets. Alliance employs 223 investment professionals, including 83 research
analysts. Portfolio managers have average investment experience of more than
14 years.
Alliance is an indirect, majority-owned subsidiary of Equitable Life, and its
main office is located at 1345 Avenue of the Americas, New York, NY 10105.
Additional information regarding Alliance is located in the HRT prospectus
which directly follows this prospectus supplement.
4
<PAGE>
EQAT'S MANAGER
EQ Financial Consultants, Inc. (EQ FINANCIAL), subject to the supervision and
direction of the Board of Trustees of EQAT, has overall responsibility for
the general management and administration of EQAT. EQ Financial is an
investment adviser registered under the Advisers Act, and a broker-dealer
registered under the Exchange Act. EQ Financial currently furnishes
specialized investment advice to other clients, including individuals,
pension and profit-sharing plans, trusts, charitable organizations,
corporations, and other business entities. EQ Financial is a Delaware
corporation and an indirect, wholly owned subsidiary of Equitable Life.
EQ Financial is responsible for providing management and administrative
services to EQAT and selects the investment advisers for EQAT's Portfolios,
monitors the EQAT advisers' investment programs and results, reviews
brokerage matters, oversees compliance by EQAT with various Federal and state
statutes, and carries out the directives of its Board of Trustees. EQ
Financial Consultants, Inc.'s main office is located at 1290 Avenue of the
Americas, New York, NY 10104.
Pursuant to a service agreement, Chase Global Funds Services Company assists
EQ Financial in the performance of its administrative responsibilities to
EQAT with other necessary administrative, fund accounting and compliance
services.
EQAT'S INVESTMENT ADVISERS
Bankers Trust Company, Massachusetts Financial Services Company, Merrill
Lynch Asset Management, L.P., Morgan Stanley Asset Management Inc., Putnam
Investment Management, Inc., T. Rowe Price Associates, Inc. and Rowe
Price-Fleming International, Inc., and Warburg Pincus Asset Management, Inc.
serve as EQAT advisers only for their respective EQAT Portfolios.
Each EQAT adviser furnishes EQAT's manager, EQ Financial, with an investment
program (updated periodically) for each of its Portfolios, makes investment
decisions on behalf of its EQAT Portfolios, places all orders for the
purchase and sale of investments for the Portfolio's account with brokers or
dealers selected by such adviser and may perform certain limited related
administrative functions.
The assets of each Portfolio are allocated currently among the EQAT advisers.
If an EQAT Portfolio shall at any time have more than one EQAT adviser, the
allocation of an EQAT Portfolio's assets among EQAT advisers may be changed
at any time by EQ Financial.
BANKERS TRUST COMPANY
Bankers Trust Company (BANKERS TRUST) is a wholly owned subsidiary of Bankers
Trust New York Corporation which was founded in 1903. Bankers Trust conducts
a variety of general banking and trust activities and is a major wholesale
supplier of financial services to the international and domestic
institutional markets. Bankers Trust advises BT Equity 500 Index, a domestic
equity portfolio, BT Small Company Index, an aggressive equity portfolio, and
BT International Equity Index, an international equity portfolio. As of
December 31, 1997, Bankers Trust had approximately $317.8 billion in assets
under management worldwide. The executive offices of Bankers Trust are
located at 130 Liberty Street (One Bankers Trust Plaza), New York, NY 10006.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company (MFS) is America's oldest mutual
fund organization, whose assets under management as of December 31, 1997 were
approximately $70.2 billion on behalf of more than 2.7 million investors. MFS
advises MFS Research, a domestic equity portfolio, and MFS
5
<PAGE>
Emerging Growth Companies, an aggressive equity portfolio. MFS is an indirect
subsidiary of Sun Life Assurance Company of Canada and is located at 500
Boylston Street, Boston, MA 02116.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
Founded in 1976, Merrill Lynch Asset Management, L.P. (MLAM) is a dedicated
asset management affiliate of Merrill Lynch & Co., Inc., a financial
management and advisory company with more than a century of experience. As of
December 31, 1997, MLAM along with its advisory affiliates held approximately
$278 billion in investment company and other portfolio assets under
management. MLAM advises Merrill Lynch Basic Value Equity, a domestic equity
portfolio with a value approach to investing, and Merrill Lynch World
Strategy, a global flexible asset allocation portfolio that invests in
equities and fixed income securities worldwide. The company is located at 800
Scudders Mill Road, Plainsboro, NJ 08543-9011.
MORGAN STANLEY ASSET MANAGEMENT INC.
Morgan Stanley Asset Management Inc. (MSAM) provides a broad range of
portfolio management services to customers in the United States and abroad
and serves as an investment adviser to numerous open-end and closed-end
investment companies. MSAM, together with its affiliated institutional
investment management companies, had approximately $146 billion in assets
under management and fiduciary care as of December 31, 1997. MSAM advises
Morgan Stanley Emerging Markets Equity, an international equity portfolio.
MSAM is a subsidiary of Morgan Stanley, Dean Witter & Co. and is located at
1221 Avenue of the Americas, New York, NY 10020.
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam Investment Management, Inc. (PUTNAM) has been managing mutual funds
since 1937. As of December 31, 1997, Putnam and its affiliates managed more
than $235 billion in assets. Putnam advises EQ/Putnam Balanced, a balanced
stock and bond portfolio and EQ/Putnam Growth & Income Value, a domestic
equity portfolio. Putnam is an indirect subsidiary of Marsh & McLennan
Companies, Inc. and is located at One Post Office Square, Boston, MA 02109.
T. ROWE PRICE ASSOCIATES, INC. AND ROWE PRICE-FLEMING INTERNATIONAL, INC.
Founded in 1937, T. Rowe Price Associates, Inc. (T. ROWE PRICE) provides
investment management to both individuals and institutions. With its
affiliates, assets under management were over $126 billion as of December 31,
1997. T. Rowe Price advises T. Rowe Price Equity Income, a domestic equity
portfolio. The company is located at 100 East Pratt Street, Baltimore, MD
21202.
Rowe Price-Fleming International, Inc., (PRICE-FLEMING) was founded as a
joint venture between T. Rowe Price and Robert Fleming Holdings, Ltd., a
diversified British investment organization. Price-Fleming's predominately
non-U.S. assets under management were the equivalent to approximately $30
billion as of December 31, 1997. Price-Fleming advises T. Rowe Price
International Stock, an international equity portfolio and is located at 100
East Pratt Street, Baltimore, MD 21202.
6
<PAGE>
WARBURG PINCUS ASSET MANAGEMENT, INC.
Warburg Pincus Asset Management, Inc. (WPAM) is a professional investment
advisory firm which provides services to investment companies, employee
benefit plans, endowment funds, foundations, and other institutions and
individuals. Assets under management were approximately $19.6 billion as of
December 31, 1997. WPAM is indirectly controlled by Warburg, Pincus & Co., a
New York partnership, which serves as a holding company of WPAM. WPAM advises
Warburg Pincus Small Company Value, an aggressive equity portfolio. The
company is located at 466 Lexington Avenue, New York, NY 10017.
Additional information regarding each of the companies which serve as an EQAT
adviser appears in the EQAT prospectus beginning after the HRT prospectus.
7
<PAGE>
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
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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, Alliance Intermediate
Government Securities Fund and Alliance High Yield
Fund Yield Information 3
Part 5: Long-Term Market Trends 4
Part 6: Financial Statements 6
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL INFORMATION FOR SEPARATE
ACCOUNT NO. 45
Send this request form to:
Equitable Life
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI dated May 1, 1998 for the Accumulator
Prospectus dated May 1, 1996 as supplemented on May 1 and December 31, 1997:
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Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
IM-98-ACC596 8
<PAGE>
EQUITABLE ACCUMULATOR(SM)(IRA, NQ AND QP)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
---------------------------
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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
MFS Research Equity Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity T. Rowe Price International Stock
T. Rowe Price Equity Income
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
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<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate Government
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
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Alliance Equity Index (AVAILABLE ONLY UNDER APO PLUS)
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</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
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Home Office: 1290 Avenue of the Americas, New York, NY 10104
Processing Office: Post Office Box 1547, Secaucus, NJ 07096-1547
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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
Equitable Accumulator, dated May 1, 1998. 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 agent.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
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PAGE
- --------------------------------------------------------------------------------
Part 1 Minimum Distribution Withdrawals --
Traditional IRA Certificates 2
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Part 2 Accumulation Unit Values 2
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Part 3 Annuity Unit Values 2
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Part 4 Custodian and Independent Accountants 3
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Part 5 Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund and Alliance High Yield Fund Yield Information 3
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Part 6 Long-Term Market Trends 4
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Part 7 Key Factors in Retirement Planning 6
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Part 8 Financial Statements 10
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Copyright 1998 The Equitable Life Assurance Society
of the United States,
New York, New York 10104.
All rights reserved.
Accumulator is a service mark of
The Equitable Life Assurance Society of the United States.
(IMSAI 5/98)
<PAGE>
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PART 1 -- MINIMUM DISTRIBUTION WITHDRAWALS -- TRADITIONAL IRA CERTIFICATES
If you elect Minimum Distribution Withdrawals described in Part 5 of the
prospectus, each year we calculate the Minimum Distribution Withdrawal amount by
using the value of your Traditional 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.
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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 Equitable 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/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 HRT or
EQAT, 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 1.35%.
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PART 3 -- ANNUITY UNIT VALUES
The annuity unit value for each Investment Fund was fixed at $1.00 on each
Fund's respective effective date (as shown in the prospectus) 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 or period certain).
If the
2
<PAGE>
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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.
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PART 4 -- CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of each trust owned by the Separate
Account.
The financial statements of the Separate Account for the period ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the period ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 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.
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PART 5 -- ALLIANCE MONEY MARKET FUND, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND AND ALLIANCE HIGH YIELD 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 any withdrawal charges, the optional
benefit charge or 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)[superscript: 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 and Alliance High Yield Fund
The Alliance Intermediate Government Securities and Aliance High Yield Funds
calculate 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
3
<PAGE>
- --------------------------------------------------------------------------------
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 or Alliance High Yield 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 or
Alliance High Yield 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)[superscript: 365/30] - 1. The yields for the Alliance Intermediate Government
Securities and Alliance High Yield Funds 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 and Alliance High Yield Funds will fluctuate
and not remain constant.
Alliance Money Market Fund, Alliance Intermediate Government Securities
Fund and Alliance High Yield Fund Yield Information
The yields for the Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund and Alliance High Yield Fund 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. The Yields for the Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund and
Allliance High Yield Fund 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 yields be compared to the yield of money
market funds made available to the general public.
Because the Equitable Accumulator Certificates were not offered prior to the
date of the prospectus and SAI, 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 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, 1957
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE TYPESET DOCUMENT:]
Common Stock Inflation
1957 0.89 1.03
1958 1.28 1.05
1959 1.43 1.06
1960 1.44 1.08
1961 1.83 1.09
1962 1.67 1.10
1963 2.05 1.12
1964 2.38 1.13
1965 2.68 1.15
1966 2.41 1.19
1967 2.99 1.23
1968 3.32 1.29
1969 3.04 1.36
1970 3.16 1.44
1971 3.61 1.49
1972 4.30 1.54
1973 3.67 1.67
1974 2.70 1.88
1975 3.70 2.01
1976 4.58 2.11
1977 4.25 2.25
1978 4.53 2.45
1979 5.37 2.78
1980 7.11 3.12
1981 6.76 3.40
1982 8.20 3.54
1983 10.05 3.67
1984 10.68 3.81
1985 14.11 3.96
1986 16.72 4.00
1987 17.60 4.18
1988 20.55 4.36
1989 27.03 4.57
1990 26.17 4.85
1991 34.16 4.99
1992 36.78 5.14
1993 40.46 5.28
1994 40.99 5.42
1995 56.33 5.56
1996 69.33 5.74
1997 92.44 5.85
[WHITE AREA = COMMON STOCK]
[BLACK AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
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
4
<PAGE>
- --------------------------------------------------------------------------------
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 1997.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK & WHITE LINE GRAPH
IN THE TYPESET DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[BLACK DOTS = INTERMEDIATE-TERM GOVT. BONDS]
[WHITE DOTS = COMMON STOCKS]
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding and
following chart on next page.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1997 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 nor 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 10:
Investment Performance" in the prospectus.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM TREASURY CONSUMER
ENDING 12/31/97: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 33.36% 15.85% 12.95% 8.38% 5.26% 1.92%
3 Years 31.15% 14.76% 13.36% 8.93% 5.35% 2.59%
5 Years 20.24% 10.51% 9.22% 6.40% 4.57% 2.64%
10 Years 18.05% 11.32% 10.85% 8.33% 5.44% 3.43%
20 Years 16.65% 10.39% 10.29% 9.51% 7.29% 4.90%
30 Years 12.12% 8.63% 8.86% 8.52% 6.77% 5.34%
40 Years 12.30% 6.71% 7.09% 7.10% 5.85% 4.44%
50 Years 13.12% 5.70% 6.07% 6.04% 4.99% 3.94%
60 Years 12.53% 5.31% 5.54% 5.44% 4.18% 4.11%
Since 12/31/26 10.99% 5.19% 5.71% 5.25% 3.77% 3.17%
Inflation adjusted since 1926 7.58% 1.96% 2.46% 2.02% 0.58% --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500)-- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969-1997, 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
5
<PAGE>
similar to that used by Salomon Brothers for 1969-1997; for the period
1926-1945, the Standard and Poor's monthly High-Grade Corporate Composite yield
data were used, assuming a 4 percent coupon and a twenty-year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS -- Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five-year maturity.
U.S. TREASURY BILLS-- Measured by rolling over each month a one-bill portfolio
containing, at the beginning of each month, the bill having the shortest
maturity not less than one month.
INFLATION -- Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
- --------------------------------------------------------------------------------
PART 7 -- KEY FACTORS IN RETIREMENT PLANNING
INTRODUCTION
The Equitable 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 8: Tax Aspects of the Certificates" of the prospectus. 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 charts 1, 2, 3, 4 and 7) is Ibbotson Associates, Inc.,
Chicago, Stocks, Bonds, Bills and Inflation 1998 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 1967 and 1997, the average annual inflation rate was
5.34%. As demonstrated in Chart 1, this 5.34% annual rate of inflation would
cause the purchasing power of $35,000 to decrease to only $7,350 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 1967-1997
historical inflation rate of 5.34% is used. In this case, an additional $131,675
would be required to maintain the purchasing power of $35,000 after 30 years.
CHART 1
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED VERTICAL BAR GRAPH IN THE TYPESET
DOCUMENT:]
(Income)
Today $35,000
10 Years $20,803
20 Years $12,365
30 Years $7,350
[END OF GRAPHICALLY REPRESENTED DATA]
6
<PAGE>
- --------------------------------------------------------------------------------
CHART 2
[THE FOLLOWING DATA WAS REPRESENTED AS A SHADED
VERTICAL BAR GRAPH IN THE TYPESET DOCUMENT:]
Annual
Income Increase
Needed Needed
Today $35,000
10 Years $58,885 $23,885
20 Years $99,069 $64,069
30 Years $166,675 $131,675
[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 DATA WAS REPRESENTED AS A SHADED
AREA GRAPH IN THE TYPESET DOCUMENT:]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[BLACK:] Age 50 $0 $0 $0 $0 $0 $15,610 $38,020 $70,193
[WHITE:] Age 40 $0 $0 $0 $15,610 $38,020 $70,193 $116,381 $182,691
[GRAY:] Age 30 $0 $15,610 $38,020 $70,193 $116,381 $182,691 $277,886 $414,551
</TABLE>
[END OF GRAPHICALLY REPRESENTED DATA]
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
- -------------------------------------------------------------
MONTHLY
CONTRI- YEAR YEAR YEAR YEAR YEAR
BUTION 10 15 20 25 30
- -------------------------------------------------------------
$ 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
- -------------------------------------------------------------
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 (pretax)
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 pretax 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 pretax contribution of $767
(equivalent to $552 after taxes) to attain the goal, illustrating the importance
of starting early.
CHART 4
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK & WHITE
VERTICAL BAR GRAPH IN THE TYPESET DOCUMENT:]
GOAL: $250,000 BY AGE 65
Tax Savings
and Tax-deferred
Start at: Net Cost Earnings at 7.5%
$93 a month Age 30 $39,265 $210,735
$212 a month Age 40 $63,641 $186,359
$552 a month Age 50 $99,383 $150,617
[BLACK BARS = NET COST]
[WHITE BARS = TAX SAVINGS AND 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.
7
<PAGE>
- --------------------------------------------------------------------------------
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 Traditional
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 nondeductible Traditional 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
$172,339 after thirty years (assuming a 7.5% rate of return, no withdrawals and
assuming the deduction of the 1.35% Separate Account daily asset charge -- 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 $124,084 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 example, the retirement funds would be
$124,084 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 $101,436 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 1967-1997 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 12.12% over this period, in contrast to 8.63% and 6.77%
for the other two investment categories. Significantly, common stock returns
also outpaced inflation, which grew at 5.34% 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 $204,911 in 1997. Had
the interest been reinvested in the fixed investment, the fixed investment would
have grown to $69,070. As illustrated in Chart 5, significant opportunities for
growth exist while preserving principal. See "Notes" below.
8
<PAGE>
- --------------------------------------------------------------------------------
CHART 5
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE GRAPH
IN THE TYPESET DOCUMENT:]
$204,911 With Interest $69,070 Without Interest
Exposed to Stock Exposed to Stock Market
Market (S&P 500) (S&P 500)
(Value as of Last Day of Year)
1/1/80 20,000 20,000
20,160 20,160
20,338 20,339
20,547 20,586
20,823 20,845
21,031 21,014
21,183 21,142
21,369 21,254
21,515 21,390
21,708 21,550
21,930 21,755
22,333 21,964
80 22,522 22,252
22,619 22,483
22,888 22,724
23,239 22,999
23,386 23,247
23,637 23,514
23,878 23,832
24,129 24,127
24,156 24,436
24,196 24,739
24,659 25,039
25,079 25,306
81 25,118 25,527
25,195 25,731
25,113 25,968
25,278 26,222
25,722 26,518
25,770 26,799
25,861 27,057
25,945 27,341
26,850 27,549
27,028 27,689
27,937 27,852
28,411 28,028
82 28,690 28,216
29,131 28,410
29,492 28,587
29,965 28,767
30,862 28,971
30,943 29,171
31,495 29,366
31,284 29,584
31,627 29,808
31,938 30,035
31,930 30,263
32,348 30,475
83 32,418 30,698
32,490 30,931
32,222 31,150
32,577 31,378
32,826 31,632
32,297 31,879
32,719 32,118
32,701 32,381
34,295 32,650
34,470 32,931
34,708 33,260
34,705 33,503
84 35,205 33,717
36,503 33,936
36,845 34,133
37,000 34,345
37,089 34,592
38,272 34,820
38,673 35,012
38,748 35,229
38,744 35,423
38,262 35,635
39,208 35,867
40,706 36,086
85 41,803 36,320
42,011 36,524
43,792 36,717
45,230 36,938
45,021 37,130
46,493 37,312
47,036 37,506
45,602 37,701
47,609 37,874
45,430 38,045
46,935 38,220
47,703 38,369
86 47,070 38,557
50,789 38,719
52,147 38,885
53,115 39,068
52,912 39,240
53,327 39,389
55,086 39,578
56,925 39,760
58,441 39,947
57,685 40,127
49,695 40,367
47,333 40,509
87 49,428 40,667
50,743 40,785
52,280 40,972
51,393 41,152
51,824 41,342
52,174 41,553
53,765 41,756
53,732 41,969
52,733 42,217
54,245 42,478
55,302 42,738
54,915 42,981
88 55,673 43,252
58,362 43,490
57,529 43,755
58,548 44,048
60,672 44,343
62,465 44,694
62,377 45,011
66,323 45,326
67,365 45,662
67,310 45,958
66,344 46,271
67,446 46,590
89 68,687 46,874
65,533 47,142
66,234 47,410
67,578 47,714
66,541 48,043
71,214 48,370
70,982 48,674
70,955 49,005
66,481 49,329
64,314 49,625
64,286 49,962
67,252 50,247
90 68,667 50,548
70,922 50,811
74,664 51,055
76,053 51,280
76,316 51,552
78,820 51,794
76,216 52,011
78,945 52,266
80,422 52,507
79,523 52,748
80,405 52,970
78,042 53,176
91 84,752 53,378
83,616 53,560
84,486 53,710
83,290 53,892
85,196 54,065
85,604 54,216
84,717 54,390
87,387 54,558
86,078 54,700
86,890 54,842
87,176 54,969
89,486 55,095
92 90,453 55,249
91,013 55,376
92,016 55,498
93,614 55,637
91,858 55,770
93,843 55,893
94,136 56,033
93,836 56,167
96,699 56,308
96,183 56,454
97,774 56,578
97,093 56,720
93 98,087 56,850
100,753 56,992
98,615 57,112
95,249 57,266
96,281 57,421
97,589 57,605
95,734 57,783
98,297 57,945
101,558 58,159
99,666 58,375
101,566 58,596
98,647 58,813
94 99,883 59,072
102,044 59,320
105,307 59,557
107,925 59,831
110,571 60,095
114,257 60,419
116,566 60,703
119,871 60,976
120,235 61,263
124,521 61,526
124,249 61,816
128,920 62,075
95 131,033 62,379
134,939 62,648
136,120 62,892
137,313 63,137
139,129 63,428
142,287 63,694
142,868 63,949
137,490 64,237
140,063 64,500
146,899 64,784
150,460 65,056
160,444 65,322
96 157,783 65,623
166,429 65,918
167,693 66,175
161,635 66,460
170,177 66,746
179,496 67,073
186,683 67,321
200,004 67,610
190,078 67,888
199,486 68,186
193,575 68,473
201,690 68,740
97 204,911 69,070
[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 $215,258 in 1997.
In contrast, had the principal not been transferred, the fixed investment would
have grown to $69,070. See "Notes" below.
CHART 6
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE GRAPH
IN THE TYPESET DOCUMENT:]
$215,258 With $69,070 Without
Principal Transfer Principal Transfer
(Value as of Last Day of Year)
1/1/80 20,000 20,000
20,540 20,160
20,702 20,339
20,770 20,586
21,068 20,845
21,425 21,014
21,659 21,142
22,000 21,254
22,149 21,390
22,394 21,550
22,623 21,755
23,446 21,964
80 23,372 22,252
23,246 22,483
23,569 22,724
24,053 22,999
24,031 23,247
24,246 23,514
24,324 23,832
24,514 24,127
24,051 24,436
23,651 24,739
24,397 25,039
25,087 25,306
81 24,857 25,527
24,193 25,731
23,594 25,968
23,618 26,222
24,248 26,518
23,995 26,799
23,892 27,057
23,731 27,341
25,407 27,549
25,647 27,689
27,281 27,852
28,031 28,028
82 28,386 28,216
29,041 28,410
29,568 28,587
30,282 28,767
31,737 28,971
31,721 29,171
32,549 29,366
32,000 29,584
32,424 29,808
32,790 30,035
32,616 30,263
33,176 30,475
83 33,142 30,698
33,104 30,931
32,544 31,150
32,969 31,378
33,202 31,632
32,246 31,879
32,767 32,118
32,593 32,381
34,841 32,650
34,959 32,931
35,133 33,260
35,058 33,503
84 35,692 33,717
37,434 33,936
37,844 34,133
37,970 34,345
37,984 34,592
39,531 34,820
40,023 35,012
40,038 35,229
39,976 35,423
39,254 35,635
40,428 35,867
42,341 36,086
85 43,701 36,320
43,926 36,524
46,184 36,717
47,968 36,938
47,659 37,130
49,498 37,312
50,136 37,506
48,265 37,701
50,769 37,874
47,982 38,045
49,830 38,220
50,767 38,369
86 49,918 38,557
54,519 38,719
56,165 38,885
57,317 39,068
57,035 39,240
57,525 39,389
59,630 39,578
61,849 39,760
63,662 39,947
62,711 40,127
52,932 40,367
50,090 40,509
87 52,585 40,667
54,165 40,785
55,951 40,972
54,862 41,152
55,344 41,342
55,720 41,553
57,582 41,756
57,509 41,969
56,280 42,217
58,018 42,478
59,225 42,738
58,749 42,981
88 59,588 43,252
62,695 43,490
61,691 43,755
62,824 44,048
65,234 44,343
67,232 44,694
67,118 45,011
71,581 45,326
72,728 45,662
72,661 45,958
71,544 46,271
72,760 46,590
89 74,150 46,874
70,617 47,142
71,385 47,410
72,851 47,714
71,676 48,043
76,833 48,370
76,576 48,674
76,526 49,005
71,611 49,329
69,246 49,625
69,192 49,962
72,438 50,247
90 73,964 50,548
76,420 50,811
80,470 51,055
81,977 51,280
82,241 51,552
84,947 51,794
82,165 52,011
85,076 52,266
86,666 52,507
85,709 52,748
86,662 52,970
84,157 53,176
91 91,300 53,378
90,106 53,560
91,047 53,710
89,770 53,892
91,798 54,065
92,244 54,216
91,302 54,390
94,130 54,558
92,765 54,700
93,626 54,842
93,940 54,969
96,377 55,095
92 97,388 55,249
97,994 55,376
99,055 55,498
100,732 55,637
98,899 55,770
100,989 55,893
101,297 56,033
100,991 56,167
103,992 56,308
103,458 56,454
105,136 56,578
104,425 56,720
93 105,474 56,850
108,259 56,992
106,046 57,112
102,533 57,266
103,617 57,421
104,976 57,605
103,062 57,783
105,741 57,945
109,118 58,159
107,170 58,375
109,151 58,596
106,146 58,813
94 107,426 59,072
109,681 59,320
113,071 59,557
115,775 59,831
118,526 60,095
122,319 60,419
124,733 60,703
128,155 60,976
128,547 61,263
132,973 61,526
132,710 61,816
137,525 62,075
95 139,695 62,379
143,725 62,648
144,965 62,892
146,205 63,137
148,067 63,428
151,320 63,694
151,943 63,949
146,490 64,237
149,143 64,500
156,108 64,784
159,757 65,056
169,916 65,322
96 167,238 65,623
176,034 65,918
177,359 66,175
171,251 66,460
179,923 66,746
189,363 67,073
196,687 67,321
210,154 67,610
200,177 67,888
209,695 68,186
203,778 68,473
211,997 68,740
97 215,258 69,070
[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 Equitable 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 4 of the prospectus. 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.
9
<PAGE>
- --------------------------------------------------------------------------------
CHART 7
MONTHLY INCOME
($100,000 CONTRIBUTION)
- ------------------------------------------------------------------
PRINCIPAL JOINT AND SURVIVOR*
AND -----------------------------
INTEREST INTEREST 50% 66.67% 100%
ONLY FOR SINGLE TO TO TO
ANNUITANT FOR LIFE 15 YEARS LIFE SURVIVOR SURVIVOR SURVIVOR
- ------------------------------------------------------------------
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
- -------------------
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.
- --------------------------------------------------------------------------------
PART 8 -- FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the Certificates.
The financial statements for the Separate Account included in this SAI do not
present Accumulation Unit Values based on expenses for the Certificates offered
under the prospectus and SAI as such Certificates are being offered for the
first time as of the date of the prospectus.
10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO.45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1997........................................... FS-3
Statements of Operations for the Year Ended December 31, 1997..................................... FS-6
Statements of Changes in Net Assets for the Years Ended December 31, 1997 and 1996................ FS-9
Notes to Financial Statements..................................................................... FS-14
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996.............................................. F-2
Consolidated Statements of Earnings, Years Ended December 31, 1997, 1996 and 1995.................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1997,
1996 and 1995...................................................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1997, 1996 and 1995.................. F-5
Notes to Consolidated Financial Statements........................................................... F-6
</TABLE>
FS-1
<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 Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund, T.
Rowe Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, Alliance Equity Index Fund, Merrill Lynch Basic Value
Equity Fund, Alliance Common Stock Fund, MFS Research Fund, Alliance Global
Fund, Alliance International Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock Fund,
Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth Fund, MFS
Emerging Growth Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam
Balanced Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund, separate investment funds of The Equitable Life Assurance Society of the
United States ("Equitable Life") Separate Account No. 45 at December 31, 1997
and 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 owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1997 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
----------- ------------- ---------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $82,037,124.......... $81,571,923
11,097,635.......... $11,119,574
19,330,287.......... $18,544,101
Receivable (payable) for policy-related
transactions................................... 2,903,327 50,563 662,782
----------- ----------- ------------
Total Assets...................................... 84,475,250 11,170,137 19,206,883
----------- ----------- ------------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 2,910,079 52,140 665,890
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 206,810 55,747 59,654
----------- ----------- ------------
Total Liabilities................................. 3,116,889 107,887 725,544
----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $81,358,361 $11,062,250 $18,481,339
=========== =========== ============
<CAPTION>
EQUITY SERIES
--------------------------------------------------------------------------
MERRILL
T. ROWE PRICE EQ/PUTNAM ALLIANCE LYNCH
EQUITY GROWTH & ALLIANCE EQUITY BASIC VALUE
EQUITY INCOME VALUE GROWTH & INDEX EQUITY
INCOME FUND FUND INCOME FUND FUND FUND
------------- -------------- ----------- ----------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 18,007,458.......... $18,987,864
14,008,930.......... $14,200,058
88,651,911.......... $94,268,289
99,286.......... $104,008
9,928,247.......... $9,863,914
Receivable (payable) for policy-related
transactions................................... 105,202 186,146 809,151 (8) 34,834
----------- ----------- ----------- --------- ----------
Total Assets...................................... 19,093,066 14,386,204 95,077,440 104,000 9,898,748
----------- ----------- ----------- --------- ----------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 109,104 189,102 829,693 -- 36,845
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 15,447 11,682 366,973 6,482 7,463
----------- ----------- ----------- --------- ----------
Total Liabilities................................. 124,551 200,784 1,196,666 6,482 44,308
----------- ----------- ----------- --------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $18,968,515 $14,185,420 $93,880,774 $ 97,518 $9,854,440
=========== =========== =========== ========= ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
------------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $297,090,529................... $320,541,976
11,939,823................... $11,977,333
38,334,848................... $38,090,450
18,748,095................... $16,610,244
Receivable (payable) for policy-related transactions....... 1,219,096 44,794 646,213 31,494
------------ ----------- ----------- -----------
Total Assets............................................... 321,761,072 12,022,127 38,736,663 16,641,738
------------ ----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ 1,275,113 47,322 83,460 68,383
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 1,176,309 10,019 143,534 90,013
------------ ----------- ----------- -----------
Total Liabilities.......................................... 2,451,422 57,341 226,994 158,396
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $319,309,650 $11,964,786 $38,509,669 $16,483,342
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
T. ROWE MORGAN
PRICE STANLEY ALLIANCE
INTERNATIONAL EMERGING AGGRESSIVE
STOCK MARKETS STOCK
FUND EQUITY FUND FUND
------------- ----------- ------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 13,205,929................... $12,628,951
2,479,420................... $2,241,138
122,157,062................... $118,305,660
Receivable (payable) for policy-related transactions....... (241,260) 14,961 55,012
----------- ---------- ------------
Total Assets............................................... 12,387,691 2,256,099 118,360,672
----------- ---------- ------------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ (238,550) 15,412 76,530
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 9,534 1,594 456,464
----------- ---------- ------------
Total Liabilities.......................................... (229,016) 17,006 532,994
----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $12,616,707 $2,239,093 $117,827,678
=========== ========== ============
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP GROWTH
COMPANY GROWTH COMPANIES
VALUE FUND FUND FUND
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $25,096,987.................. $24,796,551
16,633,779.................. $16,289,343
12,205,272.................. $11,946,078
Receivable (payable) for policy-related transactions...... 208,290 107,600 73,764
----------- ----------- -----------
Total Assets.............................................. 25,004,841 16,396,943 12,019,842
----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 213,483 114,679 76,254
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 19,432 54,205 9,228
----------- ----------- -----------
Total Liabilities......................................... 232,915 168,884 85,482
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $24,771,926 $16,228,059 $11,934,360
=========== =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
------------ ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 20,991,531.................. $21,474,276
5,965,298.................. $6,038,880
64,675,197.................. $66,360,908
2,544,176.................. $2,415,053
Receivable (payable) for policy-related transactions...... 146,316 76,680 120,470 9,748
----------- ---------- ----------- ----------
Total Assets.............................................. 21,620,592 6,115,560 66,481,378 2,424,801
----------- ---------- ----------- ----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 149,280 77,927 132,026 10,238
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 142,854 4,667 366,318 1,768
----------- ---------- ----------- ----------
Total Liabilities......................................... 292,134 82,594 498,344 12,006
----------- ---------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $21,328,458 $6,032,966 $65,983,034 $2,412,795
=========== ========== =========== ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND(A)
----------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 2,767,636 $ 373,989 $ 654,819
Expenses (Note 3):
Asset based charges ....................................... 445,521 70,280 53,671
----------- --------- -----------
NET INVESTMENT INCOME (LOSS) .............................. 2,322,115 303,709 601,148
----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 59,011 12,754 76,963
Realized gain distribution from the Trusts ................ 5,264 -- 706,360
----------- --------- -----------
Net Realized Gain (Loss) ............................... 64,275 12,754 783,323
----------- --------- -----------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... (197,899) (36,715) --
End of period ............................................. (465,201) 21,939 (786,186)
----------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ......................................... (267,302) 58,654 (786,186)
----------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ (203,027) 71,408 (2,863)
----------- --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $ 2,119,088 $ 375,117 $ 598,285
=========== ========= ===========
<CAPTION>
EQUITY SERIES
---------------------------------------------------------------
T. ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & EQUITY BASIC VALUE
INCOME INCOME INCOME INDEX EQUITY
FUND(A) FUND(A) VALUE FUND FUND(A) FUND(A)
----------- -------- ---------- -------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 141,756 $ 65,607 $ 522,395 $ 596 $ 49,960
Expenses (Note 3):
Asset based charges ....................................... 62,938 44,334 617,639 409 29,450
---------- ----------- ------------ -------- --------
NET INVESTMENT INCOME (LOSS) .............................. 78,818 21,273 (95,244) 187 20,510
---------- ----------- ------------ -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 2,121 963 707,686 1,022 711
Realized gain distribution from the Trusts ................ 52,414 53,683 5,306,878 370 47,068
---------- ----------- ------------ -------- --------
Net Realized Gain (Loss) ............................... 54,535 54,646 6,014,564 1,392 47,779
---------- ----------- ------------ -------- --------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... -- -- 764,236 -- --
End of period ............................................. 980,406 191,128 5,616,378 4,722 (64,333)
---------- ----------- ------------ -------- --------
Change in unrealized appreciation (depreciation)
during the period ......................................... 980,406 191,128 4,852,142 4,722 (64,333)
---------- ----------- ------------ -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ 1,034,941 245,774 10,866,706 6,114 (16,554)
---------- ----------- ------------ -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $1,113,759 $ 267,047 $ 10,771,462 $ 6,301 $ 3,956
========== =========== ============ ======== ========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
---------------------------------------------------------
ALLIANCE ALLIANCE
COMMON MFS ALLIANCE INTER-
STOCK RESEARCH GLOBAL NATIONAL
FUND FUND(A) FUND FUND
------------ ---------- ------------ -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,007,250 $ 25,364 $ 662,565 $ 454,446
Expenses (Note 3):
Asset based charges .................................. 2,216,874 40,703 334,193 165,980
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (1,209,624) (15,339) 328,372 288,466
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 3,442,671 1,227 423,327 259,996
Realized gain distribution from the Trusts ........... 23,990,653 100,696 2,414,538 833,830
----------- -------- ---------- -----------
Net Realized Gain (Loss) .......................... 27,433,324 101,923 2,837,865 1,093,826
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 1,356,454 -- 199,484 31,388
End of period ........................................ 23,451,447 37,510 (244,398) (2,137,851)
----------- -------- ---------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. 22,094,993 37,510 (443,882) (2,169,239)
----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 49,528,317 139,433 2,393,983 (1,075,413)
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $48,318,693 $124,094 $2,722,355 $ (786,947)
=========== ======== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING ALLIANCE
NATIONAL MARKETS AGGRESSIVE
STOCK EQUITY STOCK
FUND(A) FUND(B) FUND
---------- --------- ------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,646 $ 6,387 $ 105,375
Expenses (Note 3):
Asset based charges .................................. 47,444 5,153 985,564
--------- --------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (45,798) 1,234 (880,189)
--------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. (53,503) (26,406) 61,253
Realized gain distribution from the Trusts ........... -- -- 9,818,273
--------- --------- -----------
Net Realized Gain (Loss) .......................... (53,503) (26,406) 9,879,526
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- (2,165,186)
End of period ........................................ (576,978) (238,282) (3,851,402)
--------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. (576,978) (238,282) (1,686,216)
--------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... (630,481) (264,688) 8,193,310
--------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $(676,279) $(263,454) $ 7,313,121
========= ========= ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
--------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 21,393 $ 773 $ 22,515
Expenses (Note 3):
Asset based charges .................................. 85,830 50,629 38,336
--------- --------- ---------
NET INVESTMENT INCOME (LOSS) ......................... (64,437) (49,856) (15,821)
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 228,992 62,796 52,672
Realized gain distribution from the Trusts ........... 109,076 377,750 274,537
--------- --------- ---------
Net Realized Gain (Loss) .......................... 338,068 440,546 327,209
--------- ---------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- --
End of period ........................................ (300,436) (344,436) (259,194)
--------- --------- ---------
Change in unrealized appreciation (depreciation)
during the period ................................. (300,436) (344,436) (259,194)
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 37,632 96,110 68,015
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $ (26,805) $ 46,254 $ 52,194
========= ========= =========
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND(A) FUND FUND(A)
---------- ---------- ----------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 647,522 $ 69,781 $ 1,260,100 $ 10,682
Expenses (Note 3):
Asset based charges .................................. 165,768 18,233 523,559 7,708
---------- --------- ----------- --------
NET INVESTMENT INCOME (LOSS) ......................... 481,754 51,548 736,541 2,974
---------- --------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 49,147 (1,203) 187,731 (109)
Realized gain distribution from the Trusts ........... 638,548 46,731 3,432,867 24,328
---------- --------- ----------- --------
Net Realized Gain (Loss) .......................... 687,695 45,528 3,620,598 24,219
---------- --------- ----------- --------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 4,651 -- (158,777) --
End of period ........................................ 482,745 73,582 1,685,711 (129,123)
---------- --------- ----------- --------
Change in unrealized appreciation (depreciation)
during the period ................................. 478,094 73,582 1,844,488 (129,123)
---------- --------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 1,165,789 119,110 5,465,086 (104,904)
---------- --------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $1,647,543 $ 170,658 $ 6,201,627 $(101,930)
========== ========= =========== =========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------
ALLIANCE
MONEY MARKET FUND
------------------------------
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................... $ 2,322,115 $ 791,163
Net realized gain (loss) ................................ 64,275 19,803
Change in unrealized appreciation /(depreciation)
of investments ....................................... (267,302) (165,897)
------------- -------------
Net increase in net assets from operations .............. 2,119,088 645,069
------------- -------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 137,532,670 95,681,367
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 55,819,439 19,687,669
------------- -------------
Total ............................................. 193,352,109 115,369,036
------------- -------------
Benefit & other policy transaction ................... 1,577,365 198,356
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 618,083 514,843
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 144,167,408 87,121,388
------------- -------------
Total ............................................. 146,362,856 87,834,587
------------- -------------
Net increase in net assets from Contract Owner
transactions ........................................ 46,989,253 27,534,449
------------- -------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT 45 (NOTE 5) ......................... (46,770) (17,582)
------------- -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 49,061,571 28,161,936
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 32,296,790 4,134,854
------------- -------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 81,358,361 $ 32,296,790
============= =============
<CAPTION>
FIXED INCOME SERIES:
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE HIGH YIELD
GOVERNMENT SECURITIES FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................... $ 303,709 $ 138,808 $ 601,148
Net realized gain (loss) ................................ 12,754 (21,067) 783,323
Change in unrealized appreciation /(depreciation)
of investments ....................................... 58,654 (41,524) (786,186)
------------ ------------ ------------
Net increase in net assets from operations .............. 375,117 76,217 598,285
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 5,416,131 1,798,660 13,779,925
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 3,270,944 8,533,013 22,095,921
------------ ------------ ------------
Total ............................................. 8,687,075 10,331,673 35,875,846
------------ ------------ ------------
Benefit & other policy transaction ................... 189,517 15,968 161,257
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 128,377 77,637 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 1,145,902 8,982,626 17,780,088
------------ ------------ ------------
Total ............................................. 1,463,796 9,076,231 17,986,890
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ........................................ 7,223,279 1,255,442 17,888,956
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ..................... (12,130) (6,709) (5,902)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 7,586,266 1,324,950 18,481,339
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 3,475,984 2,151,034 --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 11,062,250 $ 3,475,984 $ 18,481,339
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
------------------------------
T. ROWE EQ/PUTNAM
PRICE EQUITY GROWTH &
INCOME INCOME VALUE
FUND(A) FUND(A)
-------------- --------------
1997 1997
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss) ............................... $ 78,818 $ 21,273
Net realized gain (loss) ................................... 54,535 54,646
Change in unrealized appreciation / (depreciation)
of investments .......................................... 980,406 191,128
------------ ------------
Net increase in net assets from operations ................. 1,113,759 267,047
------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 13,813,772 10,975,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 4,356,204 3,217,543
------------ ------------
Total ................................................ 18,169,976 14,192,742
------------ ------------
Benefit & other policy transaction ...................... 86,052 58,925
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 40,797 32,578
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 183,349 180,506
------------ ------------
Total ................................................ 310,198 272,009
------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 17,859,778 13,920,733
------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (5,022) (2,360)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 18,968,515 14,185,420
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- --
------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 18,968,515 $ 14,185,420
============ ============
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------
ALLIANCE
ALLIANCE EQUITY MERRILL LYNCH
GROWTH & INCOME INDEX BASIC VALUE
FUND FUND(A) EQUITY FUND(A)
--------------------------- ---------- ---------------
1997 1996 1997 1997
------------ ------------ ---------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ (95,244) $ 64,283 $ 187 $ 20,510
Net realized gain (loss) ................................... 6,014,564 693,777 1,392 47,779
Change in unrealized appreciation / (depreciation)
of investments .......................................... 4,852,142 698,407 4,722 (64,333)
------------ ------------ -------- ------------
Net increase in net assets from operations ................. 10,771,462 1,456,467 6,301 3,956
------------ ------------ -------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 58,696,016 6,251,620 77,031 8,075,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 16,269,895 6,040,990 15,328 1,941,071
------------ ------------ -------- ------------
Total ................................................ 74,965,911 12,292,610 92,359 10,016,270
------------ ------------ -------- ------------
Benefit & other policy transaction ...................... 1,455,357 130,199 -- 9,691
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 425,279 31,991 -- 17,792
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 4,907,606 342,494 -- 137,464
------------ ------------ -------- ------------
Total ................................................ 6,788,242 504,684 -- 164,947
------------ ------------ -------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 68,177,669 11,787,926 92,359 9,851,323
------------ ------------ -------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (94,285) (27,565) (1,142 (839)
------------ ------------ -------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 78,854,846 13,216,828 97,518 9,854,440
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,025,928 1,809,100 -- --
------------ ------------ -------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 93,880,774 $ 15,025,928 $ 97,518 $ 9,854,440
============ ============ ======== ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
MFS
ALLIANCE RESEARCH
COMMON STOCK FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) ............................... $ (1,209,624) $ (42,865) $ (15,339)
Net realized gain (loss) ................................... 27,433,324 6,011,054 101,923
Change in unrealized appreciation / (depreciation)
of investments .......................................... 22,094,993 1,504,011 37,510
------------- ------------ ------------
Net increase (decrease) in net assets from operations ...... 48,318,693 7,472,200 124,094
------------- ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 175,880,351 36,558,323 9,502,168
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 61,077,537 34,378,499 2,602,553
------------- ------------ ------------
Total ................................................ 236,957,888 70,936,822 12,104,721
------------- ------------ ------------
Benefit & other policy transaction ...................... 4,271,079 427,323 28,630
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 1,459,175 290,642 23,738
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 35,438,036 8,933,676 209,610
------------- ------------ ------------
Total ................................................ 41,168,290 9,651,641 261,978
------------- ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 195,789,598 61,285,181 11,842,743
------------- ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (305,436) (85,006) (2,051)
------------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 243,802,855 68,672,375 11,964,786
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 75,506,795 6,834,420 --
------------- ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 319,309,650 $ 75,506,795 $ 11,964,786
============= ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------------
ALLIANCE ALLIANCE
GLOBAL FUND INTERNATIONAL FUND
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ 328,372 $ 88,313 $ 288,466 $ 53,333
Net realized gain (loss) ................................... 2,837,865 543,216 1,093,826 234,294
Change in unrealized appreciation / (depreciation)
of investments .......................................... (443,882) 184,372 (2,169,239) 16,354
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from operations ...... 2,722,355 815,901 (786,947) 303,981
------------ ------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 20,384,580 9,199,245 9,574,522 3,782,377
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 7,792,945 6,255,073 18,180,472 5,791,839
------------ ------------ ------------ -----------
Total ................................................ 28,177,525 15,454,318 27,754,994 9,574,216
------------ ------------ ------------ -----------
Benefit & other policy transaction ...................... 621,118 70,774 341,327 38,451
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 155,169 36,757 97,083 75,353
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 6,961,429 1,836,433 18,593,662 1,979,003
------------ ------------ ------------ -----------
Total ................................................ 7,737,716 1,943,964 19,032,072 2,092,807
------------ ------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ............................................ 20,439,809 13,510,354 8,722,922 7,481,409
------------ ------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (28,799) (18,054) (36,637) (11,874)
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 23,133,365 14,308,201 7,899,338 7,773,516
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,376,304 1,068,103 8,584,004 810,488
------------ ------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 38,509,669 $ 15,376,304 $ 16,483,342 $ 8,584,004
============ ============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING
NATIONAL MARKETS ALLIANCE
STOCK EQUITY AGGRESSIVE STOCK
FUND(A) FUND(B) FUND
------------- ----------- --------------------------------
1997 1997 1997 1996
------------- ----------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ...................................... $ (45,798) $ 1,234 $ (880,189) $ (121,400)
Net realized gain (loss) ................................... (53,503) (26,406) 9,879,526 4,080,335
Change in unrealized appreciation / (depreciation)
of investments .......................................... (576,978) (238,282) (1,686,216) (1,995,216)
------------ ----------- ------------- ------------
Net increase (decrease) in net assets from operations ...... (676,279) (263,454) 7,313,121 1,963,719
------------ ----------- ------------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 9,658,570 1,617,148 66,019,813 22,776,845
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 5,113,170 889,247 17,726,363 20,452,746
------------ ----------- ------------- ------------
Total ................................................ 14,771,740 2,506,395 83,746,176 43,229,591
------------ ----------- ------------- ------------
Benefit & other policy transaction ...................... 37,224 -- 1,854,804 245,070
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 22,024 394 482,491 90,356
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 1,416,476 2,488 11,669,668 7,099,325
------------ ----------- ------------- ------------
Total ................................................ 1,475,724 2,882 14,006,963 7,434,751
------------ ----------- ------------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 13,296,016 2,503,513 69,739,213 35,794,840
------------ ----------- ------------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (3,030) (966) (111,908) (33,503)
------------ ----------- ------------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 12,616,707 2,239,093 76,940,426 37,725,056
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- 40,887,252 3,162,196
------------ ----------- ------------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 12,616,707 $ 2,239,093 $ 117,827,678 $ 40,887,252
============ =========== ============= ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
WARBURG MFS
PINCUS SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
------------ ------------- ----------------
1997 1997 1997
------------ ------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ...................................... $ (64,437) $ (49,856) $ (15,821)
Net realized gain (loss) ................................... 338,068 440,546 327,209
Change in unrealized appreciation / (depreciation)
of investments .......................................... (300,436) (344,436) (259,194)
------------ ------------ ------------
Net increase (decrease) in net assets from operations ...... (26,805) 46,254 52,194
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 17,791,841 12,116,331 9,607,211
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 11,695,862 5,602,864 3,864,604
------------ ------------ ------------
Total ................................................ 29,487,703 17,719,195 13,471,815
------------ ------------ ------------
Benefit & other policy transaction ...................... 134,692 20,842 45,537
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 23,284 8,570 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 4,520,417 1,504,600 1,527,808
------------ ------------ ------------
Total ................................................ 4,678,393 1,534,012 1,587,690
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 24,809,310 16,185,183 11,884,125
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (10,579) (3,378) (1,959)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 24,771,926 16,228,059 11,934,360
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 24,771,926 $ 16,228,059 $ 11,934,360
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------
ALLIANCE EQ/PUTNAM
CONSERVATIVE BALANCED
INVESTORS FUND FUND(A)
--------------------------- ----------- -
1997 1996 1997
------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 481,754 $ 193,429 $ 51,548
Net realized gain (loss) ............................. 687,695 154,966 45,528
Change in unrealized appreciation / (depreciation)
of investments .................................... 478,094 (12,221) 73,582
----------- ----------- -----------
Net increase (decrease) in net assets from operations 1,647,543 336,174 170,658
------------ ----------- -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 10,862,780 3,977,495 4,294,496
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 3,151,066 2,837,790 1,721,220
------------ ----------- -----------
Total .......................................... 14,013,846 6,815,285 6,015,716
------------ ----------- -----------
Benefit & other policy transaction ................ 567,547 60,271 17,533
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 138,461 100,314 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 1,428,179 814,338 120,099
------------ ----------- -----------
Total .......................................... 2,134,187 974,923 152,925
------------ ----------- -----------
Net increase in net assets from Contract Owner
transactions ...................................... 11,879,659 5,840,362 5,862,791
------------ ----------- -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (57,026) (12,633) (483)
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 13,470,176 6,163,903 6,032,966
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 7,858,282 1,694,379 --
------------ ----------- -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 21,328,458 $ 7,858,282 $ 6,032,966
============ =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------
ALLIANCE MERRILL LYNCH
GROWTH WORLD STRATEGY
INVESTORS FUND FUND(A)
---------------------------- --------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 736,541 $ 218,025 $ 2,974
Net realized gain (loss) ............................. 3,620,598 1,601,901 24,219
Change in unrealized appreciation / (depreciation)
of investments .................................... 1,844,488 (197,988) (129,123)
------------ ------------ -----------
Net increase (decrease) in net assets from operations 6,201,627 1,621,938 (101,930)
------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 32,084,069 11,004,121 2,043,811
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 7,981,423 9,331,901 561,601
------------ ------------ -----------
Total .......................................... 40,065,492 20,336,022 2,605,412
------------ ------------ -----------
Benefit & other policy transaction ................ 1,014,211 206,468 3,514
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 421,582 228,021 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 2,744,848 1,177,040 84,455
------------ ------------ -----------
Total .......................................... 4,180,641 1,611,529 90,566
------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ...................................... 35,884,851 18,724,493 2,514,846
------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (111,839) (32,214) (121)
------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 41,974,639 20,314,217 2,412,795
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 24,008,395 3,694,178 --
------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 65,983,034 $ 24,008,395 $ 2,412,795
============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
1940 Act"). The Account consists of 22 investment funds (Funds): Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund,
Alliance High Yield Fund, T. Rowe Price Equity Income Fund, EQ/Putnam
Growth & Income Value Fund, Alliance Growth & Income Fund, Alliance Equity
Index Fund, Merrill Lynch Basic Value Equity Fund, Alliance Common Stock
Fund, MFS Research Fund, Alliance Global Fund, Alliance International
Fund, T. Rowe Price International Stock Fund, Morgan Stanley Emerging
Markets Equity Fund, Alliance Aggressive Stock Fund, Warburg Pincus Small
Company Value Fund, Alliance Small Cap Growth Fund, MFS Emerging Growth
Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam Balanced
Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund. The assets in each Fund are invested in shares of a corresponding
portfolio (Portfolio) of a mutual fund, Class IA and IB shares of The
Hudson River Trust (HRT) or Class IB shares of EQ Advisors Trust (EQAT)
(collectively known as the Trusts). Class IB shares are offered by the
Funds at net asset value and are subject to distribution fees imposed
under a distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act. Class IA shares of HRT continue to be purchased by contracts in-force
prior to May 1, 1997. The Trusts are open-end, diversified management
investment companies that sell its shares to 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 is also available
for purchase by certain types of qualified plans. 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 less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth 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.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 charges for mortality and expense
risks at an annual rate of 0.90% of daily net assets. In addition, asset
based administrative charges are also charged to the account at an annual
rate of 0.25% of daily net assets. The charges may be retained in the
Account by Equitable Life and participate in the net investment results of
the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.15% of daily net assets. Trust shares are
valued at their net asset value with investment advisory or management
fees, the 12b-1 fee, and other expenses of the Trust, in effect, passed on
to the Account and reflected in the accumulation unit values of the
Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
------------------------------------------
<S> <C> <C>
Class A Net Issued........................................... -- 1,128
Net Redeemed......................................... (374) --
Class B Net Issued........................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
------------------------------------------------
Class A Net Issued........................................... 161 92
Class B Net Issued........................................... 345 --
ALLIANCE HIGH YIELD FUND
------------------------------------
Class A Net Issued........................................... 98 --
Class B Net Issued........................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,565 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
----------------------------------------------
Class A Net Issued........................................... 2,377 905
Class B Net Issued........................................... 1,829 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-----------------------------------------
ALLIANCE EQUITY INDEX FUND (A) (IN THOUSANDS)
<S> <C> <C>
Class B Net Issued............................................ 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
-----------------------------------------
Class B Net Issued............................................ 849 --
ALLIANCE COMMON STOCK FUND
--------------------------
Class A Net Issued............................................ 620 439
Class B Net Issued............................................ 519 --
MFS RESEARCH FUND (A)
---------------------
Class B Net Issued............................................ 1,039 --
ALLIANCE GLOBAL FUND
---------------------
Class A Net Issued............................................ 444 561
Class B Net Issued............................................ 308 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Class A Net Issued............................................ 438 643
Class B Net Issued............................................ 285 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (A)
------------------------------------------
Class B Net Issued............................................ 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
-----------------------------------------------
Class B Net Issued............................................ 282 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Concluded):
Accumulation units issued and redeemed during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- ----------------
ALLIANCE AGGRESSIVE STOCK FUND (IN THOUSANDS)
------------------------------
<S> <C> <C>
Class A Net Issued....................................... 641 562
Class B Net Issued....................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
-------------------------------------------
Class B Net Issued....................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND
------------------------------
Class A Net Issued....................................... 208 --
Class B Net Issued....................................... 1,084 --
MFS EMERGING GROWTH COMPANIES FUND (A)
--------------------------------------
Class B Net Issued....................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
------------------------------------
Class A Net Issued....................................... 356 354
Class B Net Issued....................................... 295 --
EQ/PUTNAM BALANCED FUND (A)
---------------------------
Class B Net Issued....................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Class A Net Issued....................................... 681 758
Class B Net Issued....................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
------------------------------------
Class B Net Issued....................................... 232 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. 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 contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
INVESTMENT FUND 1997 1996
------------------------------ ----------------------------
<S> <C> <C>
Alliance Money Market Fund..................................... $(240,000) $(125,000)
Alliance Intermediate Government Securities Fund............... (60,000) (25,000)
Alliance High Yield Fund(1).................................... 10,000 --
T. Rowe Price Equity Income Fund(1)............................ -- --
EQ/Putnam Growth & Income Value Fund(1)........................ -- --
Alliance Growth & Income Fund.................................. (250,000) (60,000)
Alliance Equity Index Fund..................................... 5,000 --
Merrill Lynch Basic Value Equity Fund(1)....................... -- --
Alliance Common Stock Fund..................................... (840,000) (223,000)
MFS Research Fund(1)........................................... -- --
Alliance Global Fund........................................... (185,000) (52,000)
Alliance International Fund.................................... (120,000) (35,000)
T. Rowe Price International Stock Fund(1)...................... -- --
Morgan Stanley Emerging Markets Equity Fund(2)................. -- --
Alliance Aggressive Stock Fund................................. (435,000) (110,000)
Warburg Pincus Small Company Value Fund(1)..................... -- --
Alliance Small Cap Growth Fund(1).............................. 10,000 --
MFS Emerging Growth Companies Fund(1).......................... -- --
Alliance Conservative Investors Fund........................... (87,000) (45,000)
EQ/Putnam Balanced Fund(1)..................................... -- --
Alliance Growth Investors Fund................................. (185,000) (105,000)
Merrill Lynch World Strategy Fund(1)........................... -- --
</TABLE>
----------------------
(1) Commenced operations on May 1, 1997.
(2) Commenced operations on November 20, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
ALLIANCE MONEY MARKET FUND ----------------------------- --------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period....................... $24.81 $23.83
Class A Unit value, end of period............................. $25.85 $24.81
Class B Unit value, beginning of period (c)................... $25.17 --
Class B Unit value, end of period (c)......................... $25.85 --
Number of units outstanding, end of period (000's):
Class A.................................................... 928 1,302
Class B.................................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A Unit value, beginning of period....................... $13.77 $13.42
Class A Unit value, end of period............................. $14.60 $13.77
Class B Unit value, beginning of period (c)................... $13.88 --
Class B Unit value, end of period (c)......................... $14.58 --
Number of units outstanding, end of period (000's):
Class A.................................................... 413 252
Class B.................................................... 345 --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A Unit value, beginning of period....................... $26.95 --
Class A Unit value, end of period............................. $30.73 --
Class B Unit value, beginning of period....................... $26.91 --
Class B Unit value, end of period............................. $30.63 --
Number of units outstanding, end of period (000's):
Class A.................................................... 98 --
Class B.................................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
- ------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.12 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,565 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A) ------------------------------ ---------------------------
- --------------------------------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.53 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A Unit value, beginning of period....................... $14.23 $11.99
Class A Unit value, end of period............................. $17.83 $14.23
Class B Unit value, beginning of period (c)................... $14.67 --
Class B Unit value, end of period (c)......................... $17.80 --
Number of units outstanding, end of period (000's):
Class A.................................................... 3,433 1,056
Class B.................................................... 1,829 --
ALLIANCE EQUITY INDEX FUND (A)
- ------------------------------
Class A Unit value, beginning of period....................... $17.62 --
Class A Unit value, end of period............................. $21.41 --
Class B Unit value, beginning of period....................... $17.62 --
Class B Unit value, end of period............................. $21.38 --
Number of units outstanding, end of period (000's):
Class A.................................................... -- --
Class B.................................................... 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
- -----------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.61 --
Number of units outstanding, end of period (000's):
Class B.................................................... 849 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
ALLIANCE COMMON STOCK FUND ------------------------- ------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period........................... $152.96 $124.52
Class A Unit value, end of period................................. $195.37 $152.96
Class B Unit value, beginning of period (c)....................... $153.35 --
Class B Unit value, end of period (c)............................. $194.74 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,114 494
Class B........................................................ 519 --
MFS RESEARCH FUND (A)
- ---------------------
Class B Unit value, beginning of period........................... $10.00 --
Class B Unit value, end of period................................. $11.52 --
Number of units outstanding, end of period (000's):
Class B........................................................ 1,039 --
ALLIANCE GLOBAL FUND
- --------------------
Class A Unit value, beginning of period........................... $25.25 $22.29
Class A Unit value, end of period................................. $27.85 $25.25
Class B Unit value, beginning of period (c)....................... $24.87 --
Class B Unit value, end of period (c)............................. $27.76 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,074 609
Class B........................................................ 308 --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A Unit value, beginning of period........................... $11.98 $11.03
Class A Unit value, end of period................................. $11.48 $11.98
Class B Unit value, beginning of period (c)....................... $11.86 --
Class B Unit value, end of period (c)............................. $11.46 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,151 717
Class B........................................................ 285 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
T. ROWE PRICE INTERNATIONAL STOCK FUND (A) --------------------------- ------------------------
- -----------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 9.77 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
- -----------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 7.95 --
Number of units outstanding, end of period (000's):
Class B.................................................... 282 --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A Unit value, beginning of period....................... $65.94 $54.59
Class A Unit value, end of period............................. $72.23 $65.94
Class B Unit value, beginning of period (c)................... $62.84 --
Class B Unit value, end of period (c)......................... $72.00 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,261 620
Class B.................................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
- -------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.82 --
Number of units outstanding, end of period (000's):
Class B.................................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND (A)
- ----------------------------------
Class A Unit value, beginning of period....................... $10.00 --
Class A Unit value, end of period............................. $12.57 --
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.55 --
Number of units outstanding, end of period (000's):
Class A.................................................... 208 --
Class B.................................................... 1,084 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
MFS EMERGING GROWTH FUND (A) --------------------------- ------------------------
- ----------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.15 --
Number of units outstanding, end of period (000's):
Class B.................................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A Unit value, beginning of period....................... $17.21 $16.55
Class A Unit value, end of period............................. $19.26 $17.21
Class B Unit value, beginning of period (c)................... $17.33 --
Class B Unit value, end of period (c)......................... $19.23 --
Number of units outstanding, end of period (000's):
Class A.................................................... 813 457
Class B.................................................... 295 --
EQ/PUTMAN BALANCED FUND (A)
- ---------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.36 --
Number of units outstanding, end of period (000's):
Class B.................................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A Unit value, beginning of period....................... $26.26 $23.59
Class A Unit value, end of period............................. $30.31 $26.26
Class B Unit value, beginning of period (c)................... $26.23 --
Class B Unit value, end of period (c)......................... $30.22 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,596 914
Class B.................................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
- -------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $10.39 --
Number of units outstanding, end of period (000's):
Class B.................................................... 232 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-23
<PAGE>
February 10, 1998
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 and for loan impairments in 1995.
/s/ Price Waterhouse, LLP
- ---------------------------
Price Waterhouse LLP
New York, New York
February 10, 1998
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 19,630.9 $ 18,077.0
Mortgage loans on real estate............................................. 2,611.4 3,133.0
Equity real estate........................................................ 2,749.2 3,297.5
Policy loans.............................................................. 2,422.9 2,196.1
Other equity investments.................................................. 951.5 860.6
Investment in and loans to affiliates..................................... 731.1 685.0
Other invested assets..................................................... 624.7 25.4
----------------- -----------------
Total investments..................................................... 29,721.7 28,274.6
Cash and cash equivalents................................................... 300.5 538.8
Deferred policy acquisition costs........................................... 3,236.6 3,104.9
Amounts due from discontinued operations.................................... 572.8 996.2
Other assets................................................................ 2,685.2 2,552.2
Closed Block assets......................................................... 8,566.6 8,495.0
Separate Accounts assets.................................................... 36,538.7 29,646.1
----------------- -----------------
Total Assets................................................................ $ 81,622.1 $ 73,607.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,579.5 $ 21,865.6
Future policy benefits and other policyholder's liabilities................. 4,553.8 4,416.6
Short-term and long-term debt............................................... 1,991.2 1,766.9
Other liabilities........................................................... 3,257.1 2,785.1
Closed Block liabilities.................................................... 9,073.7 9,091.3
Separate Accounts liabilities............................................... 36,306.3 29,598.3
----------------- -----------------
Total liabilities..................................................... 76,761.6 69,523.8
----------------- -----------------
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........................................................... 1,235.9 798.7
Net unrealized investment gains............................................. 533.6 189.9
Minimum pension liability................................................... (17.3) (12.9)
----------------- -----------------
Total shareholder's equity............................................ 4,860.5 4,084.0
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 81,622.1 $ 73,607.8
================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 950.6 $ 874.0 $ 788.2
Premiums...................................................... 601.5 597.6 606.8
Net investment income......................................... 2,282.8 2,203.6 2,088.2
Investment (losses) gains, net................................ (45.2) (9.8) 5.3
Commissions, fees and other income............................ 1,227.2 1,081.8 897.1
Contribution from the Closed Block............................ 102.5 125.0 143.2
----------------- ----------------- -----------------
Total revenues.......................................... 5,119.4 4,872.2 4,528.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,266.2 1,270.2 1,248.3
Policyholders' benefits....................................... 978.6 1,317.7 1,008.6
Other operating costs and expenses............................ 2,203.9 2,075.7 1,775.8
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,448.7 4,663.6 4,032.7
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 670.7 208.6 496.1
Federal income taxes.......................................... 91.5 9.7 120.5
Minority interest in net income of consolidated subsidiaries.. 54.8 81.7 62.8
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 524.4 117.2 312.8
Discontinued operations, net of Federal income taxes.......... (87.2) (83.8) -
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (23.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 437.2 $ 10.3 $ 312.8
================= ================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(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 and end of year..... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 798.7 788.4 475.6
Net earnings.................................................. 437.2 10.3 312.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,235.9 798.7 788.4
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year... 189.9 396.5 (220.5)
Change in unrealized investment gains (losses)................ 343.7 (206.6) 617.0
----------------- ----------------- -----------------
Net unrealized investment gains, end of year.................. 533.6 189.9 396.5
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (12.9) (35.1) (2.7)
Change in minimum pension liability........................... (4.4) 22.2 (32.4)
-----------------
----------------- -----------------
Minimum pension liability, end of year........................ (17.3) (12.9) (35.1)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 437.2 $ 10.3 $ 312.8
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Interest credited to policyholders' account balances........ 1,266.2 1,270.2 1,248.3
Universal life and investment-type product
policy fee income......................................... (950.6) (874.0) (788.2)
Investment losses (gains)................................... 45.2 9.8 (5.3)
Change in Federal income tax payable........................ (74.4) (197.1) 221.6
Other, net.................................................. 169.4 330.2 80.5
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 893.0 549.4 1,069.7
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,702.9 2,275.1 1,897.4
Sales....................................................... 10,385.9 8,964.3 8,867.1
Purchases................................................... (13,205.4) (12,559.6) (11,675.5)
(Increase) decrease in short-term investments............... (555.0) 450.3 (99.3)
Decrease in loans to discontinued operations................ 420.1 1,017.0 1,226.9
Sale of subsidiaries........................................ 261.0 - -
Other, net.................................................. (612.6) (281.0) (413.4)
----------------- ----------------- -----------------
Net cash used by investing activities......................... (603.1) (133.9) (196.8)
----------------- ----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................. 1,281.7 1,925.4 2,586.5
Withdrawals............................................... (1,886.8) (2,385.2) (2,657.1)
Net increase (decrease) in short-term financings............ 419.9 (.3) (16.4)
Additions to long-term debt................................. 32.0 - 599.7
Repayments of long-term debt................................ (196.4) (124.8) (40.7)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (83.9) - (1,215.4)
Other, net.................................................. (94.7) (66.5) (48.4)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (528.2) (651.4) (791.8)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (238.3) (235.9) 81.1
Cash and cash equivalents, beginning of year.................. 538.8 774.7 693.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 300.5 $ 538.8 $ 774.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 217.1 $ 109.9 $ 89.6
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 170.0 $ (10.0) $ (82.7)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and, prior to
December 31, 1996, its wholly owned life insurance subsidiary, Equitable
Variable Life Insurance Company ("EVLICO"). Effective January 1, 1997,
EVLICO was merged into Equitable Life, which continues to conduct the
Company's insurance business. Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance") 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 58.7% at December 31, 1997 (54.3% 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") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and, through
June 10, 1997, Equitable Real Estate Investment Management, Inc.
("EREIM"), a real estate investment management subsidiary which was sold
(see Note 5); 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.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued operations (see Note
7).
The years "1997," "1996" and "1995" refer to the years ended December
31, 1997, 1996 and 1995, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1997 presentation.
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.
F-6
<PAGE>
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. No reallocation, transfer, borrowing
or lending of assets can be made between the Closed Block and other
portions of Equitable Life's General Account, any of its Separate
Accounts or any affiliate of Equitable Life without the approval of the
New York Superintendent of Insurance (the "Superintendent"). Closed
Block assets and liabilities are carried on the same basis as similar
assets and liabilities held in the General Account. The excess of Closed
Block liabilities over Closed Block assets represents the expected
future post-tax contribution from the Closed Block which would be
recognized in income over the period the policies and contracts in the
Closed Block remain in force.
Discontinued Operations
Discontinued operations consist of the business of the former Guaranteed
Interest Contract ("GIC") segment which includes the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and the GIC
lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and, during the 1997 and 1996 fourth quarter
reviews, the allowance for future losses was increased. Management
believes the allowance for future losses at December 31, 1997 is
adequate to provide for all future losses; however, the determination of
the allowance continues to involve numerous estimates and subjective
judgments regarding the expected performance of Discontinued Operations
Investment Assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of the discontinued operations
differ from management's current best estimates and assumptions
underlying the allowance for future losses, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management's previous
assumptions, periodic adjustments to the allowance are likely to result
(see Note 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 SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". (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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to The Equitable'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 for production of income. Real estate
which management has committed to disposing of by sale or abandonment is
classified as real estate held for sale. Valuation allowances on real
estate held for sale continue to be computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
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 vacated in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impaired loans
within SFAS No. 114's scope are to be 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 adoption of
this statement did not have a material effect on the level of the
allowances for possible losses or on the Company's consolidated
statements of earnings and shareholder's equity.
F-7
<PAGE>
New Accounting Pronouncements
In January 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits," which revises current note disclosure
requirements for employers' pension and other retiree benefits. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt the provisions of SFAS No. 132 in the 1998
consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP
97-3 provides guidance for assessments related to insurance activities
and requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual and interim financial statements
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment
performance and for deciding how to allocate resources to segments. This
statement is effective for fiscal years beginning after December 15,
1997 and need not be applied to interim reporting in the initial year of
adoption. Restatement of comparative information for earlier periods is
required. Management is currently reviewing its definition of business
segments in light of the requirements of SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires an enterprise to classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt
the provisions of SFAS No. 130 in its 1998 consolidated financial
statements.
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.
Implementation of SFAS No. 125 did not have nor is SFAS No. 127 expected
to have a material impact on the Company's consolidated financial
statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
F-8
<PAGE>
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains 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 discontinued operations,
participating group annuity contracts and deferred policy acquisition
costs ("DAC") related to universal life and investment-type products and
participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
F-9
<PAGE>
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, 1997, the expected investment yield, excluding
policy loans, generally ranged from 7.53% grading to 7.92% over a 20
year period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its 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.
F-11
<PAGE>
Claim reserves and associated liabilities for individual DI and major
medical policies were $886.7 million and $869.4 million at December 31,
1997 and 1996, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 190.2 $ 189.0 $ 176.0
Incurred benefits related to prior years........... 2.1 69.1 67.8
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 192.3 $ 258.1 $ 243.8
================= ================ =================
Benefits paid related to current year.............. $ 28.8 $ 32.6 $ 37.0
Benefits paid related to prior years............... 146.2 153.3 137.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 175.0 $ 185.9 $ 174.8
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1997, participating policies, including those in the
Closed Block, represent approximately 21.2% ($50.2 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1997, 1996 and 1995, investment results of
such Separate Accounts were $3,411.1 million, $2,970.6 million and
$1,963.2 million, respectively.
F-12
<PAGE>
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the opinion, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the
exercise price. See Note 21 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,230.3 $ 785.0 $ 74.5 $ 14,940.8
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 673.0 6.8 .1 679.7
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
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......................... $ 362.0 $ 49.3 $ 17.7 $ 393.6
================= ================= ================ =================
</TABLE>
F-13
<PAGE>
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 on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1997 and 1996, securities
without a readily ascertainable market value having an amortized cost of
$3,759.2 million and $3,915.7 million, respectively, had estimated fair
values of $3,903.9 million and $4,024.6 million, respectively.
The contractual maturity of bonds at December 31, 1997 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 149.9 $ 151.3
Due in years two through five.......................................... 2,962.8 3,025.2
Due in years six through ten........................................... 6,863.9 7,093.0
Due after ten years.................................................... 6,952.3 7,502.7
Mortgage-backed securities............................................. 1,702.8 1,725.0
---------------- -----------------
Total.................................................................. $ 18,631.7 $ 19,497.2
================ =================
</TABLE>
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,
1997, approximately 17.85% of the $18,610.6 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.
Fixed maturity investments with restructured or modified terms are not
material.
F-14
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 137.1 $ 325.3 $ 284.9
SFAS No. 121 release............................... - (152.4) -
Additions charged to income........................ 334.6 125.0 136.0
Deductions for writedowns and
asset dispositions............................... (87.2) (160.8) (95.6)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 55.8 $ 50.4 $ 65.5
Equity real estate............................... 328.7 86.7 259.8
----------------- ---------------- -----------------
Total.............................................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
</TABLE>
At December 31, 1997, 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 $12.6 million
of fixed maturities and $.9 million of mortgage loans on real estate.
At December 31, 1997 and 1996, 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 $23.4 million (0.9% of total
mortgage loans on real estate) and $12.4 million (0.4% 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 $183.4
million and $388.3 million at December 31, 1997 and 1996, 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 $17.2 million, $35.5 million and $52.1 million in
1997, 1996 and 1995, respectively. Gross interest income on these loans
included in net investment income aggregated $12.7 million, $28.2
million and $37.4 million in 1997, 1996 and 1995, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 196.7 $ 340.0
Impaired mortgage loans without provision for losses............... 3.6 122.3
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 200.3 462.3
Provision for losses............................................... (51.8) (46.4)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 148.5 $ 415.9
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
F-15
<PAGE>
During 1997, 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $246.9 million, $552.1 million
and $429.0 million. Interest income recognized on these impaired
mortgage loans totaled $15.2 million, $38.8 million and $27.9 million
($2.3 million, $17.9 million and $13.4 million recognized on a cash
basis) for 1997, 1996 and 1995, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1997 and 1996, the carrying value of equity real estate
held for sale amounted to $1,023.5 million and $345.6 million,
respectively. For 1997, 1996 and 1995, respectively, real estate of
$152.0 million, $58.7 million and $35.3 million was acquired in
satisfaction of debt. At December 31, 1997 and 1996, the Company owned
$693.3 million and $771.7 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 $541.1
million and $587.5 million at December 31, 1997 and 1996, respectively.
Depreciation expense on real estate totaled $74.9 million, $91.8 million
and $121.7 million for 1997, 1996 and 1995, respectively.
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(29 and 34 individual ventures as of December 31, 1997 and 1996,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 1,700.9 $ 1,883.7
Investments in securities, generally at estimated fair value........... 1,374.8 2,430.6
Cash and cash equivalents.............................................. 105.4 98.0
Other assets........................................................... 584.9 427.0
---------------- -----------------
Total Assets........................................................... $ 3,766.0 $ 4,839.3
================ =================
Borrowed funds - third party........................................... $ 493.4 $ 1,574.3
Borrowed funds - the Company........................................... 31.2 137.9
Other liabilities...................................................... 284.0 415.8
---------------- -----------------
Total liabilities...................................................... 808.6 2,128.0
---------------- -----------------
Partners' capital...................................................... 2,957.4 2,711.3
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 3,766.0 $ 4,839.3
================ =================
Equity in partners' capital included above............................. $ 568.5 $ 806.8
Equity in limited partnership interests not included above............. 331.8 201.8
Other.................................................................. 4.3 9.8
---------------- -----------------
Carrying Value......................................................... $ 904.6 $ 1,018.4
================ =================
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 310.5 $ 348.9 $ 463.5
Revenues of other limited partnership interests.... 506.3 386.1 242.3
Interest expense - third party..................... (91.8) (111.0) (135.3)
Interest expense - the Company..................... (7.2) (30.0) (41.0)
Other expenses..................................... (263.6) (282.5) (397.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.2 $ 311.5 $ 131.8
================= ================ =================
Equity in net earnings included above.............. $ 76.7 $ 73.9 $ 49.1
Equity in net earnings of limited partnerships
interests not included above..................... 69.5 35.8 44.8
Other.............................................. (.9) .9 1.0
-----------------
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 145.3 $ 110.6 $ 94.9
================= ================ =================
</TABLE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,459.4 $ 1,307.4 $ 1,151.1
Mortgage loans on real estate...................... 260.8 303.0 329.0
Equity real estate................................. 390.4 442.4 560.4
Other equity investments........................... 156.9 122.0 76.9
Policy loans....................................... 177.0 160.3 144.4
Other investment income............................ 181.7 217.4 273.0
----------------- ---------------- -----------------
Gross investment income.......................... 2,626.2 2,552.5 2,534.8
----------------- ---------------- -----------------
Investment expenses.............................. 343.4 348.9 446.6
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,282.8 $ 2,203.6 $ 2,088.2
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 88.1 $ 60.5 $ 119.9
Mortgage loans on real estate...................... (11.2) (27.3) (40.2)
Equity real estate................................. (391.3) (79.7) (86.6)
Other equity investments........................... 14.1 18.9 12.8
Sale of subsidiaries............................... 252.1 - -
Issuance and sales of Alliance Units............... - 20.6 -
Other.............................................. 3.0 (2.8) (.6)
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (45.2) $ (9.8) $ 5.3
================= ================ =================
</TABLE>
F-17
<PAGE>
Writedowns of fixed maturities amounted to $11.7 million, $29.9 million
and $46.7 million for 1997, 1996 and 1995, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million and $23.7 million for 1997 and 1996,
respectively. In the fourth quarter of 1997, the Company reclassified
$1,095.4 million depreciated cost of equity real estate from real estate
held for the production of income to real estate held for sale.
Additions to valuation allowances of $227.6 million were recorded upon
these transfers. Additionally in the fourth quarter, $132.3 million of
writedowns on real estate held for production of income were recorded.
For 1997, 1996 and 1995, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $9,789.7
million, $8,353.5 million and $8,206.0 million. Gross gains of $166.0
million, $154.2 million and $211.4 million and gross losses of $108.8
million, $92.7 million and $64.2 million, respectively, were realized on
these sales. The change in unrealized investment gains (losses) related
to fixed maturities classified as available for sale for 1997, 1996 and
1995 amounted to $513.4 million, $(258.0) million and $1,077.2 million,
respectively.
For 1997, 1996 and 1995, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $137.5 million, $136.7
million and $131.2 million, respectively.
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note maturing in eight years and bearing interest at the rate of
7.4%, subject to certain adjustments. Equitable Life recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE will continue to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively, the businesses sold reported combined revenues of $91.6
million, $226.1 million and $245.6 million and combined net earnings of
$10.7 million, $30.7 million and $27.9 million. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 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 to 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. The Company recognized an investment gain
of $20.6 million as a result of the issuance of Alliance Units in this
transaction. On June 30, 1997, Alliance reduced the recorded value of
goodwill and contracts associated with Alliance's acquisition of
Cursitor by $120.9 million. This charge reflected Alliance's view that
Cursitor's continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1997, the Company's ownership of Alliance Units was approximately 56.9%.
F-18
<PAGE>
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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 189.9 $ 396.5 $ (220.5)
Changes in unrealized investment gains (losses).... 543.3 (297.6) 1,198.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 53.2 - (78.1)
DAC............................................ (89.0) 42.3 (216.8)
Deferred Federal income taxes.................. (163.8) 48.7 (287.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 533.6 $ 189.9 $ 396.5
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 871.2 $ 357.8 $ 615.9
Other equity investments....................... 33.7 31.6 31.1
Other, principally Closed Block................ 80.9 53.1 93.1
----------------- ---------------- -----------------
Total........................................ 985.8 442.5 740.1
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (19.0) (72.2) (72.2)
DAC.......................................... (141.0) (52.0) (94.3)
Deferred Federal income taxes................ (292.2) (128.4) (177.1)
----------------- ---------------- -----------------
Total.............................................. $ 533.6 $ 189.9 $ 396.5
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,059.4 and $3,820.7)........................................... $ 4,231.0 $ 3,889.5
Mortgage loans on real estate........................................ 1,341.6 1,380.7
Policy loans......................................................... 1,700.2 1,765.9
Cash and other invested assets....................................... 282.7 336.1
DAC.................................................................. 775.2 876.5
Other assets......................................................... 235.9 246.3
----------------- -----------------
Total Assets......................................................... $ 8,566.6 $ 8,495.0
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 8,993.2 $ 8,999.7
Other liabilities.................................................... 80.5 91.6
----------------- -----------------
Total Liabilities.................................................... $ 9,073.7 $ 9,091.3
================= =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 687.1 $ 724.8 $ 753.4
Investment income (net of investment
expenses of $27.0, $27.3 and $26.7).............. 574.9 546.6 538.9
Investment losses, net............................. (42.4) (5.5) (20.2)
----------------- ---------------- -----------------
Total revenues............................... 1,219.6 1,265.9 1,272.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,066.7 1,106.3 1,077.6
Other operating costs and expenses................. 50.4 34.6 51.3
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,117.1 1,140.9 1,128.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 102.5 $ 125.0 $ 143.2
================= ================ =================
</TABLE>
At December 31, 1997 and 1996, problem mortgage loans on real estate had
an amortized cost of $8.1 million and $4.3 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $70.5 million and $114.2 million,
respectively. At December 31, 1996, the restructured mortgage loans on
real estate amount included $.7 million 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 109.1 $ 128.1
Impaired mortgage loans without provision for losses................... .6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 109.7 128.7
Provision for losses................................................... (17.4) (12.9)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 92.3 $ 115.8
================ =================
</TABLE>
During 1997, 1996 and 1995, the Closed Block's average recorded
investment in impaired mortgage loans was $110.2 million, $153.8 million
and $146.9 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $9.4 million, $10.9 million and $5.9
million ($4.1 million, $4.7 million and $1.3 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $18.5 million and $13.8 million on
mortgage loans on real estate and $16.8 million and $3.7 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million, $12.8 million and $16.8 million for 1997, 1996 and 1995,
respectively and writedowns of equity real estate subsequent to the
adoption of SFAS No. 121 amounted to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in the fourth
quarter, $28.8 million of writedowns on real estate held for production
of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-20
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 655.5 $ 1,111.1
Equity real estate................................................... 655.6 925.6
Other equity investments............................................. 209.3 300.5
Short-term investments............................................... 102.0 63.2
Other invested assets................................................ 41.9 50.9
----------------- -----------------
Total investments.................................................. 1,664.3 2,451.3
Cash and cash equivalents............................................ 106.8 42.6
Other assets......................................................... 253.9 242.9
----------------- -----------------
Total Assets......................................................... $ 2,025.0 $ 2,736.8
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,048.3 $ 1,335.9
Allowance for future losses.......................................... 259.2 262.0
Amounts due to continuing operations................................. 572.8 996.2
Other liabilities.................................................... 144.7 142.7
----------------- -----------------
Total Liabilities.................................................... $ 2,025.0 $ 2,736.8
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $97.3, $127.5 and $153.1)............ $ 188.6 $ 245.4 $ 323.6
Investment losses, net............................. (173.7) (18.9) (22.9)
Policy fees, premiums and other income............. .2 .2 .7
----------------- ---------------- -----------------
Total revenues..................................... 15.1 226.7 301.4
Benefits and other deductions...................... 169.5 250.4 326.5
Losses charged to allowance for future losses...... (154.4) (23.7) (25.1)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (134.1) (129.0) -
Federal income tax benefit......................... 46.9 45.2 -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (87.2) $ (83.8) $ -
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses, and
adjusts the allowance, if appropriate. Additionally, as part of the
Company's annual planning process which takes place in the fourth
quarter of each year, investment and benefit cash flow projections are
prepared. These updated assumptions and estimates resulted in the need
to strengthen the allowance in 1997 and 1996, respectively.
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in the fourth quarter, $92.5 million of writedown on real
estate held for production of income were recognized.
Benefits and other deductions includes $53.3 million, $114.3 million and
$154.6 million of interest expense related to amounts borrowed from
continuing operations in 1997, 1996 and 1995, respectively.
F-21
<PAGE>
Valuation allowances amounted to $28.4 million and $9.0 million on
mortgage loans on real estate and $88.4 million and $20.4 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1997 and 1996, problem mortgage loans on real estate had
amortized costs of $11.0 million and $7.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $109.4 million and $208.1 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 101.8 $ 83.5
Impaired mortgage loans without provision for losses................... .2 15.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 102.0 98.5
Provision for losses................................................... (27.3) (8.8)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 74.7 $ 89.7
================ =================
</TABLE>
During 1997, 1996 and 1995, the discontinued operations' average
recorded investment in impaired mortgage loans was $89.2 million, $134.8
million and $177.4 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $6.6 million, $10.1 million and
$4.5 million ($5.3 million, $7.5 million and $.4 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, discontinued operations had carrying
values of $156.2 million and $263.0 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,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 422.2 $ 174.1
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.6
Other.............................................................. .3 .5
----------------- -----------------
Total Equitable Life........................................... 599.4 599.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.87% - 12.00% due through 2006.................... 951.1 968.6
----------------- -----------------
Alliance:
Other.............................................................. 18.5 24.7
----------------- -----------------
Total long-term debt................................................. 1,569.0 1,592.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,991.2 $ 1,766.9
================= =================
</TABLE>
F-22
<PAGE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in June 2000.
The interest rates are based on external indices dependent on the type
of borrowing and at December 31, 1997 range from 5.88% to 8.50%. There
were no borrowings outstanding under this bank credit facility at
December 31, 1997.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1997, $50.0 million was outstanding under this program.
During 1996, Alliance entered into a $250.0 million five-year revolving
credit facility with a group of banks. Under the facility, the interest
rate, at the option of Alliance, is a floating rate generally based upon
a defined prime rate, a rate related to the London Interbank Offered
Rate ("LIBOR") or the Federal funds rate. A facility fee is payable on
the total facility. The revolving credit facility will be used to
provide back-up liquidity for Alliance's $250.0 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. At December 31, 1997,
Alliance had $72.0 million in commercial paper outstanding and there
were no borrowings under the revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
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. 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 $1,164.0 million and $1,406.4 million at December 31, 1997
and 1996, respectively, as collateral for certain long-term debt.
At December 31, 1997, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1998 and the succeeding
four years are $565.8 million, $201.4 million, $8.6 million, $1.7
million and $1.8 million, respectively, and $790.6 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 186.5 $ 97.9 $ (11.7)
Deferred......................................... (95.0) (88.2) 132.2
----------------- ---------------- -----------------
Total.............................................. $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
F-23
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 234.7 $ 73.0 $ 173.7
Non-taxable minority interest...................... (38.0) (28.6) (22.0)
Adjustment of tax audit reserves................... (81.7) 6.9 4.1
Equity in unconsolidated subsidiaries.............. (45.1) (32.3) (19.4)
Other.............................................. 21.6 (9.3) (15.9)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 257.9 $ - $ 259.2 $ -
Other.................................. 30.7 - - 1.8
DAC, reserves and reinsurance.......... - 222.8 - 166.0
Investments............................ - 405.7 - 328.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 288.6 $ 628.5 $ 259.2 $ 496.4
=============== ================ =============== ===============
</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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 46.2 $ (156.2) $ 63.3
Investments........................................ (113.8) 78.6 13.0
Compensation and related benefits.................. 3.7 22.3 30.8
Other.............................................. (31.1) (32.9) 25.1
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................................ $ (95.0) $ (88.2) $ 132.2
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the 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.
F-24
<PAGE>
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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 448.6 $ 461.4 $ 474.2
Reinsurance assumed................................ 198.3 177.5 171.3
Reinsurance ceded.................................. (45.4) (41.3) (38.7)
----------------- ---------------- -----------------
Premiums........................................... $ 601.5 $ 597.6 $ 606.8
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 61.0 $ 48.2 $ 44.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 70.6 $ 54.1 $ 48.9
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 36.4 $ 32.3 $ 28.5
================= ================ =================
</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 $1.6 million,
$2.4 million and $260.6 million for 1997, 1996 and 1995, respectively.
Ceded death and disability benefits totaled $4.3 million, $21.2 million
and $188.1 million for 1997, 1996 and 1995, respectively. Insurance
liabilities ceded totaled $593.8 million and $652.4 million at December
31, 1997 and 1996, 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 benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 32.5 $ 33.8 $ 30.0
Interest cost on projected benefit obligations..... 128.2 120.8 122.0
Actual return on assets............................ (307.6) (181.4) (309.2)
Net amortization and deferrals..................... 166.6 43.4 155.6
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 19.7 $ 16.6 $ (1.6)
================= ================ =================
</TABLE>
F-25
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,702.6 $ 1,672.2
Non-vested........................................................... 3.9 10.1
---------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,706.5 $ 1,682.3
================ =================
Plan assets at fair value.............................................. $ 1,867.4 $ 1,626.0
Projected benefit obligations.......................................... 1,801.3 1,765.5
---------------- -----------------
Projected benefit obligations (in excess of) or less than plan assets.. 66.1 (139.5)
Unrecognized prior service cost........................................ (9.9) (17.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 95.0 280.0
Unrecognized net asset at transition................................... 3.1 4.7
Additional minimum liability........................................... - (19.3)
---------------- -----------------
Prepaid Pension Cost.................................................. $ 154.3 $ 108.0
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.07%, respectively, at December 31, 1997 and
7.5% and 4.25%, respectively, at December 31, 1996. As of January 1,
1997 and 1996, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
The Company recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $17.3 million and $12.9 million,
net of Federal income taxes, at December 31, 1997 and 1996,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $33.2 million,
$34.7 million and $36.4 million for 1997, 1996 and 1995, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1997, 1996 and 1995, the Company made
estimated postretirement benefits payments of $18.7 million, $18.9
million and $31.1 million, respectively.
F-26
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.5 $ 5.3 $ 4.0
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 34.6 34.7
Net amortization and deferrals..................... 1.9 2.4 (2.3)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 41.1 $ 42.3 $ 36.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 388.5 $ 381.8
Fully eligible active plan participants.............................. 45.7 50.7
Other active plan participants....................................... 56.6 60.7
---------------- -----------------
490.8 493.2
Unrecognized prior service cost........................................ 40.3 50.5
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (140.6) (150.5)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 390.5 $ 393.2
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and costs to the Company of providing these
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 8.75% in 1997,
gradually declining to 2.75% in the year 2009 and in 1996 was 9.5%,
gradually declining to 3.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.50% at December 31, 1997 and 1996, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1997
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, 1997 and 1996, respectively, was $1,353.4 million and
$649.9 million. The average unexpired terms at December 31, 1997 ranged
from 1.5 to 3.8 years. At December 31, 1997, the cost of terminating
outstanding matched swaps in a loss position was $10.9 million and the
unrealized gain on outstanding matched swaps in a gain position was
$38.9 million. The Company has no intention of terminating these
contracts prior to maturity. During 1996 and 1995, net gains of $.2
million and $1.4 million, respectively, were recorded in connection with
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
F-27
<PAGE>
December 31, 1997 of contracts purchased and sold were $7,250.0 million
and $875.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $48.5 million and is being amortized ratably over
the contract periods ranging from 1 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1997 and 1996.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
F-28
<PAGE>
Fair values 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,611.4 $ 2,822.8 $ 3,133.0 $ 3,394.6
Other limited partnership interests.... 509.4 509.4 467.0 467.0
Policy loans........................... 2,422.9 2,493.9 2,196.1 2,221.6
Policyholders' account balances -
investment contracts................. 12,611.0 12,714.0 12,908.7 12,992.2
Long-term debt......................... 1,569.0 1,531.5 1,592.8 1,557.7
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,341.6 1,420.7 1,380.7 1,425.6
Other equity investments............... 86.3 86.3 105.0 105.0
Policy loans........................... 1,700.2 1,784.2 1,765.9 1,798.0
SCNILC liability....................... 27.6 30.3 30.6 34.9
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 655.5 779.9 1,111.1 1,220.3
Fixed maturities....................... 38.7 38.7 42.5 42.5
Other equity investments............... 209.3 209.3 300.5 300.5
Guaranteed interest contracts.......... 37.0 34.0 290.7 300.5
Long-term debt......................... 102.0 102.1 102.1 102.2
</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 $202.6 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $362.1 million at December 31, 1997, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $47.4 million of letters of credit outstanding
at December 31, 1997.
F-29
<PAGE>
14) LITIGATION
Equitable Life recently agreed to settle, subject to court approval,
previously disclosed cases brought by persons insured under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life (the "Policies") in New York (Golomb et al. v. The
Equitable Life Assurance Society of the United States), Pennsylvania
(Malvin et al. v. The Equitable Life Assurance Society of the United
States), Texas (Bowler et al. v. The Equitable Life Assurance Society of
the United States), Florida (Bachman v. The Equitable Life Assurance
Society of the United States) and California (Fletcher v. The Equitable
Life Assurance Society of the United States). Plaintiffs in these cases
claimed that Equitable Life's method for determining premium increases
breached the terms of certain forms of the Policies and was
misrepresented. Plaintiffs in Bowler and Fletcher also claimed that
Equitable Life misrepresented to policyholders in Texas and California,
respectively, that premium increases had been approved by insurance
departments in those states and determined annual rate increases in a
manner that discriminated against policyholders in those states in
violation of the terms of the Policies, representations to policyholders
and/or state law. The New York trial court dismissed the Golomb action
with prejudice and plaintiffs appealed. In Bowler and Fletcher,
Equitable Life denied the material allegations of the complaints and
filed motions for summary judgment which have been fully briefed. The
Malvin action was stayed indefinitely pending the outcome of proceedings
in Golomb and in Fletcher the magistrate concluded that the case should
be remanded to California state court and Equitable Life appealed that
determination to the district judge. On December 23, 1997, Equitable
Life entered into a settlement agreement, subject to court approval,
which would result in the dismissal with prejudice of each of the five
pending actions and the resolution of all similar claims on a nationwide
basis.
The settlement agreement provides for the creation of a nationwide class
consisting of all persons holding, and paying premiums on, the Policies
at any time since January 1, 1988. An amended complaint will be filed in
the federal district court in Tampa, Florida (where the Florida action
is pending), that would assert claims of the kind previously made in the
cases described above on a nationwide basis, on behalf of policyholders
in the nationwide class, which consists of approximately 127,000 former
and current policyholders. If the settlement is approved, Equitable Life
would pay $14,166,000 in exchange for release of all claims for past
damages on claims of the type described in the five pending actions and
the amended complaint. Costs of administering the settlement and any
attorneys' fees awarded by the court to plaintiffs' counsel would be
deducted from this fund before distribution of the balance to the class.
In addition to this payment, Equitable Life will provide future relief
to current holders of certain forms of the Policies in the form of an
agreement to be embodied in the court's judgment, restricting the
premium increases Equitable Life can seek on these Policies in the
future. The parties estimate the present value of these restrictions at
$23,333,000, before deduction of any attorneys' fees that may be awarded
by the court. The estimate is based on assumptions about future events
that cannot be predicted with certainty and accordingly the actual value
of the future relief may differ. The parties to the settlement shortly
will be asking the court to approve preliminarily the settlement and
settlement class and to permit distribution of notice of the settlement
to policyholders, establish procedures for objections, an opportunity to
opt out of the settlements as it affects past damages, and a court
hearing on whether the settlement should be finally approved. Equitable
Life cannot predict whether the settlement will be approved or, if it is
not approved, the outcome of the pending litigations. As noted,
proceedings in Malvin were stayed indefinitely; proceedings in the other
actions have been stayed or deferred to accommodate the settlement
approval process.
A number of lawsuits have 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,
alleged 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, Equitable
Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues
for certain limited purposes, including the defense of litigation) and
The Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. Among
litigations pending against Equitable Life, EVLICO and EOC of the type
referred to in this paragraph are the litigations described in the
following seven paragraphs.
F-30
<PAGE>
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. 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 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. In June 1996, the Court
issued a decision and order dismissing with prejudice plaintiffs' causes
of action for fraud, constructive fraud, breach of fiduciary duty,
negligence, and unjust enrichment, and dismissing without prejudice
plaintiffs' 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. In April 1997, plaintiffs noticed an
appeal from the court's June 1996 order. Subsequently, Equitable Life
and EOC noticed a cross-appeal from so much of the June 1996 order that
denied their motion to dismiss. Briefing on the appeals is scheduled to
begin on February 23, 1998. In June 1997, plaintiffs filed their
memorandum of law and affidavits in support of their motion for class
certification. That memorandum states that plaintiffs seek to certify a
class solely on their breach of contract claims, and not on their
negligent misrepresentation claim. Plaintiffs' class certification
motion has been fully briefed by the parties and is sub judice. In
August 1997, Equitable Life and EOC moved for summary judgment
dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation. Defendants' summary judgment motion has
been fully briefed by the parties. On January 5, 1998, plaintiffs filed
a note of issue (placing the case on the trial calendar).
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 originally was brought by an
individual who purchased a whole life policy from Equitable Life in
1989. In September 1997, with leave of the court, plaintiff filed a
second amended petition naming six additional policyholder plaintiffs
and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the
second amended petition. Plaintiffs purport to represent a class
consisting of all persons who purchased whole life or universal life
insurance policies from Equitable Life from January 1, 1981 through July
22, 1992. Plaintiffs allege improper sales practices based on
allegations of misrepresentations concerning one or more of the
following: the number of years that premiums would need to be paid; a
policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages,
including punitive damages, in an unspecified amount. In October 1997,
Equitable Life filed (i) exceptions to the second amended petition,
asserting deficiencies in pleading of venue and vagueness; and (ii) a
motion to strike certain allegations. On January 23, 1998, the court
heard argument on Equitable Life's exceptions and motion to strike.
Those motions are sub judice. Motion practice regarding discovery
continues.
On July 26, 1996, an action entitled Michael Bradley v. Equitable
Variable Life Insurance Company was commenced in New York state court,
Kings County. 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. EVLICO answered the complaint,
denying the material allegations. In September 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 in Cole in
January 1997. Plaintiff then moved for certification of a nationwide
class consisting of all persons or entities who, since January 1, 1980,
were sold one or more life insurance products based on
misrepresentations as to the number of years that the annual premium
would need to be paid, and/or who were allegedly induced to purchase
additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. Discovery and
briefing regarding plaintiff's motion for class certification are
ongoing.
F-31
<PAGE>
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 in 1988. The complaint puts
in 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 alleges 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. In May
1997, plaintiff served a motion for class certification. In July 1997,
the parties submitted to the Court a joint scheduling report, joint
scheduling order and a confidentiality stipulation and order. The Court
signed the latter stipulation, and the others remain sub judice. Further
briefing on plaintiff's class certification motion will await entry of a
scheduling order and further class certification discovery, which has
commenced and is on-going. In January 1998, the judge assigned to the
case recused himself, and the case was reassigned. Defendants are to
serve their answer in February 1998.
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 amended complaint alleges that Equitable Life's and EVLICO's
agents were trained not to 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. Equitable Life and EVLICO have
answered the amended complaint, denying the material allegations and
asserting certain affirmative defenses. Motion practice regarding
discovery continues.
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. Plaintiff
filed an amended complaint in April 1997. In July 1997, Equitable Life
served a motion to dismiss the amended complaint or, in the alternative,
for summary judgment. On September 12, 1997, plaintiff moved for class
certification. This motion is scheduled for hearing on February 18,
1998.
On September 11, 1997, an action entitled Pamela L. and James A. Luther,
individually and as representatives of all people similarly situated v.
The Equitable Life Assurance Society of the United States, The Equitable
Companies Incorporated, and Casey Cammack, individually and as agent for
The Equitable Life Assurance Society of the United States and The
Equitable Companies Incorporated, was filed in Texas state court. The
action was brought by holders of a whole life policy and the beneficiary
under that policy. Plaintiffs purport to represent a nationwide class of
persons having an ownership or beneficial interest in whole and
universal life policies issued by Equitable Life from January 1, 1982
through December 31, 1996. Also included in the purported class are
persons having an ownership interest in variable annuities purchased
from Equitable Life from January 1, 1992 to the present. The complaint
puts in issue the allegations that uniform sales presentations,
illustrations, and materials that Equitable Life agents used
misrepresented the stated number of years that premiums would need to be
paid and misrepresented the extent to which the policies at issue were
F-32
<PAGE>
proper replacement policies. Plaintiffs seek compensatory damages,
attorneys' fees and expenses. In October 1997, Equitable Life served a
general denial of the allegations against it. The same day, the Holding
Company entered a special appearance contesting the court's jurisdiction
over it. In November 1997, Equitable Life filed a plea in abatement,
which, under Texas law, stayed further proceedings in the case because
plaintiffs had not served a demand letter. Plaintiffs served a demand
letter upon Equitable Life and the Holding Company, the response to
which is due 60 days thereafter. 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, Dillon, Franze, Chaviano and
Luther litigations should not have a material adverse effect on the
financial position of the Company. The Company's management cannot make
an estimate of loss, if any, or predict whether or not any such
litigation will have a material adverse effect on the Company's results
of operations in any particular period.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of The Equitable from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States, alleges, among other things, that Equitable Life
discriminated on the basis of race against African-American applicants
and potential applicants in hiring individuals as sales agents.
Plaintiffs seek a declaratory judgment and affirmative and negative
injunctive relief, including the payment of back-pay, pension and other
compensation. Although the outcome of any litigation cannot be predicted
with certainty, the Company's management believes that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position of the Company. The Company's management cannot
make an estimate of loss, if any, or predict whether or not such matter
will have a material adverse effect on the Company's results of
operations in any particular period.
The U.S. Department of Labor ("DOL") is conducting an investigation of
Equitable Life's management of 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 retains EREIM as advisor. Equitable Life agreed to indemnify the
purchaser of EREIM (which Equitable Life sold in June 1997) with respect
to any fines, penalties and rebates to clients in connection with this
investigation. In early 1995, the DOL commenced a national investigation
of commingled real estate funds with pension investors, including PPF.
The investigation 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, the Company's management believes
that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of the Company. The Company's
management cannot make an estimate of loss, if any, or predict whether
or not this investigation will have a material adverse effect on the
Company's results of operations in any particular period.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which sought 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, sought an
unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that 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 alleged 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
F-33
<PAGE>
New York granted the defendants' motion to dismiss all counts of the
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996,
the court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for
the Second Circuit issued an order granting defendants' motion to strike
and dismissing plaintiffs' appeal of the First Decision. 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 (i)
the Fund failed to hedge against the risks of investing in foreign
securities despite representations that it would do so, (ii) the Fund
did not properly disclose that it planned to invest in mortgage-backed
derivative securities and (iii) two advertisements used by the Fund
misrepresented the risks of investing in the Fund. On July 15, 1997, the
District Court denied plaintiffs' motion for leave to file an amended
complaint and ordered that the case be dismissed ("Second Decision").
The plaintiffs have appealed the Second Decision to the United States
Court of Appeals for the Second Circuit. 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 U. S. 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 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 that 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 U.S. 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. On October 10, 1997, DLJSC and
F-34
<PAGE>
others were named as defendants in a new adversary proceeding in the
Bankruptcy Court brought by the NGC Settlement Trust, an entity created
by the NGC plan of reorganization to deal with asbestos-related claims.
The Trust's allegations are substantially similar to the claims in the
State Court action. In court papers dated October 16, 1997, the State
Court plaintiff indicated that he would intervene in the Trust's
adversary proceeding. On January 21, 1998, the Bankruptcy Court ruled
that the State Court plaintiff's claims were not barred by the NGC plan
of reorganization insofar as they alleged nondisclosure of certain cost
reductions announced by NGC in October 1993. The Texas State Court
action, which 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 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 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. On
February 26, 1997, the parties agreed to a settlement of these actions,
subject to the District Court's approval, which was granted on July 31,
1997. The settlement is also subject to approval by the U.S. Bankruptcy
Court for the Eastern District of Louisiana of proposed modifications to
a confirmed plan of reorganization for Harrah's Jazz Company and
Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan.
There can be no assurance of the Bankruptcy Court's approval of the
modifications to the plan of reorganization, or that the conditions to
the effectiveness of the plan will be satisfied or waived. In the
opinion of DLJ's management, the settlement, if approved, will not have
a material adverse effect on DLJ's results of operations or on its
consolidated financial condition.
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 1998 and the succeeding four years are $93.5 million, $84.4
million, $70.2 million, $56.4 million, $47.0 million and $489.3 million
thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1998 and the succeeding four years are $7.3
million, $5.9 million, $3.8 million, $2.4 million, $.8 million and $2.9
million thereafter.
At December 31, 1997, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $247.0 million, $238.1 million, $218.7
million, $197.9 million, $169.1 million and $813.0 million thereafter.
F-35
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 721.5 $ 704.8 $ 628.4
Commissions........................................ 409.6 329.5 314.3
Short-term debt interest expense................... 31.7 8.0 11.4
Long-term debt interest expense.................... 121.2 137.3 108.1
Amortization of policy acquisition costs........... 287.3 405.2 317.8
Capitalization of policy acquisition costs......... (508.0) (391.9) (391.0)
Rent expense, net of sub-lease income.............. 101.8 113.7 109.3
Cursitor intangible assets writedown............... 120.9 - -
Other.............................................. 917.9 769.1 677.5
----------------- ---------------- -----------------
Total.............................................. $ 2,203.9 $ 2,075.7 $ 1,775.8
================= ================ =================
</TABLE>
During 1997, 1996 and 1995, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $42.4 million, $24.4 million and $32.0 million,
respectively. The amounts paid during 1997, associated with cost
reduction programs, totaled $22.8 million. At December 31, 1997, the
liabilities associated with cost reduction programs amounted to $62.0
million. The 1997 cost reduction program include costs related to
employee termination and exit costs. The 1996 cost reduction program
included restructuring costs related to the consolidation of insurance
operations' service centers. The 1995 cost reduction program included
relocation expenses, including the accelerated amortization of building
improvements associated with the relocation of the home office.
Amortization of DAC in 1996 included a $145.0 million writeoff of DAC
related to DI contracts.
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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1997, 1996 and 1995, statutory net
loss totaled $351.7 million, $351.1 million and $352.4 million,
respectively. No amounts are expected to be available for dividends from
Equitable Life to the Holding Company in 1998.
At December 31, 1997, the Insurance Group, in accordance with various
government and state regulations, had $19.7 million of securities
deposited with such government or state agencies.
F-36
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 203.6 $ 56.0 $ 78.1
Change in asset valuation reserves................. 147.1 (48.4) 365.7
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 350.7 7.6 443.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (31.1) (298.5) (66.0)
DAC.............................................. 220.7 (13.3) 73.2
Deferred Federal income taxes.................... 103.1 108.0 (158.1)
Valuation of investments......................... 46.8 289.8 189.1
Valuation of investment subsidiary............... (555.8) (117.7) (188.6)
Limited risk reinsurance......................... 82.3 92.5 416.9
Issuance of surplus notes........................ - - (538.9)
Postretirement benefits.......................... (3.1) 28.9 (26.7)
Other, net....................................... 30.3 12.4 115.1
GAAP adjustments of Closed Block................. 3.6 (9.8) 15.7
GAAP adjustments of discontinued operations...... 189.7 (89.6) 37.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 437.2 $ 10.3 $ 312.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,462.5 $ 2,258.9 $ 2,202.9
Asset valuation reserves........................... 1,444.6 1,297.5 1,345.9
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,907.1 3,556.4 3,548.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,336.1) (1,305.0) (1,006.5)
DAC.............................................. 3,236.6 3,104.9 3,075.8
Deferred Federal income taxes.................... (370.8) (306.1) (452.0)
Valuation of investments......................... 783.5 286.8 417.7
Valuation of investment subsidiary............... (1,338.6) (782.8) (665.1)
Limited risk reinsurance......................... (254.2) (336.5) (429.0)
Issuance of surplus notes........................ (539.0) (539.0) (538.9)
Postretirement benefits.......................... (317.5) (314.4) (343.3)
Other, net....................................... 203.7 126.3 4.4
GAAP adjustments of Closed Block................. 814.3 783.7 830.8
GAAP adjustments of discontinued operations...... 71.5 (190.3) (184.6)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================ =================
</TABLE>
F-37
<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.
Insurance Operations 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.
Investment Services 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 $81.9
million, $127.5 million and $124.1 million for 1997, 1996 and 1995,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the GIC Segment of
$5.1 million, $15.7 million and $14.7 million for 1997, 1996 and 1995,
respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,684.2 $ 3,770.6 $ 3,614.6
Investment services................................ 1,455.1 1,126.1 949.1
Consolidation/elimination.......................... (19.9) (24.5) (34.9)
----------------- ---------------- -----------------
Total.............................................. $ 5,119.4 $ 4,872.2 $ 4,528.8
================= ================ =================
Earnings (loss) from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change
Insurance operations............................... $ 250.3 $ (36.6) $ 303.1
Investment services................................ 485.7 311.9 224.0
Consolidation/elimination.......................... - .2 (3.1)
----------------- ---------------- -----------------
Subtotal..................................... 736.0 275.5 524.0
Corporate interest expense......................... (65.3) (66.9) (27.9)
----------------- ---------------- -----------------
Total.............................................. $ 670.7 $ 208.6 $ 496.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................................................... $ 68,305.9 $ 60,464.9
Investment services.................................................... 13,719.8 13,542.5
Consolidation/elimination.............................................. (403.6) (399.6)
---------------- -----------------
Total.................................................................. $ 81,622.1 $ 73,607.8
================ =================
</TABLE>
F-38
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1997 and 1996, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
1996
Total Revenues................ $ 1,176.5 $ 1,199.4 $ 1,198.4 $ 1,297.9
================= ================= ================== ==================
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)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million. 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 and
reserve strengthenings on DI business of $113.7 million, Pension Par of
$47.5 million and Discontinued Operations of $83.8 million.
20) INVESTMENT IN DLJ
At December 31, 1997, the Company's ownership of DLJ interest was
approximately 34.4%. 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-39
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 16,535.7 $ 15,728.1
Securities purchased under resale agreements........................... 22,628.8 20,598.7
Broker-dealer related receivables...................................... 28,159.3 16,858.8
Other assets........................................................... 3,182.0 2,318.1
---------------- -----------------
Total Assets........................................................... $ 70,505.8 $ 55,503.7
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 36,006.7 $ 29,378.3
Broker-dealer related payables......................................... 25,706.1 19,409.7
Short-term and long-term debt.......................................... 3,670.6 2,704.5
Other liabilities...................................................... 2,860.9 2,164.0
---------------- -----------------
Total liabilities...................................................... 68,244.3 53,656.5
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,061.5 1,647.2
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 70,505.8 $ 55,503.7
================ =================
DLJ's equity as reported............................................... $ 2,061.5 $ 1,647.2
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.5 23.9
The Holding Company's equity ownership in DLJ.......................... (740.2) (590.2)
Minority interest in DLJ............................................... (729.3) (588.6)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 615.5 $ 492.3
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 2,356.8 $ 1,818.2
Net investment income.................................................. 1,652.1 1,074.2
Dealer, trading and investment gains, net.............................. 631.6 598.4
---------------- -----------------
Total revenues......................................................... 4,640.5 3,490.8
Total expenses including income taxes.................................. 4,232.3 3,199.5
---------------- -----------------
Net earnings........................................................... 408.2 291.3
Dividends on preferred stock........................................... 12.1 18.7
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 396.1 $ 272.6
================ =================
DLJ's earnings applicable to common shares as reported................. $ 396.1 $ 272.6
Amortization of cost in excess of net assets acquired in 1985.......... (1.3) (3.1)
The Holding Company's equity in DLJ's earnings......................... (156.8) (107.8)
Minority interest in DLJ............................................... (109.1) (73.4)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 128.9 $ 88.3
================ =================
</TABLE>
F-40
<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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1997, 1996 and 1995 would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As Reported............................................. $ 437.2 $ 10.3 $ 312.8
Pro Forma............................................... $ 426.3 $ 3.3 $ 311.3
</TABLE>
The fair value of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, was estimated as of the date
of grants using the Black-Scholes option pricing model. The option
pricing assumptions for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------------------- --------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield.... 0.48% 0.80% 0.96% 0.86% 1.54% 1.85% 8.00% 8.00% 8.00%
Expected volatility 20.00% 20.00% 20.00% 33.00% 25.00% 25.00% 26.00% 23.00% 23.00%
Risk-free interest
rate............ 5.99% 5.92% 6.83% 5.96% 6.07% 5.86% 5.70% 5.80% 6.00%
Expected life..... 5 years 5 years 5 years 5 years 5 years 5 years 7.6 years 7.43 years 7.43 years
Weighted average
grant-date fair
value per option $12.25 $6.94 $5.90 $22.45 $9.35 $7.36 $4.36 $2.69 $2.24
</TABLE>
F-41
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is 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, 1995........ 6.8 $20.31 - 3.8 $15.46
Granted................ .4 $20.27 9.2 $27.00 1.8 $20.54
Exercised.............. (.1) $20.00 - (.5) $11.20
Expired................ (.1) $20.00 - -
Forfeited.............. (.3) $22.24 - (.3) $16.64
--------------- ------------- ---------------
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................ - - -
Forfeited.............. (.6) $20.21 (.2) $27.00 (.1) $19.32
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
Granted................ 3.2 $41.85 3.2 $61.07 1.1 $36.56
Exercised.............. (1.6) $20.26 (.1) $32.03 (.6) $16.11
Forfeited.............. (.4) $23.43 (.1) $27.51 (.2) $21.28
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 14.1 $35.56 5.3 $22.82
=============== ============= ===============
</TABLE>
F-42
<PAGE>
Information about options outstanding and exercisable at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- ----------------- --------------- ------------------- ----------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 4.8 5.84 $20.94 3.0 $20.41
$28.50 -$45.25 3.1 9.57 $41.84 - -
----------------- -------------------
$18.125 -$45.25 7.9 7.29 $29.05 3.0 $20.41
================= ================= =============== =================== ================
DLJ
----------------------
$27.00 -$35.99 10.9 8.0 $28.05 4.9 $27.58
$36.00 -$50.99 .8 9.3 $40.04 - -
$51.00 -$76.00 2.4 9.8 $67.77 - -
----------------- -------------------
$27.00 -$76.00 14.1 8.4 $35.56 4.9 $27.58
================= ================= ================ =================== =================
Alliance
----------------------
$ 6.0625 -$17.75 1.1 3.86 $13.20 1.0 $13.04
$19.375 -$19.75 .8 7.34 $19.39 .3 $19.39
$19.875 -$21.375 1.1 8.28 $20.13 .6 $20.19
$22.25 -$27.50 1.3 9.81 $23.81 .4 $23.29
$36.9375 -$37.5625 1.0 9.95 $36.95 - -
----------------- -------------------
$ 6.0625 -$37.5625 5.3 7.58 $22.82 2.3 $17.43
================= ================== ============== ====================== =============
</TABLE>
F-43
<PAGE>
INCOME MANAGER(R) ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
---------------
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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
MFS Research Equity Warburg Pincus Small Company
Merrill Lynch Basic Value Equity T. Rowe Price International Stock Value
T. Rowe Price Equity Income
- -------------------------------------------------------------------------------------------------------------------------------
</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
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
- -------------------------------------------------------------------------------------------------------------------------------
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 December 31, 1997 and the prospectus supplement dated May 1, 1998.
Definitions of special terms used in the SAI are found in the prospectus.
Copies of the prospectus and supplement are available free of charge by writing
the Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your agent.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------------------------------
PAGE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Part 1 Minimum Distribution Withdrawals -- Traditional IRA Certificates 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, Alliance Intermediate Government Securities Fund and Alliance High
Yield Fund Yield Information 3
- -------------------------------------------------------------------------------------------------------------------------------
Part 6 Long-Term Market Trends 4
- -------------------------------------------------------------------------------------------------------------------------------
Part 7 Financial Statements 6
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Copyright 1998 The Equitable Life Assurance Society of the United
States, New York, New York 10104. All rights reserved. Income Manager is a
registered service mark of The Equitable Life Assurance Society of the United
States.
(IM-98-RI1297)
<PAGE>
- --------------------------------------------------------------------------------
PART 1 -- MINIMUM DISTRIBUTION WITHDRAWALS -- TRADITIONAL IRA CERTIFICATES
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 Traditional 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 HRT or
EQAT, 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 3 -- ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on each Fund's respective effective
date (as shown in the prospectus) 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
2
<PAGE>
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 HRT and EQAT owned by the Separate
Account.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 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, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND AND ALLIANCE HIGH YIELD 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) [superscript: 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 and Alliance High Yield Fund
The Alliance Intermediate Government Securities and Alliance High Yield Funds
calculate 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
3
<PAGE>
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 or Alliance High Yield 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 or
Alliance High Yield 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)
[superscript: 365/30] - 1. Alliance Intermediate Government Securities and
Alliance High Yield Funds 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 and Alliance High Yield Funds will fluctuate and not
remain constant.
Alliance Money Market Fund, Alliance Intermediate Government Securities Fund and
Alliance High Yield Fund Yield Information
The yields for the Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund and Alliance High Yield Fund 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. The yields for the Alliance
Money Market Fund, Alliance Intermediate Government Securities and Alliance High
Yield Fund 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 yields be compared to the yields 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 5.07% for the
period ended December 31, 1997. The effective yield for that period was 5.23%.
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 8.19% for the period ended December 31, 1997. The effective yield for
that period was 8.51%.
The 30-day current yield for the Alliance High Yield Fund was 16.27% for the
period ended December 31, 1997. The effective yield for that period was 17.54%.
Because the above yields reflect the deduction of Separate Account expenses,
they are lower than the corresponding yield figures for the Alliance Money
Market, Alliance Intermediate Government Securities and Alliance High Yield
Portfolios which reflect only the deduction of HRT-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.
4
<PAGE>
Growth of $1 Invested on January 1, 1957
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE TYPESET DOCUMENT:]
Common Stock Inflation
1957 0.89 1.03
1958 1.28 1.05
1959 1.43 1.06
1960 1.44 1.08
1961 1.83 1.09
1962 1.67 1.10
1963 2.05 1.12
1964 2.38 1.13
1965 2.68 1.15
1966 2.41 1.19
1967 2.99 1.23
1968 3.32 1.29
1969 3.04 1.36
1970 3.16 1.44
1971 3.61 1.49
1972 4.30 1.54
1973 3.67 1.67
1974 2.70 1.88
1975 3.70 2.01
1976 4.58 2.11
1977 4.25 2.25
1978 4.53 2.45
1979 5.37 2.78
1980 7.11 3.12
1981 6.76 3.40
1982 8.20 3.54
1983 10.05 3.67
1984 10.68 3.81
1985 14.11 3.96
1986 16.72 4.00
1987 17.60 4.18
1988 20.55 4.36
1989 27.03 4.57
1990 26.17 4.85
1991 34.16 4.99
1992 36.78 5.14
1993 40.46 5.28
1994 40.99 5.42
1995 56.33 5.56
1996 69.33 5.74
1997 92.44 5.85
[WHITE AREA = COMMON STOCK]
[BLACK AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
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 1997.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK & WHITE LINE GRAPH
IN THE TYPESET DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[BLACK DOTS = INTERMEDIATE-TERM GOVT. BONDS]
[WHITE DOTS = COMMON STOCKS]
[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, 1997 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 nor 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.
5
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM TREASURY CONSUMER
ENDING 12/31/97: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 33.36% 15.85% 12.95% 8.38% 5.26% 1.92%
3 Years 31.15% 14.76% 13.36% 8.93% 5.35% 2.59%
5 Years 20.24% 10.51% 9.22% 6.40% 4.57% 2.64%
10 Years 18.05% 11.32% 10.85% 8.33% 5.44% 3.43%
20 Years 16.65% 10.39% 10.29% 9.51% 7.29% 4.90%
30 Years 12.12% 8.63% 8.86% 8.52% 6.77% 5.34%
40 Years 12.30% 6.71% 7.09% 7.10% 5.85% 4.44%
50 Years 13.12% 5.70% 6.07% 6.04% 4.99% 3.94%
60 Years 12.53% 5.31% 5.54% 5.44% 4.18% 4.11%
Since 12/31/26 10.99% 5.19% 5.71% 5.25% 3.77% 3.17%
Inflation adjusted since 1926 7.58% 1.96% 2.46% 2.02% 0.58% --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969-1997, 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 1969-1997; 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 7 -- FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the Certificates.
6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO.45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1997........................................... FS-3
Statements of Operations for the Year Ended December 31, 1997..................................... FS-6
Statements of Changes in Net Assets for the Years Ended December 31, 1997 and 1996................ FS-9
Notes to Financial Statements..................................................................... FS-14
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996.............................................. F-2
Consolidated Statements of Earnings, Years Ended December 31, 1997, 1996 and 1995.................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1997,
1996 and 1995...................................................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1997, 1996 and 1995.................. F-5
Notes to Consolidated Financial Statements........................................................... F-6
</TABLE>
FS-1
<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 Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund, T.
Rowe Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, Alliance Equity Index Fund, Merrill Lynch Basic Value
Equity Fund, Alliance Common Stock Fund, MFS Research Fund, Alliance Global
Fund, Alliance International Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock Fund,
Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth Fund, MFS
Emerging Growth Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam
Balanced Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund, separate investment funds of The Equitable Life Assurance Society of the
United States ("Equitable Life") Separate Account No. 45 at December 31, 1997
and 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 owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1997 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
----------- ------------- ---------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $82,037,124.......... $81,571,923
11,097,635.......... $11,119,574
19,330,287.......... $18,544,101
Receivable (payable) for policy-related
transactions................................... 2,903,327 50,563 662,782
----------- ----------- ------------
Total Assets...................................... 84,475,250 11,170,137 19,206,883
----------- ----------- ------------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 2,910,079 52,140 665,890
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 206,810 55,747 59,654
----------- ----------- ------------
Total Liabilities................................. 3,116,889 107,887 725,544
----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $81,358,361 $11,062,250 $18,481,339
=========== =========== ============
<CAPTION>
EQUITY SERIES
--------------------------------------------------------------------------
MERRILL
T. ROWE PRICE EQ/PUTNAM ALLIANCE LYNCH
EQUITY GROWTH & ALLIANCE EQUITY BASIC VALUE
EQUITY INCOME VALUE GROWTH & INDEX EQUITY
INCOME FUND FUND INCOME FUND FUND FUND
------------- -------------- ----------- ----------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 18,007,458.......... $18,987,864
14,008,930.......... $14,200,058
88,651,911.......... $94,268,289
99,286.......... $104,008
9,928,247.......... $9,863,914
Receivable (payable) for policy-related
transactions................................... 105,202 186,146 809,151 (8) 34,834
----------- ----------- ----------- --------- ----------
Total Assets...................................... 19,093,066 14,386,204 95,077,440 104,000 9,898,748
----------- ----------- ----------- --------- ----------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 109,104 189,102 829,693 -- 36,845
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 15,447 11,682 366,973 6,482 7,463
----------- ----------- ----------- --------- ----------
Total Liabilities................................. 124,551 200,784 1,196,666 6,482 44,308
----------- ----------- ----------- --------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $18,968,515 $14,185,420 $93,880,774 $ 97,518 $9,854,440
=========== =========== =========== ========= ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
------------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $297,090,529................... $320,541,976
11,939,823................... $11,977,333
38,334,848................... $38,090,450
18,748,095................... $16,610,244
Receivable (payable) for policy-related transactions....... 1,219,096 44,794 646,213 31,494
------------ ----------- ----------- -----------
Total Assets............................................... 321,761,072 12,022,127 38,736,663 16,641,738
------------ ----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ 1,275,113 47,322 83,460 68,383
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 1,176,309 10,019 143,534 90,013
------------ ----------- ----------- -----------
Total Liabilities.......................................... 2,451,422 57,341 226,994 158,396
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $319,309,650 $11,964,786 $38,509,669 $16,483,342
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
T. ROWE MORGAN
PRICE STANLEY ALLIANCE
INTERNATIONAL EMERGING AGGRESSIVE
STOCK MARKETS STOCK
FUND EQUITY FUND FUND
------------- ----------- ------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 13,205,929................... $12,628,951
2,479,420................... $2,241,138
122,157,062................... $118,305,660
Receivable (payable) for policy-related transactions....... (241,260) 14,961 55,012
----------- ---------- ------------
Total Assets............................................... 12,387,691 2,256,099 118,360,672
----------- ---------- ------------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ (238,550) 15,412 76,530
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 9,534 1,594 456,464
----------- ---------- ------------
Total Liabilities.......................................... (229,016) 17,006 532,994
----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $12,616,707 $2,239,093 $117,827,678
=========== ========== ============
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP GROWTH
COMPANY GROWTH COMPANIES
VALUE FUND FUND FUND
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $25,096,987.................. $24,796,551
16,633,779.................. $16,289,343
12,205,272.................. $11,946,078
Receivable (payable) for policy-related transactions...... 208,290 107,600 73,764
----------- ----------- -----------
Total Assets.............................................. 25,004,841 16,396,943 12,019,842
----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 213,483 114,679 76,254
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 19,432 54,205 9,228
----------- ----------- -----------
Total Liabilities......................................... 232,915 168,884 85,482
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $24,771,926 $16,228,059 $11,934,360
=========== =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
------------ ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 20,991,531.................. $21,474,276
5,965,298.................. $6,038,880
64,675,197.................. $66,360,908
2,544,176.................. $2,415,053
Receivable (payable) for policy-related transactions...... 146,316 76,680 120,470 9,748
----------- ---------- ----------- ----------
Total Assets.............................................. 21,620,592 6,115,560 66,481,378 2,424,801
----------- ---------- ----------- ----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 149,280 77,927 132,026 10,238
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 142,854 4,667 366,318 1,768
----------- ---------- ----------- ----------
Total Liabilities......................................... 292,134 82,594 498,344 12,006
----------- ---------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $21,328,458 $6,032,966 $65,983,034 $2,412,795
=========== ========== =========== ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND(A)
----------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 2,767,636 $ 373,989 $ 654,819
Expenses (Note 3):
Asset based charges ....................................... 445,521 70,280 53,671
----------- --------- -----------
NET INVESTMENT INCOME (LOSS) .............................. 2,322,115 303,709 601,148
----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 59,011 12,754 76,963
Realized gain distribution from the Trusts ................ 5,264 -- 706,360
----------- --------- -----------
Net Realized Gain (Loss) ............................... 64,275 12,754 783,323
----------- --------- -----------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... (197,899) (36,715) --
End of period ............................................. (465,201) 21,939 (786,186)
----------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ......................................... (267,302) 58,654 (786,186)
----------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ (203,027) 71,408 (2,863)
----------- --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $ 2,119,088 $ 375,117 $ 598,285
=========== ========= ===========
<CAPTION>
EQUITY SERIES
---------------------------------------------------------------
T. ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & EQUITY BASIC VALUE
INCOME INCOME INCOME INDEX EQUITY
FUND(A) FUND(A) VALUE FUND FUND(A) FUND(A)
----------- -------- ---------- -------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 141,756 $ 65,607 $ 522,395 $ 596 $ 49,960
Expenses (Note 3):
Asset based charges ....................................... 62,938 44,334 617,639 409 29,450
---------- ----------- ------------ -------- --------
NET INVESTMENT INCOME (LOSS) .............................. 78,818 21,273 (95,244) 187 20,510
---------- ----------- ------------ -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 2,121 963 707,686 1,022 711
Realized gain distribution from the Trusts ................ 52,414 53,683 5,306,878 370 47,068
---------- ----------- ------------ -------- --------
Net Realized Gain (Loss) ............................... 54,535 54,646 6,014,564 1,392 47,779
---------- ----------- ------------ -------- --------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... -- -- 764,236 -- --
End of period ............................................. 980,406 191,128 5,616,378 4,722 (64,333)
---------- ----------- ------------ -------- --------
Change in unrealized appreciation (depreciation)
during the period ......................................... 980,406 191,128 4,852,142 4,722 (64,333)
---------- ----------- ------------ -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ 1,034,941 245,774 10,866,706 6,114 (16,554)
---------- ----------- ------------ -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $1,113,759 $ 267,047 $ 10,771,462 $ 6,301 $ 3,956
========== =========== ============ ======== ========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
---------------------------------------------------------
ALLIANCE ALLIANCE
COMMON MFS ALLIANCE INTER-
STOCK RESEARCH GLOBAL NATIONAL
FUND FUND(A) FUND FUND
------------ ---------- ------------ -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,007,250 $ 25,364 $ 662,565 $ 454,446
Expenses (Note 3):
Asset based charges .................................. 2,216,874 40,703 334,193 165,980
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (1,209,624) (15,339) 328,372 288,466
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 3,442,671 1,227 423,327 259,996
Realized gain distribution from the Trusts ........... 23,990,653 100,696 2,414,538 833,830
----------- -------- ---------- -----------
Net Realized Gain (Loss) .......................... 27,433,324 101,923 2,837,865 1,093,826
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 1,356,454 -- 199,484 31,388
End of period ........................................ 23,451,447 37,510 (244,398) (2,137,851)
----------- -------- ---------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. 22,094,993 37,510 (443,882) (2,169,239)
----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 49,528,317 139,433 2,393,983 (1,075,413)
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $48,318,693 $124,094 $2,722,355 $ (786,947)
=========== ======== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING ALLIANCE
NATIONAL MARKETS AGGRESSIVE
STOCK EQUITY STOCK
FUND(A) FUND(B) FUND
---------- --------- ------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,646 $ 6,387 $ 105,375
Expenses (Note 3):
Asset based charges .................................. 47,444 5,153 985,564
--------- --------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (45,798) 1,234 (880,189)
--------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. (53,503) (26,406) 61,253
Realized gain distribution from the Trusts ........... -- -- 9,818,273
--------- --------- -----------
Net Realized Gain (Loss) .......................... (53,503) (26,406) 9,879,526
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- (2,165,186)
End of period ........................................ (576,978) (238,282) (3,851,402)
--------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. (576,978) (238,282) (1,686,216)
--------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... (630,481) (264,688) 8,193,310
--------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $(676,279) $(263,454) $ 7,313,121
========= ========= ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
--------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 21,393 $ 773 $ 22,515
Expenses (Note 3):
Asset based charges .................................. 85,830 50,629 38,336
--------- --------- ---------
NET INVESTMENT INCOME (LOSS) ......................... (64,437) (49,856) (15,821)
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 228,992 62,796 52,672
Realized gain distribution from the Trusts ........... 109,076 377,750 274,537
--------- --------- ---------
Net Realized Gain (Loss) .......................... 338,068 440,546 327,209
--------- ---------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- --
End of period ........................................ (300,436) (344,436) (259,194)
--------- --------- ---------
Change in unrealized appreciation (depreciation)
during the period ................................. (300,436) (344,436) (259,194)
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 37,632 96,110 68,015
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $ (26,805) $ 46,254 $ 52,194
========= ========= =========
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND(A) FUND FUND(A)
---------- ---------- ----------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 647,522 $ 69,781 $ 1,260,100 $ 10,682
Expenses (Note 3):
Asset based charges .................................. 165,768 18,233 523,559 7,708
---------- --------- ----------- --------
NET INVESTMENT INCOME (LOSS) ......................... 481,754 51,548 736,541 2,974
---------- --------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 49,147 (1,203) 187,731 (109)
Realized gain distribution from the Trusts ........... 638,548 46,731 3,432,867 24,328
---------- --------- ----------- --------
Net Realized Gain (Loss) .......................... 687,695 45,528 3,620,598 24,219
---------- --------- ----------- --------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 4,651 -- (158,777) --
End of period ........................................ 482,745 73,582 1,685,711 (129,123)
---------- --------- ----------- --------
Change in unrealized appreciation (depreciation)
during the period ................................. 478,094 73,582 1,844,488 (129,123)
---------- --------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 1,165,789 119,110 5,465,086 (104,904)
---------- --------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $1,647,543 $ 170,658 $ 6,201,627 $(101,930)
========== ========= =========== =========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------
ALLIANCE
MONEY MARKET FUND
------------------------------
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................... $ 2,322,115 $ 791,163
Net realized gain (loss) ................................ 64,275 19,803
Change in unrealized appreciation /(depreciation)
of investments ....................................... (267,302) (165,897)
------------- -------------
Net increase in net assets from operations .............. 2,119,088 645,069
------------- -------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 137,532,670 95,681,367
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 55,819,439 19,687,669
------------- -------------
Total ............................................. 193,352,109 115,369,036
------------- -------------
Benefit & other policy transaction ................... 1,577,365 198,356
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 618,083 514,843
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 144,167,408 87,121,388
------------- -------------
Total ............................................. 146,362,856 87,834,587
------------- -------------
Net increase in net assets from Contract Owner
transactions ........................................ 46,989,253 27,534,449
------------- -------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT 45 (NOTE 5) ......................... (46,770) (17,582)
------------- -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 49,061,571 28,161,936
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 32,296,790 4,134,854
------------- -------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 81,358,361 $ 32,296,790
============= =============
<CAPTION>
FIXED INCOME SERIES:
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE HIGH YIELD
GOVERNMENT SECURITIES FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................... $ 303,709 $ 138,808 $ 601,148
Net realized gain (loss) ................................ 12,754 (21,067) 783,323
Change in unrealized appreciation /(depreciation)
of investments ....................................... 58,654 (41,524) (786,186)
------------ ------------ ------------
Net increase in net assets from operations .............. 375,117 76,217 598,285
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 5,416,131 1,798,660 13,779,925
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 3,270,944 8,533,013 22,095,921
------------ ------------ ------------
Total ............................................. 8,687,075 10,331,673 35,875,846
------------ ------------ ------------
Benefit & other policy transaction ................... 189,517 15,968 161,257
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 128,377 77,637 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 1,145,902 8,982,626 17,780,088
------------ ------------ ------------
Total ............................................. 1,463,796 9,076,231 17,986,890
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ........................................ 7,223,279 1,255,442 17,888,956
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ..................... (12,130) (6,709) (5,902)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 7,586,266 1,324,950 18,481,339
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 3,475,984 2,151,034 --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 11,062,250 $ 3,475,984 $ 18,481,339
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
------------------------------
T. ROWE EQ/PUTNAM
PRICE EQUITY GROWTH &
INCOME INCOME VALUE
FUND(A) FUND(A)
-------------- --------------
1997 1997
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss) ............................... $ 78,818 $ 21,273
Net realized gain (loss) ................................... 54,535 54,646
Change in unrealized appreciation / (depreciation)
of investments .......................................... 980,406 191,128
------------ ------------
Net increase in net assets from operations ................. 1,113,759 267,047
------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 13,813,772 10,975,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 4,356,204 3,217,543
------------ ------------
Total ................................................ 18,169,976 14,192,742
------------ ------------
Benefit & other policy transaction ...................... 86,052 58,925
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 40,797 32,578
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 183,349 180,506
------------ ------------
Total ................................................ 310,198 272,009
------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 17,859,778 13,920,733
------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (5,022) (2,360)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 18,968,515 14,185,420
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- --
------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 18,968,515 $ 14,185,420
============ ============
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------
ALLIANCE
ALLIANCE EQUITY MERRILL LYNCH
GROWTH & INCOME INDEX BASIC VALUE
FUND FUND(A) EQUITY FUND(A)
--------------------------- ---------- ---------------
1997 1996 1997 1997
------------ ------------ ---------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ (95,244) $ 64,283 $ 187 $ 20,510
Net realized gain (loss) ................................... 6,014,564 693,777 1,392 47,779
Change in unrealized appreciation / (depreciation)
of investments .......................................... 4,852,142 698,407 4,722 (64,333)
------------ ------------ -------- ------------
Net increase in net assets from operations ................. 10,771,462 1,456,467 6,301 3,956
------------ ------------ -------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 58,696,016 6,251,620 77,031 8,075,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 16,269,895 6,040,990 15,328 1,941,071
------------ ------------ -------- ------------
Total ................................................ 74,965,911 12,292,610 92,359 10,016,270
------------ ------------ -------- ------------
Benefit & other policy transaction ...................... 1,455,357 130,199 -- 9,691
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 425,279 31,991 -- 17,792
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 4,907,606 342,494 -- 137,464
------------ ------------ -------- ------------
Total ................................................ 6,788,242 504,684 -- 164,947
------------ ------------ -------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 68,177,669 11,787,926 92,359 9,851,323
------------ ------------ -------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (94,285) (27,565) (1,142 (839)
------------ ------------ -------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 78,854,846 13,216,828 97,518 9,854,440
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,025,928 1,809,100 -- --
------------ ------------ -------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 93,880,774 $ 15,025,928 $ 97,518 $ 9,854,440
============ ============ ======== ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
MFS
ALLIANCE RESEARCH
COMMON STOCK FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) ............................... $ (1,209,624) $ (42,865) $ (15,339)
Net realized gain (loss) ................................... 27,433,324 6,011,054 101,923
Change in unrealized appreciation / (depreciation)
of investments .......................................... 22,094,993 1,504,011 37,510
------------- ------------ ------------
Net increase (decrease) in net assets from operations ...... 48,318,693 7,472,200 124,094
------------- ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 175,880,351 36,558,323 9,502,168
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 61,077,537 34,378,499 2,602,553
------------- ------------ ------------
Total ................................................ 236,957,888 70,936,822 12,104,721
------------- ------------ ------------
Benefit & other policy transaction ...................... 4,271,079 427,323 28,630
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 1,459,175 290,642 23,738
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 35,438,036 8,933,676 209,610
------------- ------------ ------------
Total ................................................ 41,168,290 9,651,641 261,978
------------- ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 195,789,598 61,285,181 11,842,743
------------- ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (305,436) (85,006) (2,051)
------------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 243,802,855 68,672,375 11,964,786
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 75,506,795 6,834,420 --
------------- ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 319,309,650 $ 75,506,795 $ 11,964,786
============= ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------------
ALLIANCE ALLIANCE
GLOBAL FUND INTERNATIONAL FUND
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ 328,372 $ 88,313 $ 288,466 $ 53,333
Net realized gain (loss) ................................... 2,837,865 543,216 1,093,826 234,294
Change in unrealized appreciation / (depreciation)
of investments .......................................... (443,882) 184,372 (2,169,239) 16,354
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from operations ...... 2,722,355 815,901 (786,947) 303,981
------------ ------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 20,384,580 9,199,245 9,574,522 3,782,377
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 7,792,945 6,255,073 18,180,472 5,791,839
------------ ------------ ------------ -----------
Total ................................................ 28,177,525 15,454,318 27,754,994 9,574,216
------------ ------------ ------------ -----------
Benefit & other policy transaction ...................... 621,118 70,774 341,327 38,451
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 155,169 36,757 97,083 75,353
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 6,961,429 1,836,433 18,593,662 1,979,003
------------ ------------ ------------ -----------
Total ................................................ 7,737,716 1,943,964 19,032,072 2,092,807
------------ ------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ............................................ 20,439,809 13,510,354 8,722,922 7,481,409
------------ ------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (28,799) (18,054) (36,637) (11,874)
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 23,133,365 14,308,201 7,899,338 7,773,516
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,376,304 1,068,103 8,584,004 810,488
------------ ------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 38,509,669 $ 15,376,304 $ 16,483,342 $ 8,584,004
============ ============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING
NATIONAL MARKETS ALLIANCE
STOCK EQUITY AGGRESSIVE STOCK
FUND(A) FUND(B) FUND
------------- ----------- --------------------------------
1997 1997 1997 1996
------------- ----------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ...................................... $ (45,798) $ 1,234 $ (880,189) $ (121,400)
Net realized gain (loss) ................................... (53,503) (26,406) 9,879,526 4,080,335
Change in unrealized appreciation / (depreciation)
of investments .......................................... (576,978) (238,282) (1,686,216) (1,995,216)
------------ ----------- ------------- ------------
Net increase (decrease) in net assets from operations ...... (676,279) (263,454) 7,313,121 1,963,719
------------ ----------- ------------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 9,658,570 1,617,148 66,019,813 22,776,845
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 5,113,170 889,247 17,726,363 20,452,746
------------ ----------- ------------- ------------
Total ................................................ 14,771,740 2,506,395 83,746,176 43,229,591
------------ ----------- ------------- ------------
Benefit & other policy transaction ...................... 37,224 -- 1,854,804 245,070
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 22,024 394 482,491 90,356
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 1,416,476 2,488 11,669,668 7,099,325
------------ ----------- ------------- ------------
Total ................................................ 1,475,724 2,882 14,006,963 7,434,751
------------ ----------- ------------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 13,296,016 2,503,513 69,739,213 35,794,840
------------ ----------- ------------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (3,030) (966) (111,908) (33,503)
------------ ----------- ------------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 12,616,707 2,239,093 76,940,426 37,725,056
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- 40,887,252 3,162,196
------------ ----------- ------------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 12,616,707 $ 2,239,093 $ 117,827,678 $ 40,887,252
============ =========== ============= ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
WARBURG MFS
PINCUS SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
------------ ------------- ----------------
1997 1997 1997
------------ ------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ...................................... $ (64,437) $ (49,856) $ (15,821)
Net realized gain (loss) ................................... 338,068 440,546 327,209
Change in unrealized appreciation / (depreciation)
of investments .......................................... (300,436) (344,436) (259,194)
------------ ------------ ------------
Net increase (decrease) in net assets from operations ...... (26,805) 46,254 52,194
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 17,791,841 12,116,331 9,607,211
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 11,695,862 5,602,864 3,864,604
------------ ------------ ------------
Total ................................................ 29,487,703 17,719,195 13,471,815
------------ ------------ ------------
Benefit & other policy transaction ...................... 134,692 20,842 45,537
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 23,284 8,570 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 4,520,417 1,504,600 1,527,808
------------ ------------ ------------
Total ................................................ 4,678,393 1,534,012 1,587,690
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 24,809,310 16,185,183 11,884,125
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (10,579) (3,378) (1,959)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 24,771,926 16,228,059 11,934,360
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 24,771,926 $ 16,228,059 $ 11,934,360
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------
ALLIANCE EQ/PUTNAM
CONSERVATIVE BALANCED
INVESTORS FUND FUND(A)
--------------------------- ----------- -
1997 1996 1997
------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 481,754 $ 193,429 $ 51,548
Net realized gain (loss) ............................. 687,695 154,966 45,528
Change in unrealized appreciation / (depreciation)
of investments .................................... 478,094 (12,221) 73,582
----------- ----------- -----------
Net increase (decrease) in net assets from operations 1,647,543 336,174 170,658
------------ ----------- -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 10,862,780 3,977,495 4,294,496
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 3,151,066 2,837,790 1,721,220
------------ ----------- -----------
Total .......................................... 14,013,846 6,815,285 6,015,716
------------ ----------- -----------
Benefit & other policy transaction ................ 567,547 60,271 17,533
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 138,461 100,314 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 1,428,179 814,338 120,099
------------ ----------- -----------
Total .......................................... 2,134,187 974,923 152,925
------------ ----------- -----------
Net increase in net assets from Contract Owner
transactions ...................................... 11,879,659 5,840,362 5,862,791
------------ ----------- -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (57,026) (12,633) (483)
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 13,470,176 6,163,903 6,032,966
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 7,858,282 1,694,379 --
------------ ----------- -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 21,328,458 $ 7,858,282 $ 6,032,966
============ =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------
ALLIANCE MERRILL LYNCH
GROWTH WORLD STRATEGY
INVESTORS FUND FUND(A)
---------------------------- --------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 736,541 $ 218,025 $ 2,974
Net realized gain (loss) ............................. 3,620,598 1,601,901 24,219
Change in unrealized appreciation / (depreciation)
of investments .................................... 1,844,488 (197,988) (129,123)
------------ ------------ -----------
Net increase (decrease) in net assets from operations 6,201,627 1,621,938 (101,930)
------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 32,084,069 11,004,121 2,043,811
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 7,981,423 9,331,901 561,601
------------ ------------ -----------
Total .......................................... 40,065,492 20,336,022 2,605,412
------------ ------------ -----------
Benefit & other policy transaction ................ 1,014,211 206,468 3,514
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 421,582 228,021 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 2,744,848 1,177,040 84,455
------------ ------------ -----------
Total .......................................... 4,180,641 1,611,529 90,566
------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ...................................... 35,884,851 18,724,493 2,514,846
------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (111,839) (32,214) (121)
------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 41,974,639 20,314,217 2,412,795
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 24,008,395 3,694,178 --
------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 65,983,034 $ 24,008,395 $ 2,412,795
============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
1940 Act"). The Account consists of 22 investment funds (Funds): Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund,
Alliance High Yield Fund, T. Rowe Price Equity Income Fund, EQ/Putnam
Growth & Income Value Fund, Alliance Growth & Income Fund, Alliance Equity
Index Fund, Merrill Lynch Basic Value Equity Fund, Alliance Common Stock
Fund, MFS Research Fund, Alliance Global Fund, Alliance International
Fund, T. Rowe Price International Stock Fund, Morgan Stanley Emerging
Markets Equity Fund, Alliance Aggressive Stock Fund, Warburg Pincus Small
Company Value Fund, Alliance Small Cap Growth Fund, MFS Emerging Growth
Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam Balanced
Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund. The assets in each Fund are invested in shares of a corresponding
portfolio (Portfolio) of a mutual fund, Class IA and IB shares of The
Hudson River Trust (HRT) or Class IB shares of EQ Advisors Trust (EQAT)
(collectively known as the Trusts). Class IB shares are offered by the
Funds at net asset value and are subject to distribution fees imposed
under a distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act. Class IA shares of HRT continue to be purchased by contracts in-force
prior to May 1, 1997. The Trusts are open-end, diversified management
investment companies that sell its shares to 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 is also available
for purchase by certain types of qualified plans. 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 less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth 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.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 charges for mortality and expense
risks at an annual rate of 0.90% of daily net assets. In addition, asset
based administrative charges are also charged to the account at an annual
rate of 0.25% of daily net assets. The charges may be retained in the
Account by Equitable Life and participate in the net investment results of
the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.15% of daily net assets. Trust shares are
valued at their net asset value with investment advisory or management
fees, the 12b-1 fee, and other expenses of the Trust, in effect, passed on
to the Account and reflected in the accumulation unit values of the
Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
------------------------------------------
<S> <C> <C>
Class A Net Issued........................................... -- 1,128
Net Redeemed......................................... (374) --
Class B Net Issued........................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
------------------------------------------------
Class A Net Issued........................................... 161 92
Class B Net Issued........................................... 345 --
ALLIANCE HIGH YIELD FUND
------------------------------------
Class A Net Issued........................................... 98 --
Class B Net Issued........................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,565 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
----------------------------------------------
Class A Net Issued........................................... 2,377 905
Class B Net Issued........................................... 1,829 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-----------------------------------------
ALLIANCE EQUITY INDEX FUND (A) (IN THOUSANDS)
<S> <C> <C>
Class B Net Issued............................................ 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
-----------------------------------------
Class B Net Issued............................................ 849 --
ALLIANCE COMMON STOCK FUND
--------------------------
Class A Net Issued............................................ 620 439
Class B Net Issued............................................ 519 --
MFS RESEARCH FUND (A)
---------------------
Class B Net Issued............................................ 1,039 --
ALLIANCE GLOBAL FUND
---------------------
Class A Net Issued............................................ 444 561
Class B Net Issued............................................ 308 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Class A Net Issued............................................ 438 643
Class B Net Issued............................................ 285 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (A)
------------------------------------------
Class B Net Issued............................................ 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
-----------------------------------------------
Class B Net Issued............................................ 282 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Concluded):
Accumulation units issued and redeemed during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- ----------------
ALLIANCE AGGRESSIVE STOCK FUND (IN THOUSANDS)
------------------------------
<S> <C> <C>
Class A Net Issued....................................... 641 562
Class B Net Issued....................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
-------------------------------------------
Class B Net Issued....................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND
------------------------------
Class A Net Issued....................................... 208 --
Class B Net Issued....................................... 1,084 --
MFS EMERGING GROWTH COMPANIES FUND (A)
--------------------------------------
Class B Net Issued....................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
------------------------------------
Class A Net Issued....................................... 356 354
Class B Net Issued....................................... 295 --
EQ/PUTNAM BALANCED FUND (A)
---------------------------
Class B Net Issued....................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Class A Net Issued....................................... 681 758
Class B Net Issued....................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
------------------------------------
Class B Net Issued....................................... 232 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. 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 contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
INVESTMENT FUND 1997 1996
------------------------------ ----------------------------
<S> <C> <C>
Alliance Money Market Fund..................................... $(240,000) $(125,000)
Alliance Intermediate Government Securities Fund............... (60,000) (25,000)
Alliance High Yield Fund(1).................................... 10,000 --
T. Rowe Price Equity Income Fund(1)............................ -- --
EQ/Putnam Growth & Income Value Fund(1)........................ -- --
Alliance Growth & Income Fund.................................. (250,000) (60,000)
Alliance Equity Index Fund..................................... 5,000 --
Merrill Lynch Basic Value Equity Fund(1)....................... -- --
Alliance Common Stock Fund..................................... (840,000) (223,000)
MFS Research Fund(1)........................................... -- --
Alliance Global Fund........................................... (185,000) (52,000)
Alliance International Fund.................................... (120,000) (35,000)
T. Rowe Price International Stock Fund(1)...................... -- --
Morgan Stanley Emerging Markets Equity Fund(2)................. -- --
Alliance Aggressive Stock Fund................................. (435,000) (110,000)
Warburg Pincus Small Company Value Fund(1)..................... -- --
Alliance Small Cap Growth Fund(1).............................. 10,000 --
MFS Emerging Growth Companies Fund(1).......................... -- --
Alliance Conservative Investors Fund........................... (87,000) (45,000)
EQ/Putnam Balanced Fund(1)..................................... -- --
Alliance Growth Investors Fund................................. (185,000) (105,000)
Merrill Lynch World Strategy Fund(1)........................... -- --
</TABLE>
----------------------
(1) Commenced operations on May 1, 1997.
(2) Commenced operations on November 20, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
ALLIANCE MONEY MARKET FUND ----------------------------- --------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period....................... $24.81 $23.83
Class A Unit value, end of period............................. $25.85 $24.81
Class B Unit value, beginning of period (c)................... $25.17 --
Class B Unit value, end of period (c)......................... $25.85 --
Number of units outstanding, end of period (000's):
Class A.................................................... 928 1,302
Class B.................................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A Unit value, beginning of period....................... $13.77 $13.42
Class A Unit value, end of period............................. $14.60 $13.77
Class B Unit value, beginning of period (c)................... $13.88 --
Class B Unit value, end of period (c)......................... $14.58 --
Number of units outstanding, end of period (000's):
Class A.................................................... 413 252
Class B.................................................... 345 --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A Unit value, beginning of period....................... $26.95 --
Class A Unit value, end of period............................. $30.73 --
Class B Unit value, beginning of period....................... $26.91 --
Class B Unit value, end of period............................. $30.63 --
Number of units outstanding, end of period (000's):
Class A.................................................... 98 --
Class B.................................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
- ------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.12 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,565 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A) ------------------------------ ---------------------------
- --------------------------------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.53 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A Unit value, beginning of period....................... $14.23 $11.99
Class A Unit value, end of period............................. $17.83 $14.23
Class B Unit value, beginning of period (c)................... $14.67 --
Class B Unit value, end of period (c)......................... $17.80 --
Number of units outstanding, end of period (000's):
Class A.................................................... 3,433 1,056
Class B.................................................... 1,829 --
ALLIANCE EQUITY INDEX FUND (A)
- ------------------------------
Class A Unit value, beginning of period....................... $17.62 --
Class A Unit value, end of period............................. $21.41 --
Class B Unit value, beginning of period....................... $17.62 --
Class B Unit value, end of period............................. $21.38 --
Number of units outstanding, end of period (000's):
Class A.................................................... -- --
Class B.................................................... 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
- -----------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.61 --
Number of units outstanding, end of period (000's):
Class B.................................................... 849 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
ALLIANCE COMMON STOCK FUND ------------------------- ------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period........................... $152.96 $124.52
Class A Unit value, end of period................................. $195.37 $152.96
Class B Unit value, beginning of period (c)....................... $153.35 --
Class B Unit value, end of period (c)............................. $194.74 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,114 494
Class B........................................................ 519 --
MFS RESEARCH FUND (A)
- ---------------------
Class B Unit value, beginning of period........................... $10.00 --
Class B Unit value, end of period................................. $11.52 --
Number of units outstanding, end of period (000's):
Class B........................................................ 1,039 --
ALLIANCE GLOBAL FUND
- --------------------
Class A Unit value, beginning of period........................... $25.25 $22.29
Class A Unit value, end of period................................. $27.85 $25.25
Class B Unit value, beginning of period (c)....................... $24.87 --
Class B Unit value, end of period (c)............................. $27.76 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,074 609
Class B........................................................ 308 --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A Unit value, beginning of period........................... $11.98 $11.03
Class A Unit value, end of period................................. $11.48 $11.98
Class B Unit value, beginning of period (c)....................... $11.86 --
Class B Unit value, end of period (c)............................. $11.46 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,151 717
Class B........................................................ 285 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
T. ROWE PRICE INTERNATIONAL STOCK FUND (A) --------------------------- ------------------------
- -----------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 9.77 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
- -----------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 7.95 --
Number of units outstanding, end of period (000's):
Class B.................................................... 282 --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A Unit value, beginning of period....................... $65.94 $54.59
Class A Unit value, end of period............................. $72.23 $65.94
Class B Unit value, beginning of period (c)................... $62.84 --
Class B Unit value, end of period (c)......................... $72.00 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,261 620
Class B.................................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
- -------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.82 --
Number of units outstanding, end of period (000's):
Class B.................................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND (A)
- ----------------------------------
Class A Unit value, beginning of period....................... $10.00 --
Class A Unit value, end of period............................. $12.57 --
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.55 --
Number of units outstanding, end of period (000's):
Class A.................................................... 208 --
Class B.................................................... 1,084 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
MFS EMERGING GROWTH FUND (A) --------------------------- ------------------------
- ----------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.15 --
Number of units outstanding, end of period (000's):
Class B.................................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A Unit value, beginning of period....................... $17.21 $16.55
Class A Unit value, end of period............................. $19.26 $17.21
Class B Unit value, beginning of period (c)................... $17.33 --
Class B Unit value, end of period (c)......................... $19.23 --
Number of units outstanding, end of period (000's):
Class A.................................................... 813 457
Class B.................................................... 295 --
EQ/PUTMAN BALANCED FUND (A)
- ---------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.36 --
Number of units outstanding, end of period (000's):
Class B.................................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A Unit value, beginning of period....................... $26.26 $23.59
Class A Unit value, end of period............................. $30.31 $26.26
Class B Unit value, beginning of period (c)................... $26.23 --
Class B Unit value, end of period (c)......................... $30.22 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,596 914
Class B.................................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
- -------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $10.39 --
Number of units outstanding, end of period (000's):
Class B.................................................... 232 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-23
<PAGE>
February 10, 1998
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 and for loan impairments in 1995.
/s/ Price Waterhouse, LLP
- ---------------------------
Price Waterhouse LLP
New York, New York
February 10, 1998
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 19,630.9 $ 18,077.0
Mortgage loans on real estate............................................. 2,611.4 3,133.0
Equity real estate........................................................ 2,749.2 3,297.5
Policy loans.............................................................. 2,422.9 2,196.1
Other equity investments.................................................. 951.5 860.6
Investment in and loans to affiliates..................................... 731.1 685.0
Other invested assets..................................................... 624.7 25.4
----------------- -----------------
Total investments..................................................... 29,721.7 28,274.6
Cash and cash equivalents................................................... 300.5 538.8
Deferred policy acquisition costs........................................... 3,236.6 3,104.9
Amounts due from discontinued operations.................................... 572.8 996.2
Other assets................................................................ 2,685.2 2,552.2
Closed Block assets......................................................... 8,566.6 8,495.0
Separate Accounts assets.................................................... 36,538.7 29,646.1
----------------- -----------------
Total Assets................................................................ $ 81,622.1 $ 73,607.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,579.5 $ 21,865.6
Future policy benefits and other policyholder's liabilities................. 4,553.8 4,416.6
Short-term and long-term debt............................................... 1,991.2 1,766.9
Other liabilities........................................................... 3,257.1 2,785.1
Closed Block liabilities.................................................... 9,073.7 9,091.3
Separate Accounts liabilities............................................... 36,306.3 29,598.3
----------------- -----------------
Total liabilities..................................................... 76,761.6 69,523.8
----------------- -----------------
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........................................................... 1,235.9 798.7
Net unrealized investment gains............................................. 533.6 189.9
Minimum pension liability................................................... (17.3) (12.9)
----------------- -----------------
Total shareholder's equity............................................ 4,860.5 4,084.0
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 81,622.1 $ 73,607.8
================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 950.6 $ 874.0 $ 788.2
Premiums...................................................... 601.5 597.6 606.8
Net investment income......................................... 2,282.8 2,203.6 2,088.2
Investment (losses) gains, net................................ (45.2) (9.8) 5.3
Commissions, fees and other income............................ 1,227.2 1,081.8 897.1
Contribution from the Closed Block............................ 102.5 125.0 143.2
----------------- ----------------- -----------------
Total revenues.......................................... 5,119.4 4,872.2 4,528.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,266.2 1,270.2 1,248.3
Policyholders' benefits....................................... 978.6 1,317.7 1,008.6
Other operating costs and expenses............................ 2,203.9 2,075.7 1,775.8
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,448.7 4,663.6 4,032.7
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 670.7 208.6 496.1
Federal income taxes.......................................... 91.5 9.7 120.5
Minority interest in net income of consolidated subsidiaries.. 54.8 81.7 62.8
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 524.4 117.2 312.8
Discontinued operations, net of Federal income taxes.......... (87.2) (83.8) -
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (23.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 437.2 $ 10.3 $ 312.8
================= ================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(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 and end of year..... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 798.7 788.4 475.6
Net earnings.................................................. 437.2 10.3 312.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,235.9 798.7 788.4
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year... 189.9 396.5 (220.5)
Change in unrealized investment gains (losses)................ 343.7 (206.6) 617.0
----------------- ----------------- -----------------
Net unrealized investment gains, end of year.................. 533.6 189.9 396.5
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (12.9) (35.1) (2.7)
Change in minimum pension liability........................... (4.4) 22.2 (32.4)
-----------------
----------------- -----------------
Minimum pension liability, end of year........................ (17.3) (12.9) (35.1)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 437.2 $ 10.3 $ 312.8
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Interest credited to policyholders' account balances........ 1,266.2 1,270.2 1,248.3
Universal life and investment-type product
policy fee income......................................... (950.6) (874.0) (788.2)
Investment losses (gains)................................... 45.2 9.8 (5.3)
Change in Federal income tax payable........................ (74.4) (197.1) 221.6
Other, net.................................................. 169.4 330.2 80.5
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 893.0 549.4 1,069.7
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,702.9 2,275.1 1,897.4
Sales....................................................... 10,385.9 8,964.3 8,867.1
Purchases................................................... (13,205.4) (12,559.6) (11,675.5)
(Increase) decrease in short-term investments............... (555.0) 450.3 (99.3)
Decrease in loans to discontinued operations................ 420.1 1,017.0 1,226.9
Sale of subsidiaries........................................ 261.0 - -
Other, net.................................................. (612.6) (281.0) (413.4)
----------------- ----------------- -----------------
Net cash used by investing activities......................... (603.1) (133.9) (196.8)
----------------- ----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................. 1,281.7 1,925.4 2,586.5
Withdrawals............................................... (1,886.8) (2,385.2) (2,657.1)
Net increase (decrease) in short-term financings............ 419.9 (.3) (16.4)
Additions to long-term debt................................. 32.0 - 599.7
Repayments of long-term debt................................ (196.4) (124.8) (40.7)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (83.9) - (1,215.4)
Other, net.................................................. (94.7) (66.5) (48.4)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (528.2) (651.4) (791.8)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (238.3) (235.9) 81.1
Cash and cash equivalents, beginning of year.................. 538.8 774.7 693.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 300.5 $ 538.8 $ 774.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 217.1 $ 109.9 $ 89.6
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 170.0 $ (10.0) $ (82.7)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and, prior to
December 31, 1996, its wholly owned life insurance subsidiary, Equitable
Variable Life Insurance Company ("EVLICO"). Effective January 1, 1997,
EVLICO was merged into Equitable Life, which continues to conduct the
Company's insurance business. Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance") 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 58.7% at December 31, 1997 (54.3% 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") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and, through
June 10, 1997, Equitable Real Estate Investment Management, Inc.
("EREIM"), a real estate investment management subsidiary which was sold
(see Note 5); 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.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued operations (see Note
7).
The years "1997," "1996" and "1995" refer to the years ended December
31, 1997, 1996 and 1995, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1997 presentation.
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.
F-6
<PAGE>
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. No reallocation, transfer, borrowing
or lending of assets can be made between the Closed Block and other
portions of Equitable Life's General Account, any of its Separate
Accounts or any affiliate of Equitable Life without the approval of the
New York Superintendent of Insurance (the "Superintendent"). Closed
Block assets and liabilities are carried on the same basis as similar
assets and liabilities held in the General Account. The excess of Closed
Block liabilities over Closed Block assets represents the expected
future post-tax contribution from the Closed Block which would be
recognized in income over the period the policies and contracts in the
Closed Block remain in force.
Discontinued Operations
Discontinued operations consist of the business of the former Guaranteed
Interest Contract ("GIC") segment which includes the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and the GIC
lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and, during the 1997 and 1996 fourth quarter
reviews, the allowance for future losses was increased. Management
believes the allowance for future losses at December 31, 1997 is
adequate to provide for all future losses; however, the determination of
the allowance continues to involve numerous estimates and subjective
judgments regarding the expected performance of Discontinued Operations
Investment Assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of the discontinued operations
differ from management's current best estimates and assumptions
underlying the allowance for future losses, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management's previous
assumptions, periodic adjustments to the allowance are likely to result
(see Note 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 SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". (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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to The Equitable'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 for production of income. Real estate
which management has committed to disposing of by sale or abandonment is
classified as real estate held for sale. Valuation allowances on real
estate held for sale continue to be computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
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 vacated in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impaired loans
within SFAS No. 114's scope are to be 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 adoption of
this statement did not have a material effect on the level of the
allowances for possible losses or on the Company's consolidated
statements of earnings and shareholder's equity.
F-7
<PAGE>
New Accounting Pronouncements
In January 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits," which revises current note disclosure
requirements for employers' pension and other retiree benefits. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt the provisions of SFAS No. 132 in the 1998
consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP
97-3 provides guidance for assessments related to insurance activities
and requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual and interim financial statements
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment
performance and for deciding how to allocate resources to segments. This
statement is effective for fiscal years beginning after December 15,
1997 and need not be applied to interim reporting in the initial year of
adoption. Restatement of comparative information for earlier periods is
required. Management is currently reviewing its definition of business
segments in light of the requirements of SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires an enterprise to classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt
the provisions of SFAS No. 130 in its 1998 consolidated financial
statements.
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.
Implementation of SFAS No. 125 did not have nor is SFAS No. 127 expected
to have a material impact on the Company's consolidated financial
statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
F-8
<PAGE>
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains 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 discontinued operations,
participating group annuity contracts and deferred policy acquisition
costs ("DAC") related to universal life and investment-type products and
participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
F-9
<PAGE>
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, 1997, the expected investment yield, excluding
policy loans, generally ranged from 7.53% grading to 7.92% over a 20
year period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its 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.
F-11
<PAGE>
Claim reserves and associated liabilities for individual DI and major
medical policies were $886.7 million and $869.4 million at December 31,
1997 and 1996, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 190.2 $ 189.0 $ 176.0
Incurred benefits related to prior years........... 2.1 69.1 67.8
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 192.3 $ 258.1 $ 243.8
================= ================ =================
Benefits paid related to current year.............. $ 28.8 $ 32.6 $ 37.0
Benefits paid related to prior years............... 146.2 153.3 137.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 175.0 $ 185.9 $ 174.8
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1997, participating policies, including those in the
Closed Block, represent approximately 21.2% ($50.2 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1997, 1996 and 1995, investment results of
such Separate Accounts were $3,411.1 million, $2,970.6 million and
$1,963.2 million, respectively.
F-12
<PAGE>
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the opinion, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the
exercise price. See Note 21 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,230.3 $ 785.0 $ 74.5 $ 14,940.8
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 673.0 6.8 .1 679.7
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
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......................... $ 362.0 $ 49.3 $ 17.7 $ 393.6
================= ================= ================ =================
</TABLE>
F-13
<PAGE>
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 on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1997 and 1996, securities
without a readily ascertainable market value having an amortized cost of
$3,759.2 million and $3,915.7 million, respectively, had estimated fair
values of $3,903.9 million and $4,024.6 million, respectively.
The contractual maturity of bonds at December 31, 1997 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 149.9 $ 151.3
Due in years two through five.......................................... 2,962.8 3,025.2
Due in years six through ten........................................... 6,863.9 7,093.0
Due after ten years.................................................... 6,952.3 7,502.7
Mortgage-backed securities............................................. 1,702.8 1,725.0
---------------- -----------------
Total.................................................................. $ 18,631.7 $ 19,497.2
================ =================
</TABLE>
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,
1997, approximately 17.85% of the $18,610.6 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.
Fixed maturity investments with restructured or modified terms are not
material.
F-14
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 137.1 $ 325.3 $ 284.9
SFAS No. 121 release............................... - (152.4) -
Additions charged to income........................ 334.6 125.0 136.0
Deductions for writedowns and
asset dispositions............................... (87.2) (160.8) (95.6)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 55.8 $ 50.4 $ 65.5
Equity real estate............................... 328.7 86.7 259.8
----------------- ---------------- -----------------
Total.............................................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
</TABLE>
At December 31, 1997, 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 $12.6 million
of fixed maturities and $.9 million of mortgage loans on real estate.
At December 31, 1997 and 1996, 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 $23.4 million (0.9% of total
mortgage loans on real estate) and $12.4 million (0.4% 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 $183.4
million and $388.3 million at December 31, 1997 and 1996, 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 $17.2 million, $35.5 million and $52.1 million in
1997, 1996 and 1995, respectively. Gross interest income on these loans
included in net investment income aggregated $12.7 million, $28.2
million and $37.4 million in 1997, 1996 and 1995, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 196.7 $ 340.0
Impaired mortgage loans without provision for losses............... 3.6 122.3
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 200.3 462.3
Provision for losses............................................... (51.8) (46.4)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 148.5 $ 415.9
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
F-15
<PAGE>
During 1997, 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $246.9 million, $552.1 million
and $429.0 million. Interest income recognized on these impaired
mortgage loans totaled $15.2 million, $38.8 million and $27.9 million
($2.3 million, $17.9 million and $13.4 million recognized on a cash
basis) for 1997, 1996 and 1995, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1997 and 1996, the carrying value of equity real estate
held for sale amounted to $1,023.5 million and $345.6 million,
respectively. For 1997, 1996 and 1995, respectively, real estate of
$152.0 million, $58.7 million and $35.3 million was acquired in
satisfaction of debt. At December 31, 1997 and 1996, the Company owned
$693.3 million and $771.7 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 $541.1
million and $587.5 million at December 31, 1997 and 1996, respectively.
Depreciation expense on real estate totaled $74.9 million, $91.8 million
and $121.7 million for 1997, 1996 and 1995, respectively.
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(29 and 34 individual ventures as of December 31, 1997 and 1996,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 1,700.9 $ 1,883.7
Investments in securities, generally at estimated fair value........... 1,374.8 2,430.6
Cash and cash equivalents.............................................. 105.4 98.0
Other assets........................................................... 584.9 427.0
---------------- -----------------
Total Assets........................................................... $ 3,766.0 $ 4,839.3
================ =================
Borrowed funds - third party........................................... $ 493.4 $ 1,574.3
Borrowed funds - the Company........................................... 31.2 137.9
Other liabilities...................................................... 284.0 415.8
---------------- -----------------
Total liabilities...................................................... 808.6 2,128.0
---------------- -----------------
Partners' capital...................................................... 2,957.4 2,711.3
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 3,766.0 $ 4,839.3
================ =================
Equity in partners' capital included above............................. $ 568.5 $ 806.8
Equity in limited partnership interests not included above............. 331.8 201.8
Other.................................................................. 4.3 9.8
---------------- -----------------
Carrying Value......................................................... $ 904.6 $ 1,018.4
================ =================
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 310.5 $ 348.9 $ 463.5
Revenues of other limited partnership interests.... 506.3 386.1 242.3
Interest expense - third party..................... (91.8) (111.0) (135.3)
Interest expense - the Company..................... (7.2) (30.0) (41.0)
Other expenses..................................... (263.6) (282.5) (397.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.2 $ 311.5 $ 131.8
================= ================ =================
Equity in net earnings included above.............. $ 76.7 $ 73.9 $ 49.1
Equity in net earnings of limited partnerships
interests not included above..................... 69.5 35.8 44.8
Other.............................................. (.9) .9 1.0
-----------------
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 145.3 $ 110.6 $ 94.9
================= ================ =================
</TABLE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,459.4 $ 1,307.4 $ 1,151.1
Mortgage loans on real estate...................... 260.8 303.0 329.0
Equity real estate................................. 390.4 442.4 560.4
Other equity investments........................... 156.9 122.0 76.9
Policy loans....................................... 177.0 160.3 144.4
Other investment income............................ 181.7 217.4 273.0
----------------- ---------------- -----------------
Gross investment income.......................... 2,626.2 2,552.5 2,534.8
----------------- ---------------- -----------------
Investment expenses.............................. 343.4 348.9 446.6
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,282.8 $ 2,203.6 $ 2,088.2
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 88.1 $ 60.5 $ 119.9
Mortgage loans on real estate...................... (11.2) (27.3) (40.2)
Equity real estate................................. (391.3) (79.7) (86.6)
Other equity investments........................... 14.1 18.9 12.8
Sale of subsidiaries............................... 252.1 - -
Issuance and sales of Alliance Units............... - 20.6 -
Other.............................................. 3.0 (2.8) (.6)
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (45.2) $ (9.8) $ 5.3
================= ================ =================
</TABLE>
F-17
<PAGE>
Writedowns of fixed maturities amounted to $11.7 million, $29.9 million
and $46.7 million for 1997, 1996 and 1995, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million and $23.7 million for 1997 and 1996,
respectively. In the fourth quarter of 1997, the Company reclassified
$1,095.4 million depreciated cost of equity real estate from real estate
held for the production of income to real estate held for sale.
Additions to valuation allowances of $227.6 million were recorded upon
these transfers. Additionally in the fourth quarter, $132.3 million of
writedowns on real estate held for production of income were recorded.
For 1997, 1996 and 1995, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $9,789.7
million, $8,353.5 million and $8,206.0 million. Gross gains of $166.0
million, $154.2 million and $211.4 million and gross losses of $108.8
million, $92.7 million and $64.2 million, respectively, were realized on
these sales. The change in unrealized investment gains (losses) related
to fixed maturities classified as available for sale for 1997, 1996 and
1995 amounted to $513.4 million, $(258.0) million and $1,077.2 million,
respectively.
For 1997, 1996 and 1995, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $137.5 million, $136.7
million and $131.2 million, respectively.
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note maturing in eight years and bearing interest at the rate of
7.4%, subject to certain adjustments. Equitable Life recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE will continue to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively, the businesses sold reported combined revenues of $91.6
million, $226.1 million and $245.6 million and combined net earnings of
$10.7 million, $30.7 million and $27.9 million. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 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 to 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. The Company recognized an investment gain
of $20.6 million as a result of the issuance of Alliance Units in this
transaction. On June 30, 1997, Alliance reduced the recorded value of
goodwill and contracts associated with Alliance's acquisition of
Cursitor by $120.9 million. This charge reflected Alliance's view that
Cursitor's continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1997, the Company's ownership of Alliance Units was approximately 56.9%.
F-18
<PAGE>
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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 189.9 $ 396.5 $ (220.5)
Changes in unrealized investment gains (losses).... 543.3 (297.6) 1,198.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 53.2 - (78.1)
DAC............................................ (89.0) 42.3 (216.8)
Deferred Federal income taxes.................. (163.8) 48.7 (287.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 533.6 $ 189.9 $ 396.5
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 871.2 $ 357.8 $ 615.9
Other equity investments....................... 33.7 31.6 31.1
Other, principally Closed Block................ 80.9 53.1 93.1
----------------- ---------------- -----------------
Total........................................ 985.8 442.5 740.1
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (19.0) (72.2) (72.2)
DAC.......................................... (141.0) (52.0) (94.3)
Deferred Federal income taxes................ (292.2) (128.4) (177.1)
----------------- ---------------- -----------------
Total.............................................. $ 533.6 $ 189.9 $ 396.5
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,059.4 and $3,820.7)........................................... $ 4,231.0 $ 3,889.5
Mortgage loans on real estate........................................ 1,341.6 1,380.7
Policy loans......................................................... 1,700.2 1,765.9
Cash and other invested assets....................................... 282.7 336.1
DAC.................................................................. 775.2 876.5
Other assets......................................................... 235.9 246.3
----------------- -----------------
Total Assets......................................................... $ 8,566.6 $ 8,495.0
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 8,993.2 $ 8,999.7
Other liabilities.................................................... 80.5 91.6
----------------- -----------------
Total Liabilities.................................................... $ 9,073.7 $ 9,091.3
================= =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 687.1 $ 724.8 $ 753.4
Investment income (net of investment
expenses of $27.0, $27.3 and $26.7).............. 574.9 546.6 538.9
Investment losses, net............................. (42.4) (5.5) (20.2)
----------------- ---------------- -----------------
Total revenues............................... 1,219.6 1,265.9 1,272.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,066.7 1,106.3 1,077.6
Other operating costs and expenses................. 50.4 34.6 51.3
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,117.1 1,140.9 1,128.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 102.5 $ 125.0 $ 143.2
================= ================ =================
</TABLE>
At December 31, 1997 and 1996, problem mortgage loans on real estate had
an amortized cost of $8.1 million and $4.3 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $70.5 million and $114.2 million,
respectively. At December 31, 1996, the restructured mortgage loans on
real estate amount included $.7 million 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 109.1 $ 128.1
Impaired mortgage loans without provision for losses................... .6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 109.7 128.7
Provision for losses................................................... (17.4) (12.9)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 92.3 $ 115.8
================ =================
</TABLE>
During 1997, 1996 and 1995, the Closed Block's average recorded
investment in impaired mortgage loans was $110.2 million, $153.8 million
and $146.9 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $9.4 million, $10.9 million and $5.9
million ($4.1 million, $4.7 million and $1.3 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $18.5 million and $13.8 million on
mortgage loans on real estate and $16.8 million and $3.7 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million, $12.8 million and $16.8 million for 1997, 1996 and 1995,
respectively and writedowns of equity real estate subsequent to the
adoption of SFAS No. 121 amounted to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in the fourth
quarter, $28.8 million of writedowns on real estate held for production
of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-20
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 655.5 $ 1,111.1
Equity real estate................................................... 655.6 925.6
Other equity investments............................................. 209.3 300.5
Short-term investments............................................... 102.0 63.2
Other invested assets................................................ 41.9 50.9
----------------- -----------------
Total investments.................................................. 1,664.3 2,451.3
Cash and cash equivalents............................................ 106.8 42.6
Other assets......................................................... 253.9 242.9
----------------- -----------------
Total Assets......................................................... $ 2,025.0 $ 2,736.8
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,048.3 $ 1,335.9
Allowance for future losses.......................................... 259.2 262.0
Amounts due to continuing operations................................. 572.8 996.2
Other liabilities.................................................... 144.7 142.7
----------------- -----------------
Total Liabilities.................................................... $ 2,025.0 $ 2,736.8
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $97.3, $127.5 and $153.1)............ $ 188.6 $ 245.4 $ 323.6
Investment losses, net............................. (173.7) (18.9) (22.9)
Policy fees, premiums and other income............. .2 .2 .7
----------------- ---------------- -----------------
Total revenues..................................... 15.1 226.7 301.4
Benefits and other deductions...................... 169.5 250.4 326.5
Losses charged to allowance for future losses...... (154.4) (23.7) (25.1)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (134.1) (129.0) -
Federal income tax benefit......................... 46.9 45.2 -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (87.2) $ (83.8) $ -
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses, and
adjusts the allowance, if appropriate. Additionally, as part of the
Company's annual planning process which takes place in the fourth
quarter of each year, investment and benefit cash flow projections are
prepared. These updated assumptions and estimates resulted in the need
to strengthen the allowance in 1997 and 1996, respectively.
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in the fourth quarter, $92.5 million of writedown on real
estate held for production of income were recognized.
Benefits and other deductions includes $53.3 million, $114.3 million and
$154.6 million of interest expense related to amounts borrowed from
continuing operations in 1997, 1996 and 1995, respectively.
F-21
<PAGE>
Valuation allowances amounted to $28.4 million and $9.0 million on
mortgage loans on real estate and $88.4 million and $20.4 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1997 and 1996, problem mortgage loans on real estate had
amortized costs of $11.0 million and $7.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $109.4 million and $208.1 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 101.8 $ 83.5
Impaired mortgage loans without provision for losses................... .2 15.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 102.0 98.5
Provision for losses................................................... (27.3) (8.8)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 74.7 $ 89.7
================ =================
</TABLE>
During 1997, 1996 and 1995, the discontinued operations' average
recorded investment in impaired mortgage loans was $89.2 million, $134.8
million and $177.4 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $6.6 million, $10.1 million and
$4.5 million ($5.3 million, $7.5 million and $.4 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, discontinued operations had carrying
values of $156.2 million and $263.0 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,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 422.2 $ 174.1
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.6
Other.............................................................. .3 .5
----------------- -----------------
Total Equitable Life........................................... 599.4 599.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.87% - 12.00% due through 2006.................... 951.1 968.6
----------------- -----------------
Alliance:
Other.............................................................. 18.5 24.7
----------------- -----------------
Total long-term debt................................................. 1,569.0 1,592.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,991.2 $ 1,766.9
================= =================
</TABLE>
F-22
<PAGE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in June 2000.
The interest rates are based on external indices dependent on the type
of borrowing and at December 31, 1997 range from 5.88% to 8.50%. There
were no borrowings outstanding under this bank credit facility at
December 31, 1997.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1997, $50.0 million was outstanding under this program.
During 1996, Alliance entered into a $250.0 million five-year revolving
credit facility with a group of banks. Under the facility, the interest
rate, at the option of Alliance, is a floating rate generally based upon
a defined prime rate, a rate related to the London Interbank Offered
Rate ("LIBOR") or the Federal funds rate. A facility fee is payable on
the total facility. The revolving credit facility will be used to
provide back-up liquidity for Alliance's $250.0 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. At December 31, 1997,
Alliance had $72.0 million in commercial paper outstanding and there
were no borrowings under the revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
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. 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 $1,164.0 million and $1,406.4 million at December 31, 1997
and 1996, respectively, as collateral for certain long-term debt.
At December 31, 1997, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1998 and the succeeding
four years are $565.8 million, $201.4 million, $8.6 million, $1.7
million and $1.8 million, respectively, and $790.6 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 186.5 $ 97.9 $ (11.7)
Deferred......................................... (95.0) (88.2) 132.2
----------------- ---------------- -----------------
Total.............................................. $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
F-23
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 234.7 $ 73.0 $ 173.7
Non-taxable minority interest...................... (38.0) (28.6) (22.0)
Adjustment of tax audit reserves................... (81.7) 6.9 4.1
Equity in unconsolidated subsidiaries.............. (45.1) (32.3) (19.4)
Other.............................................. 21.6 (9.3) (15.9)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 257.9 $ - $ 259.2 $ -
Other.................................. 30.7 - - 1.8
DAC, reserves and reinsurance.......... - 222.8 - 166.0
Investments............................ - 405.7 - 328.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 288.6 $ 628.5 $ 259.2 $ 496.4
=============== ================ =============== ===============
</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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 46.2 $ (156.2) $ 63.3
Investments........................................ (113.8) 78.6 13.0
Compensation and related benefits.................. 3.7 22.3 30.8
Other.............................................. (31.1) (32.9) 25.1
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................................ $ (95.0) $ (88.2) $ 132.2
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the 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.
F-24
<PAGE>
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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 448.6 $ 461.4 $ 474.2
Reinsurance assumed................................ 198.3 177.5 171.3
Reinsurance ceded.................................. (45.4) (41.3) (38.7)
----------------- ---------------- -----------------
Premiums........................................... $ 601.5 $ 597.6 $ 606.8
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 61.0 $ 48.2 $ 44.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 70.6 $ 54.1 $ 48.9
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 36.4 $ 32.3 $ 28.5
================= ================ =================
</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 $1.6 million,
$2.4 million and $260.6 million for 1997, 1996 and 1995, respectively.
Ceded death and disability benefits totaled $4.3 million, $21.2 million
and $188.1 million for 1997, 1996 and 1995, respectively. Insurance
liabilities ceded totaled $593.8 million and $652.4 million at December
31, 1997 and 1996, 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 benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 32.5 $ 33.8 $ 30.0
Interest cost on projected benefit obligations..... 128.2 120.8 122.0
Actual return on assets............................ (307.6) (181.4) (309.2)
Net amortization and deferrals..................... 166.6 43.4 155.6
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 19.7 $ 16.6 $ (1.6)
================= ================ =================
</TABLE>
F-25
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,702.6 $ 1,672.2
Non-vested........................................................... 3.9 10.1
---------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,706.5 $ 1,682.3
================ =================
Plan assets at fair value.............................................. $ 1,867.4 $ 1,626.0
Projected benefit obligations.......................................... 1,801.3 1,765.5
---------------- -----------------
Projected benefit obligations (in excess of) or less than plan assets.. 66.1 (139.5)
Unrecognized prior service cost........................................ (9.9) (17.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 95.0 280.0
Unrecognized net asset at transition................................... 3.1 4.7
Additional minimum liability........................................... - (19.3)
---------------- -----------------
Prepaid Pension Cost.................................................. $ 154.3 $ 108.0
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.07%, respectively, at December 31, 1997 and
7.5% and 4.25%, respectively, at December 31, 1996. As of January 1,
1997 and 1996, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
The Company recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $17.3 million and $12.9 million,
net of Federal income taxes, at December 31, 1997 and 1996,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $33.2 million,
$34.7 million and $36.4 million for 1997, 1996 and 1995, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1997, 1996 and 1995, the Company made
estimated postretirement benefits payments of $18.7 million, $18.9
million and $31.1 million, respectively.
F-26
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.5 $ 5.3 $ 4.0
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 34.6 34.7
Net amortization and deferrals..................... 1.9 2.4 (2.3)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 41.1 $ 42.3 $ 36.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 388.5 $ 381.8
Fully eligible active plan participants.............................. 45.7 50.7
Other active plan participants....................................... 56.6 60.7
---------------- -----------------
490.8 493.2
Unrecognized prior service cost........................................ 40.3 50.5
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (140.6) (150.5)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 390.5 $ 393.2
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and costs to the Company of providing these
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 8.75% in 1997,
gradually declining to 2.75% in the year 2009 and in 1996 was 9.5%,
gradually declining to 3.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.50% at December 31, 1997 and 1996, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1997
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, 1997 and 1996, respectively, was $1,353.4 million and
$649.9 million. The average unexpired terms at December 31, 1997 ranged
from 1.5 to 3.8 years. At December 31, 1997, the cost of terminating
outstanding matched swaps in a loss position was $10.9 million and the
unrealized gain on outstanding matched swaps in a gain position was
$38.9 million. The Company has no intention of terminating these
contracts prior to maturity. During 1996 and 1995, net gains of $.2
million and $1.4 million, respectively, were recorded in connection with
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
F-27
<PAGE>
December 31, 1997 of contracts purchased and sold were $7,250.0 million
and $875.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $48.5 million and is being amortized ratably over
the contract periods ranging from 1 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1997 and 1996.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
F-28
<PAGE>
Fair values 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,611.4 $ 2,822.8 $ 3,133.0 $ 3,394.6
Other limited partnership interests.... 509.4 509.4 467.0 467.0
Policy loans........................... 2,422.9 2,493.9 2,196.1 2,221.6
Policyholders' account balances -
investment contracts................. 12,611.0 12,714.0 12,908.7 12,992.2
Long-term debt......................... 1,569.0 1,531.5 1,592.8 1,557.7
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,341.6 1,420.7 1,380.7 1,425.6
Other equity investments............... 86.3 86.3 105.0 105.0
Policy loans........................... 1,700.2 1,784.2 1,765.9 1,798.0
SCNILC liability....................... 27.6 30.3 30.6 34.9
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 655.5 779.9 1,111.1 1,220.3
Fixed maturities....................... 38.7 38.7 42.5 42.5
Other equity investments............... 209.3 209.3 300.5 300.5
Guaranteed interest contracts.......... 37.0 34.0 290.7 300.5
Long-term debt......................... 102.0 102.1 102.1 102.2
</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 $202.6 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $362.1 million at December 31, 1997, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $47.4 million of letters of credit outstanding
at December 31, 1997.
F-29
<PAGE>
14) LITIGATION
Equitable Life recently agreed to settle, subject to court approval,
previously disclosed cases brought by persons insured under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life (the "Policies") in New York (Golomb et al. v. The
Equitable Life Assurance Society of the United States), Pennsylvania
(Malvin et al. v. The Equitable Life Assurance Society of the United
States), Texas (Bowler et al. v. The Equitable Life Assurance Society of
the United States), Florida (Bachman v. The Equitable Life Assurance
Society of the United States) and California (Fletcher v. The Equitable
Life Assurance Society of the United States). Plaintiffs in these cases
claimed that Equitable Life's method for determining premium increases
breached the terms of certain forms of the Policies and was
misrepresented. Plaintiffs in Bowler and Fletcher also claimed that
Equitable Life misrepresented to policyholders in Texas and California,
respectively, that premium increases had been approved by insurance
departments in those states and determined annual rate increases in a
manner that discriminated against policyholders in those states in
violation of the terms of the Policies, representations to policyholders
and/or state law. The New York trial court dismissed the Golomb action
with prejudice and plaintiffs appealed. In Bowler and Fletcher,
Equitable Life denied the material allegations of the complaints and
filed motions for summary judgment which have been fully briefed. The
Malvin action was stayed indefinitely pending the outcome of proceedings
in Golomb and in Fletcher the magistrate concluded that the case should
be remanded to California state court and Equitable Life appealed that
determination to the district judge. On December 23, 1997, Equitable
Life entered into a settlement agreement, subject to court approval,
which would result in the dismissal with prejudice of each of the five
pending actions and the resolution of all similar claims on a nationwide
basis.
The settlement agreement provides for the creation of a nationwide class
consisting of all persons holding, and paying premiums on, the Policies
at any time since January 1, 1988. An amended complaint will be filed in
the federal district court in Tampa, Florida (where the Florida action
is pending), that would assert claims of the kind previously made in the
cases described above on a nationwide basis, on behalf of policyholders
in the nationwide class, which consists of approximately 127,000 former
and current policyholders. If the settlement is approved, Equitable Life
would pay $14,166,000 in exchange for release of all claims for past
damages on claims of the type described in the five pending actions and
the amended complaint. Costs of administering the settlement and any
attorneys' fees awarded by the court to plaintiffs' counsel would be
deducted from this fund before distribution of the balance to the class.
In addition to this payment, Equitable Life will provide future relief
to current holders of certain forms of the Policies in the form of an
agreement to be embodied in the court's judgment, restricting the
premium increases Equitable Life can seek on these Policies in the
future. The parties estimate the present value of these restrictions at
$23,333,000, before deduction of any attorneys' fees that may be awarded
by the court. The estimate is based on assumptions about future events
that cannot be predicted with certainty and accordingly the actual value
of the future relief may differ. The parties to the settlement shortly
will be asking the court to approve preliminarily the settlement and
settlement class and to permit distribution of notice of the settlement
to policyholders, establish procedures for objections, an opportunity to
opt out of the settlements as it affects past damages, and a court
hearing on whether the settlement should be finally approved. Equitable
Life cannot predict whether the settlement will be approved or, if it is
not approved, the outcome of the pending litigations. As noted,
proceedings in Malvin were stayed indefinitely; proceedings in the other
actions have been stayed or deferred to accommodate the settlement
approval process.
A number of lawsuits have 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,
alleged 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, Equitable
Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues
for certain limited purposes, including the defense of litigation) and
The Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. Among
litigations pending against Equitable Life, EVLICO and EOC of the type
referred to in this paragraph are the litigations described in the
following seven paragraphs.
F-30
<PAGE>
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. 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 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. In June 1996, the Court
issued a decision and order dismissing with prejudice plaintiffs' causes
of action for fraud, constructive fraud, breach of fiduciary duty,
negligence, and unjust enrichment, and dismissing without prejudice
plaintiffs' 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. In April 1997, plaintiffs noticed an
appeal from the court's June 1996 order. Subsequently, Equitable Life
and EOC noticed a cross-appeal from so much of the June 1996 order that
denied their motion to dismiss. Briefing on the appeals is scheduled to
begin on February 23, 1998. In June 1997, plaintiffs filed their
memorandum of law and affidavits in support of their motion for class
certification. That memorandum states that plaintiffs seek to certify a
class solely on their breach of contract claims, and not on their
negligent misrepresentation claim. Plaintiffs' class certification
motion has been fully briefed by the parties and is sub judice. In
August 1997, Equitable Life and EOC moved for summary judgment
dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation. Defendants' summary judgment motion has
been fully briefed by the parties. On January 5, 1998, plaintiffs filed
a note of issue (placing the case on the trial calendar).
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 originally was brought by an
individual who purchased a whole life policy from Equitable Life in
1989. In September 1997, with leave of the court, plaintiff filed a
second amended petition naming six additional policyholder plaintiffs
and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the
second amended petition. Plaintiffs purport to represent a class
consisting of all persons who purchased whole life or universal life
insurance policies from Equitable Life from January 1, 1981 through July
22, 1992. Plaintiffs allege improper sales practices based on
allegations of misrepresentations concerning one or more of the
following: the number of years that premiums would need to be paid; a
policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages,
including punitive damages, in an unspecified amount. In October 1997,
Equitable Life filed (i) exceptions to the second amended petition,
asserting deficiencies in pleading of venue and vagueness; and (ii) a
motion to strike certain allegations. On January 23, 1998, the court
heard argument on Equitable Life's exceptions and motion to strike.
Those motions are sub judice. Motion practice regarding discovery
continues.
On July 26, 1996, an action entitled Michael Bradley v. Equitable
Variable Life Insurance Company was commenced in New York state court,
Kings County. 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. EVLICO answered the complaint,
denying the material allegations. In September 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 in Cole in
January 1997. Plaintiff then moved for certification of a nationwide
class consisting of all persons or entities who, since January 1, 1980,
were sold one or more life insurance products based on
misrepresentations as to the number of years that the annual premium
would need to be paid, and/or who were allegedly induced to purchase
additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. Discovery and
briefing regarding plaintiff's motion for class certification are
ongoing.
F-31
<PAGE>
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 in 1988. The complaint puts
in 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 alleges 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. In May
1997, plaintiff served a motion for class certification. In July 1997,
the parties submitted to the Court a joint scheduling report, joint
scheduling order and a confidentiality stipulation and order. The Court
signed the latter stipulation, and the others remain sub judice. Further
briefing on plaintiff's class certification motion will await entry of a
scheduling order and further class certification discovery, which has
commenced and is on-going. In January 1998, the judge assigned to the
case recused himself, and the case was reassigned. Defendants are to
serve their answer in February 1998.
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 amended complaint alleges that Equitable Life's and EVLICO's
agents were trained not to 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. Equitable Life and EVLICO have
answered the amended complaint, denying the material allegations and
asserting certain affirmative defenses. Motion practice regarding
discovery continues.
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. Plaintiff
filed an amended complaint in April 1997. In July 1997, Equitable Life
served a motion to dismiss the amended complaint or, in the alternative,
for summary judgment. On September 12, 1997, plaintiff moved for class
certification. This motion is scheduled for hearing on February 18,
1998.
On September 11, 1997, an action entitled Pamela L. and James A. Luther,
individually and as representatives of all people similarly situated v.
The Equitable Life Assurance Society of the United States, The Equitable
Companies Incorporated, and Casey Cammack, individually and as agent for
The Equitable Life Assurance Society of the United States and The
Equitable Companies Incorporated, was filed in Texas state court. The
action was brought by holders of a whole life policy and the beneficiary
under that policy. Plaintiffs purport to represent a nationwide class of
persons having an ownership or beneficial interest in whole and
universal life policies issued by Equitable Life from January 1, 1982
through December 31, 1996. Also included in the purported class are
persons having an ownership interest in variable annuities purchased
from Equitable Life from January 1, 1992 to the present. The complaint
puts in issue the allegations that uniform sales presentations,
illustrations, and materials that Equitable Life agents used
misrepresented the stated number of years that premiums would need to be
paid and misrepresented the extent to which the policies at issue were
F-32
<PAGE>
proper replacement policies. Plaintiffs seek compensatory damages,
attorneys' fees and expenses. In October 1997, Equitable Life served a
general denial of the allegations against it. The same day, the Holding
Company entered a special appearance contesting the court's jurisdiction
over it. In November 1997, Equitable Life filed a plea in abatement,
which, under Texas law, stayed further proceedings in the case because
plaintiffs had not served a demand letter. Plaintiffs served a demand
letter upon Equitable Life and the Holding Company, the response to
which is due 60 days thereafter. 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, Dillon, Franze, Chaviano and
Luther litigations should not have a material adverse effect on the
financial position of the Company. The Company's management cannot make
an estimate of loss, if any, or predict whether or not any such
litigation will have a material adverse effect on the Company's results
of operations in any particular period.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of The Equitable from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States, alleges, among other things, that Equitable Life
discriminated on the basis of race against African-American applicants
and potential applicants in hiring individuals as sales agents.
Plaintiffs seek a declaratory judgment and affirmative and negative
injunctive relief, including the payment of back-pay, pension and other
compensation. Although the outcome of any litigation cannot be predicted
with certainty, the Company's management believes that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position of the Company. The Company's management cannot
make an estimate of loss, if any, or predict whether or not such matter
will have a material adverse effect on the Company's results of
operations in any particular period.
The U.S. Department of Labor ("DOL") is conducting an investigation of
Equitable Life's management of 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 retains EREIM as advisor. Equitable Life agreed to indemnify the
purchaser of EREIM (which Equitable Life sold in June 1997) with respect
to any fines, penalties and rebates to clients in connection with this
investigation. In early 1995, the DOL commenced a national investigation
of commingled real estate funds with pension investors, including PPF.
The investigation 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, the Company's management believes
that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of the Company. The Company's
management cannot make an estimate of loss, if any, or predict whether
or not this investigation will have a material adverse effect on the
Company's results of operations in any particular period.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which sought 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, sought an
unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that 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 alleged 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
F-33
<PAGE>
New York granted the defendants' motion to dismiss all counts of the
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996,
the court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for
the Second Circuit issued an order granting defendants' motion to strike
and dismissing plaintiffs' appeal of the First Decision. 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 (i)
the Fund failed to hedge against the risks of investing in foreign
securities despite representations that it would do so, (ii) the Fund
did not properly disclose that it planned to invest in mortgage-backed
derivative securities and (iii) two advertisements used by the Fund
misrepresented the risks of investing in the Fund. On July 15, 1997, the
District Court denied plaintiffs' motion for leave to file an amended
complaint and ordered that the case be dismissed ("Second Decision").
The plaintiffs have appealed the Second Decision to the United States
Court of Appeals for the Second Circuit. 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 U. S. 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 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 that 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 U.S. 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. On October 10, 1997, DLJSC and
F-34
<PAGE>
others were named as defendants in a new adversary proceeding in the
Bankruptcy Court brought by the NGC Settlement Trust, an entity created
by the NGC plan of reorganization to deal with asbestos-related claims.
The Trust's allegations are substantially similar to the claims in the
State Court action. In court papers dated October 16, 1997, the State
Court plaintiff indicated that he would intervene in the Trust's
adversary proceeding. On January 21, 1998, the Bankruptcy Court ruled
that the State Court plaintiff's claims were not barred by the NGC plan
of reorganization insofar as they alleged nondisclosure of certain cost
reductions announced by NGC in October 1993. The Texas State Court
action, which 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 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 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. On
February 26, 1997, the parties agreed to a settlement of these actions,
subject to the District Court's approval, which was granted on July 31,
1997. The settlement is also subject to approval by the U.S. Bankruptcy
Court for the Eastern District of Louisiana of proposed modifications to
a confirmed plan of reorganization for Harrah's Jazz Company and
Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan.
There can be no assurance of the Bankruptcy Court's approval of the
modifications to the plan of reorganization, or that the conditions to
the effectiveness of the plan will be satisfied or waived. In the
opinion of DLJ's management, the settlement, if approved, will not have
a material adverse effect on DLJ's results of operations or on its
consolidated financial condition.
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 1998 and the succeeding four years are $93.5 million, $84.4
million, $70.2 million, $56.4 million, $47.0 million and $489.3 million
thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1998 and the succeeding four years are $7.3
million, $5.9 million, $3.8 million, $2.4 million, $.8 million and $2.9
million thereafter.
At December 31, 1997, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $247.0 million, $238.1 million, $218.7
million, $197.9 million, $169.1 million and $813.0 million thereafter.
F-35
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 721.5 $ 704.8 $ 628.4
Commissions........................................ 409.6 329.5 314.3
Short-term debt interest expense................... 31.7 8.0 11.4
Long-term debt interest expense.................... 121.2 137.3 108.1
Amortization of policy acquisition costs........... 287.3 405.2 317.8
Capitalization of policy acquisition costs......... (508.0) (391.9) (391.0)
Rent expense, net of sub-lease income.............. 101.8 113.7 109.3
Cursitor intangible assets writedown............... 120.9 - -
Other.............................................. 917.9 769.1 677.5
----------------- ---------------- -----------------
Total.............................................. $ 2,203.9 $ 2,075.7 $ 1,775.8
================= ================ =================
</TABLE>
During 1997, 1996 and 1995, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $42.4 million, $24.4 million and $32.0 million,
respectively. The amounts paid during 1997, associated with cost
reduction programs, totaled $22.8 million. At December 31, 1997, the
liabilities associated with cost reduction programs amounted to $62.0
million. The 1997 cost reduction program include costs related to
employee termination and exit costs. The 1996 cost reduction program
included restructuring costs related to the consolidation of insurance
operations' service centers. The 1995 cost reduction program included
relocation expenses, including the accelerated amortization of building
improvements associated with the relocation of the home office.
Amortization of DAC in 1996 included a $145.0 million writeoff of DAC
related to DI contracts.
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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1997, 1996 and 1995, statutory net
loss totaled $351.7 million, $351.1 million and $352.4 million,
respectively. No amounts are expected to be available for dividends from
Equitable Life to the Holding Company in 1998.
At December 31, 1997, the Insurance Group, in accordance with various
government and state regulations, had $19.7 million of securities
deposited with such government or state agencies.
F-36
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 203.6 $ 56.0 $ 78.1
Change in asset valuation reserves................. 147.1 (48.4) 365.7
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 350.7 7.6 443.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (31.1) (298.5) (66.0)
DAC.............................................. 220.7 (13.3) 73.2
Deferred Federal income taxes.................... 103.1 108.0 (158.1)
Valuation of investments......................... 46.8 289.8 189.1
Valuation of investment subsidiary............... (555.8) (117.7) (188.6)
Limited risk reinsurance......................... 82.3 92.5 416.9
Issuance of surplus notes........................ - - (538.9)
Postretirement benefits.......................... (3.1) 28.9 (26.7)
Other, net....................................... 30.3 12.4 115.1
GAAP adjustments of Closed Block................. 3.6 (9.8) 15.7
GAAP adjustments of discontinued operations...... 189.7 (89.6) 37.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 437.2 $ 10.3 $ 312.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,462.5 $ 2,258.9 $ 2,202.9
Asset valuation reserves........................... 1,444.6 1,297.5 1,345.9
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,907.1 3,556.4 3,548.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,336.1) (1,305.0) (1,006.5)
DAC.............................................. 3,236.6 3,104.9 3,075.8
Deferred Federal income taxes.................... (370.8) (306.1) (452.0)
Valuation of investments......................... 783.5 286.8 417.7
Valuation of investment subsidiary............... (1,338.6) (782.8) (665.1)
Limited risk reinsurance......................... (254.2) (336.5) (429.0)
Issuance of surplus notes........................ (539.0) (539.0) (538.9)
Postretirement benefits.......................... (317.5) (314.4) (343.3)
Other, net....................................... 203.7 126.3 4.4
GAAP adjustments of Closed Block................. 814.3 783.7 830.8
GAAP adjustments of discontinued operations...... 71.5 (190.3) (184.6)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================ =================
</TABLE>
F-37
<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.
Insurance Operations 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.
Investment Services 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 $81.9
million, $127.5 million and $124.1 million for 1997, 1996 and 1995,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the GIC Segment of
$5.1 million, $15.7 million and $14.7 million for 1997, 1996 and 1995,
respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,684.2 $ 3,770.6 $ 3,614.6
Investment services................................ 1,455.1 1,126.1 949.1
Consolidation/elimination.......................... (19.9) (24.5) (34.9)
----------------- ---------------- -----------------
Total.............................................. $ 5,119.4 $ 4,872.2 $ 4,528.8
================= ================ =================
Earnings (loss) from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change
Insurance operations............................... $ 250.3 $ (36.6) $ 303.1
Investment services................................ 485.7 311.9 224.0
Consolidation/elimination.......................... - .2 (3.1)
----------------- ---------------- -----------------
Subtotal..................................... 736.0 275.5 524.0
Corporate interest expense......................... (65.3) (66.9) (27.9)
----------------- ---------------- -----------------
Total.............................................. $ 670.7 $ 208.6 $ 496.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................................................... $ 68,305.9 $ 60,464.9
Investment services.................................................... 13,719.8 13,542.5
Consolidation/elimination.............................................. (403.6) (399.6)
---------------- -----------------
Total.................................................................. $ 81,622.1 $ 73,607.8
================ =================
</TABLE>
F-38
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1997 and 1996, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
1996
Total Revenues................ $ 1,176.5 $ 1,199.4 $ 1,198.4 $ 1,297.9
================= ================= ================== ==================
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)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million. 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 and
reserve strengthenings on DI business of $113.7 million, Pension Par of
$47.5 million and Discontinued Operations of $83.8 million.
20) INVESTMENT IN DLJ
At December 31, 1997, the Company's ownership of DLJ interest was
approximately 34.4%. 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-39
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 16,535.7 $ 15,728.1
Securities purchased under resale agreements........................... 22,628.8 20,598.7
Broker-dealer related receivables...................................... 28,159.3 16,858.8
Other assets........................................................... 3,182.0 2,318.1
---------------- -----------------
Total Assets........................................................... $ 70,505.8 $ 55,503.7
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 36,006.7 $ 29,378.3
Broker-dealer related payables......................................... 25,706.1 19,409.7
Short-term and long-term debt.......................................... 3,670.6 2,704.5
Other liabilities...................................................... 2,860.9 2,164.0
---------------- -----------------
Total liabilities...................................................... 68,244.3 53,656.5
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,061.5 1,647.2
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 70,505.8 $ 55,503.7
================ =================
DLJ's equity as reported............................................... $ 2,061.5 $ 1,647.2
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.5 23.9
The Holding Company's equity ownership in DLJ.......................... (740.2) (590.2)
Minority interest in DLJ............................................... (729.3) (588.6)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 615.5 $ 492.3
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 2,356.8 $ 1,818.2
Net investment income.................................................. 1,652.1 1,074.2
Dealer, trading and investment gains, net.............................. 631.6 598.4
---------------- -----------------
Total revenues......................................................... 4,640.5 3,490.8
Total expenses including income taxes.................................. 4,232.3 3,199.5
---------------- -----------------
Net earnings........................................................... 408.2 291.3
Dividends on preferred stock........................................... 12.1 18.7
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 396.1 $ 272.6
================ =================
DLJ's earnings applicable to common shares as reported................. $ 396.1 $ 272.6
Amortization of cost in excess of net assets acquired in 1985.......... (1.3) (3.1)
The Holding Company's equity in DLJ's earnings......................... (156.8) (107.8)
Minority interest in DLJ............................................... (109.1) (73.4)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 128.9 $ 88.3
================ =================
</TABLE>
F-40
<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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1997, 1996 and 1995 would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As Reported............................................. $ 437.2 $ 10.3 $ 312.8
Pro Forma............................................... $ 426.3 $ 3.3 $ 311.3
</TABLE>
The fair value of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, was estimated as of the date
of grants using the Black-Scholes option pricing model. The option
pricing assumptions for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------------------- --------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield.... 0.48% 0.80% 0.96% 0.86% 1.54% 1.85% 8.00% 8.00% 8.00%
Expected volatility 20.00% 20.00% 20.00% 33.00% 25.00% 25.00% 26.00% 23.00% 23.00%
Risk-free interest
rate............ 5.99% 5.92% 6.83% 5.96% 6.07% 5.86% 5.70% 5.80% 6.00%
Expected life..... 5 years 5 years 5 years 5 years 5 years 5 years 7.6 years 7.43 years 7.43 years
Weighted average
grant-date fair
value per option $12.25 $6.94 $5.90 $22.45 $9.35 $7.36 $4.36 $2.69 $2.24
</TABLE>
F-41
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is 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, 1995........ 6.8 $20.31 - 3.8 $15.46
Granted................ .4 $20.27 9.2 $27.00 1.8 $20.54
Exercised.............. (.1) $20.00 - (.5) $11.20
Expired................ (.1) $20.00 - -
Forfeited.............. (.3) $22.24 - (.3) $16.64
--------------- ------------- ---------------
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................ - - -
Forfeited.............. (.6) $20.21 (.2) $27.00 (.1) $19.32
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
Granted................ 3.2 $41.85 3.2 $61.07 1.1 $36.56
Exercised.............. (1.6) $20.26 (.1) $32.03 (.6) $16.11
Forfeited.............. (.4) $23.43 (.1) $27.51 (.2) $21.28
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 14.1 $35.56 5.3 $22.82
=============== ============= ===============
</TABLE>
F-42
<PAGE>
Information about options outstanding and exercisable at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- ----------------- --------------- ------------------- ----------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 4.8 5.84 $20.94 3.0 $20.41
$28.50 -$45.25 3.1 9.57 $41.84 - -
----------------- -------------------
$18.125 -$45.25 7.9 7.29 $29.05 3.0 $20.41
================= ================= =============== =================== ================
DLJ
----------------------
$27.00 -$35.99 10.9 8.0 $28.05 4.9 $27.58
$36.00 -$50.99 .8 9.3 $40.04 - -
$51.00 -$76.00 2.4 9.8 $67.77 - -
----------------- -------------------
$27.00 -$76.00 14.1 8.4 $35.56 4.9 $27.58
================= ================= ================ =================== =================
Alliance
----------------------
$ 6.0625 -$17.75 1.1 3.86 $13.20 1.0 $13.04
$19.375 -$19.75 .8 7.34 $19.39 .3 $19.39
$19.875 -$21.375 1.1 8.28 $20.13 .6 $20.19
$22.25 -$27.50 1.3 9.81 $23.81 .4 $23.29
$36.9375 -$37.5625 1.0 9.95 $36.95 - -
----------------- -------------------
$ 6.0625 -$37.5625 5.3 7.58 $22.82 2.3 $17.43
================= ================== ============== ====================== =============
</TABLE>
F-43
<PAGE>
INCOME MANAGER(R) ACCUMULATOR(SM)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
-----------------
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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
MFS Research Equity Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity T. Rowe Price International Stock
T. Rowe Price Equity Income
- ---------------------------------------------------------------------------------------------------------------
</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
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
- ---------------------------------------------------------------------------------------------------------------
</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 December 31, 1997 and the prospectus supplement dated May 1,
1998. Definitions of special terms used in the SAI are found in the prospectus.
Copies of the prospectus and supplement are available free of charge by writing
the Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your agent.
- --------------------------------------------------------------------------------
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, Alliance Intermediate
Government Securities Fund and Alliance High Yield
Fund Yield Information 3
- --------------------------------------------------------------------------------
Part 5 Long-Term Market Trends 4
- --------------------------------------------------------------------------------
Part 6 Financial Statements 6
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of the United States,
New York, New York 10104. All rights reserved. Income Manager is a
registered service mark and Accumulator is a service mark of
The Equitable Life Assurance Society of the United States.
(IM-98-ACC1297)
<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/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 HRT or
EQAT, 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 each
Fund's respective effective date (as shown in the prospectus) 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 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
2
<PAGE>
- --------------------------------------------------------------------------------
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 financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 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, ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND AND ALLIANCE
HIGH YIELD 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) [superscript: 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 and Alliance High Yield Fund
The Alliance Intermediate Government Securities and Alliance High Yield Funds
calculate 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 or Alliance High Yield 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 or
Alliance High Yield 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)
[superscript: 365/30] - 1. The yields for the Alliance Intermediate Government
3
<PAGE>
- --------------------------------------------------------------------------------
Securities and Alliance High Yield Funds 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 and Alliance High Yield Funds will fluctuate
and not remain constant.
Alliance Money Market Fund, Alliance Intermediate Government Securities Fund and
Alliance High Yield Fund Yield Information
The yields for the Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund and Alliance High Yield Fund 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. The yields for the Alliance
Money Market, Alliance Intermediate Government Securities and Alliance High
Yield Funds 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 yields be compared to the yields 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 5.07% for the
period ended December 31, 1997. The effective yield for that period was 5.23%.
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 8.19% for the period ended December 31, 1997. The effective yield for
that period was 8.51%.
The 30-day current yield for the Alliance High Yield Fund was 16.27% for the
period ended December 31, 1997. The effective yield for that period was 17.54%.
Because the above yields reflect the deduction of Separate Account expenses,
they are lower than the corresponding yield figures for the Alliance Money
Market, Alliance Intermediate Government Securities and Alliance High Yield
Portfolios which reflect only the deduction of HRT-level expenses.
- --------------------------------------------------------------------------------
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, 1957
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE TYPESET DOCUMENT:]
Common Stock Inflation
1957 0.89 1.03
1958 1.28 1.05
1959 1.43 1.06
1960 1.44 1.08
1961 1.83 1.09
1962 1.67 1.10
1963 2.05 1.12
1964 2.38 1.13
1965 2.68 1.15
1966 2.41 1.19
1967 2.99 1.23
1968 3.32 1.29
1969 3.04 1.36
1970 3.16 1.44
1971 3.61 1.49
1972 4.30 1.54
1973 3.67 1.67
1974 2.70 1.88
1975 3.70 2.01
1976 4.58 2.11
1977 4.25 2.25
1978 4.53 2.45
1979 5.37 2.78
1980 7.11 3.12
1981 6.76 3.40
1982 8.20 3.54
1983 10.05 3.67
1984 10.68 3.81
1985 14.11 3.96
1986 16.72 4.00
1987 17.60 4.18
1988 20.55 4.36
1989 27.03 4.57
1990 26.17 4.85
1991 34.16 4.99
1992 36.78 5.14
1993 40.46 5.28
1994 40.99 5.42
1995 56.33 5.56
1996 69.33 5.74
1997 92.44 5.85
[WHITE AREA = COMMON STOCK]
[BLACK AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
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 1997.
4
<PAGE>
- --------------------------------------------------------------------------------
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK & WHITE LINE GRAPH
IN THE TYPESET DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[BLACK DOTS = INTERMEDIATE-TERM GOVT. BONDS]
[WHITE DOTS = COMMON STOCKS]
[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, 1997 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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
- ----------------------------------------------------------------------------------------------------------
LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM TREASURY CONSUMER
ENDING 12/31/97: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 33.36% 15.85% 12.95% 8.38% 5.26% 1.92%
3 Years 31.15% 14.76% 13.36% 8.93% 5.35% 2.59%
5 Years 20.24% 10.51% 9.22% 6.40% 4.57% 2.64%
10 Years 18.05% 11.32% 10.85% 8.33% 5.44% 3.43%
20 Years 16.65% 10.39% 10.29% 9.51% 7.29% 4.90%
30 Years 12.12% 8.63% 8.86% 8.52% 6.77% 5.34%
40 Years 12.30% 6.71% 7.09% 7.10% 5.85% 4.44%
50 Years 13.12% 5.70% 6.07% 6.04% 4.99% 3.94%
60 Years 12.53% 5.31% 5.54% 5.44% 4.18% 4.11%
Since 12/31/26 10.99% 5.19% 5.71% 5.25% 3.77% 3.17%
Inflation adjusted since 1926 7.58% 1.96% 2.46% 2.02% 0.58% --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969 - 1997, 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 -
1997; 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.
5
<PAGE>
- --------------------------------------------------------------------------------
PART 6 -- FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the Certificates.
6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO.45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1997........................................... FS-3
Statements of Operations for the Year Ended December 31, 1997..................................... FS-6
Statements of Changes in Net Assets for the Years Ended December 31, 1997 and 1996................ FS-9
Notes to Financial Statements..................................................................... FS-14
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996.............................................. F-2
Consolidated Statements of Earnings, Years Ended December 31, 1997, 1996 and 1995.................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1997,
1996 and 1995...................................................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1997, 1996 and 1995.................. F-5
Notes to Consolidated Financial Statements........................................................... F-6
</TABLE>
FS-1
<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 Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund, T.
Rowe Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, Alliance Equity Index Fund, Merrill Lynch Basic Value
Equity Fund, Alliance Common Stock Fund, MFS Research Fund, Alliance Global
Fund, Alliance International Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock Fund,
Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth Fund, MFS
Emerging Growth Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam
Balanced Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund, separate investment funds of The Equitable Life Assurance Society of the
United States ("Equitable Life") Separate Account No. 45 at December 31, 1997
and 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 owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1997 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
----------- ------------- ---------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $82,037,124.......... $81,571,923
11,097,635.......... $11,119,574
19,330,287.......... $18,544,101
Receivable (payable) for policy-related
transactions................................... 2,903,327 50,563 662,782
----------- ----------- ------------
Total Assets...................................... 84,475,250 11,170,137 19,206,883
----------- ----------- ------------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 2,910,079 52,140 665,890
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 206,810 55,747 59,654
----------- ----------- ------------
Total Liabilities................................. 3,116,889 107,887 725,544
----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $81,358,361 $11,062,250 $18,481,339
=========== =========== ============
<CAPTION>
EQUITY SERIES
--------------------------------------------------------------------------
MERRILL
T. ROWE PRICE EQ/PUTNAM ALLIANCE LYNCH
EQUITY GROWTH & ALLIANCE EQUITY BASIC VALUE
EQUITY INCOME VALUE GROWTH & INDEX EQUITY
INCOME FUND FUND INCOME FUND FUND FUND
------------- -------------- ----------- ----------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 18,007,458.......... $18,987,864
14,008,930.......... $14,200,058
88,651,911.......... $94,268,289
99,286.......... $104,008
9,928,247.......... $9,863,914
Receivable (payable) for policy-related
transactions................................... 105,202 186,146 809,151 (8) 34,834
----------- ----------- ----------- --------- ----------
Total Assets...................................... 19,093,066 14,386,204 95,077,440 104,000 9,898,748
----------- ----------- ----------- --------- ----------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 109,104 189,102 829,693 -- 36,845
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 15,447 11,682 366,973 6,482 7,463
----------- ----------- ----------- --------- ----------
Total Liabilities................................. 124,551 200,784 1,196,666 6,482 44,308
----------- ----------- ----------- --------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $18,968,515 $14,185,420 $93,880,774 $ 97,518 $9,854,440
=========== =========== =========== ========= ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
------------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $297,090,529................... $320,541,976
11,939,823................... $11,977,333
38,334,848................... $38,090,450
18,748,095................... $16,610,244
Receivable (payable) for policy-related transactions....... 1,219,096 44,794 646,213 31,494
------------ ----------- ----------- -----------
Total Assets............................................... 321,761,072 12,022,127 38,736,663 16,641,738
------------ ----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ 1,275,113 47,322 83,460 68,383
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 1,176,309 10,019 143,534 90,013
------------ ----------- ----------- -----------
Total Liabilities.......................................... 2,451,422 57,341 226,994 158,396
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $319,309,650 $11,964,786 $38,509,669 $16,483,342
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
T. ROWE MORGAN
PRICE STANLEY ALLIANCE
INTERNATIONAL EMERGING AGGRESSIVE
STOCK MARKETS STOCK
FUND EQUITY FUND FUND
------------- ----------- ------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 13,205,929................... $12,628,951
2,479,420................... $2,241,138
122,157,062................... $118,305,660
Receivable (payable) for policy-related transactions....... (241,260) 14,961 55,012
----------- ---------- ------------
Total Assets............................................... 12,387,691 2,256,099 118,360,672
----------- ---------- ------------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ (238,550) 15,412 76,530
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 9,534 1,594 456,464
----------- ---------- ------------
Total Liabilities.......................................... (229,016) 17,006 532,994
----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $12,616,707 $2,239,093 $117,827,678
=========== ========== ============
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP GROWTH
COMPANY GROWTH COMPANIES
VALUE FUND FUND FUND
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $25,096,987.................. $24,796,551
16,633,779.................. $16,289,343
12,205,272.................. $11,946,078
Receivable (payable) for policy-related transactions...... 208,290 107,600 73,764
----------- ----------- -----------
Total Assets.............................................. 25,004,841 16,396,943 12,019,842
----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 213,483 114,679 76,254
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 19,432 54,205 9,228
----------- ----------- -----------
Total Liabilities......................................... 232,915 168,884 85,482
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $24,771,926 $16,228,059 $11,934,360
=========== =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
------------ ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 20,991,531.................. $21,474,276
5,965,298.................. $6,038,880
64,675,197.................. $66,360,908
2,544,176.................. $2,415,053
Receivable (payable) for policy-related transactions...... 146,316 76,680 120,470 9,748
----------- ---------- ----------- ----------
Total Assets.............................................. 21,620,592 6,115,560 66,481,378 2,424,801
----------- ---------- ----------- ----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 149,280 77,927 132,026 10,238
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 142,854 4,667 366,318 1,768
----------- ---------- ----------- ----------
Total Liabilities......................................... 292,134 82,594 498,344 12,006
----------- ---------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $21,328,458 $6,032,966 $65,983,034 $2,412,795
=========== ========== =========== ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND(A)
----------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 2,767,636 $ 373,989 $ 654,819
Expenses (Note 3):
Asset based charges ....................................... 445,521 70,280 53,671
----------- --------- -----------
NET INVESTMENT INCOME (LOSS) .............................. 2,322,115 303,709 601,148
----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 59,011 12,754 76,963
Realized gain distribution from the Trusts ................ 5,264 -- 706,360
----------- --------- -----------
Net Realized Gain (Loss) ............................... 64,275 12,754 783,323
----------- --------- -----------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... (197,899) (36,715) --
End of period ............................................. (465,201) 21,939 (786,186)
----------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ......................................... (267,302) 58,654 (786,186)
----------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ (203,027) 71,408 (2,863)
----------- --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $ 2,119,088 $ 375,117 $ 598,285
=========== ========= ===========
<CAPTION>
EQUITY SERIES
---------------------------------------------------------------
T. ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & EQUITY BASIC VALUE
INCOME INCOME INCOME INDEX EQUITY
FUND(A) FUND(A) VALUE FUND FUND(A) FUND(A)
----------- -------- ---------- -------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 141,756 $ 65,607 $ 522,395 $ 596 $ 49,960
Expenses (Note 3):
Asset based charges ....................................... 62,938 44,334 617,639 409 29,450
---------- ----------- ------------ -------- --------
NET INVESTMENT INCOME (LOSS) .............................. 78,818 21,273 (95,244) 187 20,510
---------- ----------- ------------ -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 2,121 963 707,686 1,022 711
Realized gain distribution from the Trusts ................ 52,414 53,683 5,306,878 370 47,068
---------- ----------- ------------ -------- --------
Net Realized Gain (Loss) ............................... 54,535 54,646 6,014,564 1,392 47,779
---------- ----------- ------------ -------- --------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... -- -- 764,236 -- --
End of period ............................................. 980,406 191,128 5,616,378 4,722 (64,333)
---------- ----------- ------------ -------- --------
Change in unrealized appreciation (depreciation)
during the period ......................................... 980,406 191,128 4,852,142 4,722 (64,333)
---------- ----------- ------------ -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ 1,034,941 245,774 10,866,706 6,114 (16,554)
---------- ----------- ------------ -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $1,113,759 $ 267,047 $ 10,771,462 $ 6,301 $ 3,956
========== =========== ============ ======== ========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
---------------------------------------------------------
ALLIANCE ALLIANCE
COMMON MFS ALLIANCE INTER-
STOCK RESEARCH GLOBAL NATIONAL
FUND FUND(A) FUND FUND
------------ ---------- ------------ -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,007,250 $ 25,364 $ 662,565 $ 454,446
Expenses (Note 3):
Asset based charges .................................. 2,216,874 40,703 334,193 165,980
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (1,209,624) (15,339) 328,372 288,466
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 3,442,671 1,227 423,327 259,996
Realized gain distribution from the Trusts ........... 23,990,653 100,696 2,414,538 833,830
----------- -------- ---------- -----------
Net Realized Gain (Loss) .......................... 27,433,324 101,923 2,837,865 1,093,826
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 1,356,454 -- 199,484 31,388
End of period ........................................ 23,451,447 37,510 (244,398) (2,137,851)
----------- -------- ---------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. 22,094,993 37,510 (443,882) (2,169,239)
----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 49,528,317 139,433 2,393,983 (1,075,413)
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $48,318,693 $124,094 $2,722,355 $ (786,947)
=========== ======== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING ALLIANCE
NATIONAL MARKETS AGGRESSIVE
STOCK EQUITY STOCK
FUND(A) FUND(B) FUND
---------- --------- ------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,646 $ 6,387 $ 105,375
Expenses (Note 3):
Asset based charges .................................. 47,444 5,153 985,564
--------- --------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (45,798) 1,234 (880,189)
--------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. (53,503) (26,406) 61,253
Realized gain distribution from the Trusts ........... -- -- 9,818,273
--------- --------- -----------
Net Realized Gain (Loss) .......................... (53,503) (26,406) 9,879,526
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- (2,165,186)
End of period ........................................ (576,978) (238,282) (3,851,402)
--------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. (576,978) (238,282) (1,686,216)
--------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... (630,481) (264,688) 8,193,310
--------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $(676,279) $(263,454) $ 7,313,121
========= ========= ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
--------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 21,393 $ 773 $ 22,515
Expenses (Note 3):
Asset based charges .................................. 85,830 50,629 38,336
--------- --------- ---------
NET INVESTMENT INCOME (LOSS) ......................... (64,437) (49,856) (15,821)
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 228,992 62,796 52,672
Realized gain distribution from the Trusts ........... 109,076 377,750 274,537
--------- --------- ---------
Net Realized Gain (Loss) .......................... 338,068 440,546 327,209
--------- ---------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- --
End of period ........................................ (300,436) (344,436) (259,194)
--------- --------- ---------
Change in unrealized appreciation (depreciation)
during the period ................................. (300,436) (344,436) (259,194)
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 37,632 96,110 68,015
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $ (26,805) $ 46,254 $ 52,194
========= ========= =========
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND(A) FUND FUND(A)
---------- ---------- ----------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 647,522 $ 69,781 $ 1,260,100 $ 10,682
Expenses (Note 3):
Asset based charges .................................. 165,768 18,233 523,559 7,708
---------- --------- ----------- --------
NET INVESTMENT INCOME (LOSS) ......................... 481,754 51,548 736,541 2,974
---------- --------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 49,147 (1,203) 187,731 (109)
Realized gain distribution from the Trusts ........... 638,548 46,731 3,432,867 24,328
---------- --------- ----------- --------
Net Realized Gain (Loss) .......................... 687,695 45,528 3,620,598 24,219
---------- --------- ----------- --------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 4,651 -- (158,777) --
End of period ........................................ 482,745 73,582 1,685,711 (129,123)
---------- --------- ----------- --------
Change in unrealized appreciation (depreciation)
during the period ................................. 478,094 73,582 1,844,488 (129,123)
---------- --------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 1,165,789 119,110 5,465,086 (104,904)
---------- --------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $1,647,543 $ 170,658 $ 6,201,627 $(101,930)
========== ========= =========== =========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------
ALLIANCE
MONEY MARKET FUND
------------------------------
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................... $ 2,322,115 $ 791,163
Net realized gain (loss) ................................ 64,275 19,803
Change in unrealized appreciation /(depreciation)
of investments ....................................... (267,302) (165,897)
------------- -------------
Net increase in net assets from operations .............. 2,119,088 645,069
------------- -------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 137,532,670 95,681,367
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 55,819,439 19,687,669
------------- -------------
Total ............................................. 193,352,109 115,369,036
------------- -------------
Benefit & other policy transaction ................... 1,577,365 198,356
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 618,083 514,843
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 144,167,408 87,121,388
------------- -------------
Total ............................................. 146,362,856 87,834,587
------------- -------------
Net increase in net assets from Contract Owner
transactions ........................................ 46,989,253 27,534,449
------------- -------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT 45 (NOTE 5) ......................... (46,770) (17,582)
------------- -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 49,061,571 28,161,936
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 32,296,790 4,134,854
------------- -------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 81,358,361 $ 32,296,790
============= =============
<CAPTION>
FIXED INCOME SERIES:
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE HIGH YIELD
GOVERNMENT SECURITIES FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................... $ 303,709 $ 138,808 $ 601,148
Net realized gain (loss) ................................ 12,754 (21,067) 783,323
Change in unrealized appreciation /(depreciation)
of investments ....................................... 58,654 (41,524) (786,186)
------------ ------------ ------------
Net increase in net assets from operations .............. 375,117 76,217 598,285
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 5,416,131 1,798,660 13,779,925
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 3,270,944 8,533,013 22,095,921
------------ ------------ ------------
Total ............................................. 8,687,075 10,331,673 35,875,846
------------ ------------ ------------
Benefit & other policy transaction ................... 189,517 15,968 161,257
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 128,377 77,637 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 1,145,902 8,982,626 17,780,088
------------ ------------ ------------
Total ............................................. 1,463,796 9,076,231 17,986,890
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ........................................ 7,223,279 1,255,442 17,888,956
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ..................... (12,130) (6,709) (5,902)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 7,586,266 1,324,950 18,481,339
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 3,475,984 2,151,034 --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 11,062,250 $ 3,475,984 $ 18,481,339
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
------------------------------
T. ROWE EQ/PUTNAM
PRICE EQUITY GROWTH &
INCOME INCOME VALUE
FUND(A) FUND(A)
-------------- --------------
1997 1997
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss) ............................... $ 78,818 $ 21,273
Net realized gain (loss) ................................... 54,535 54,646
Change in unrealized appreciation / (depreciation)
of investments .......................................... 980,406 191,128
------------ ------------
Net increase in net assets from operations ................. 1,113,759 267,047
------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 13,813,772 10,975,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 4,356,204 3,217,543
------------ ------------
Total ................................................ 18,169,976 14,192,742
------------ ------------
Benefit & other policy transaction ...................... 86,052 58,925
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 40,797 32,578
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 183,349 180,506
------------ ------------
Total ................................................ 310,198 272,009
------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 17,859,778 13,920,733
------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (5,022) (2,360)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 18,968,515 14,185,420
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- --
------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 18,968,515 $ 14,185,420
============ ============
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------
ALLIANCE
ALLIANCE EQUITY MERRILL LYNCH
GROWTH & INCOME INDEX BASIC VALUE
FUND FUND(A) EQUITY FUND(A)
--------------------------- ---------- ---------------
1997 1996 1997 1997
------------ ------------ ---------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ (95,244) $ 64,283 $ 187 $ 20,510
Net realized gain (loss) ................................... 6,014,564 693,777 1,392 47,779
Change in unrealized appreciation / (depreciation)
of investments .......................................... 4,852,142 698,407 4,722 (64,333)
------------ ------------ -------- ------------
Net increase in net assets from operations ................. 10,771,462 1,456,467 6,301 3,956
------------ ------------ -------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 58,696,016 6,251,620 77,031 8,075,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 16,269,895 6,040,990 15,328 1,941,071
------------ ------------ -------- ------------
Total ................................................ 74,965,911 12,292,610 92,359 10,016,270
------------ ------------ -------- ------------
Benefit & other policy transaction ...................... 1,455,357 130,199 -- 9,691
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 425,279 31,991 -- 17,792
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 4,907,606 342,494 -- 137,464
------------ ------------ -------- ------------
Total ................................................ 6,788,242 504,684 -- 164,947
------------ ------------ -------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 68,177,669 11,787,926 92,359 9,851,323
------------ ------------ -------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (94,285) (27,565) (1,142 (839)
------------ ------------ -------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 78,854,846 13,216,828 97,518 9,854,440
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,025,928 1,809,100 -- --
------------ ------------ -------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 93,880,774 $ 15,025,928 $ 97,518 $ 9,854,440
============ ============ ======== ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
MFS
ALLIANCE RESEARCH
COMMON STOCK FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) ............................... $ (1,209,624) $ (42,865) $ (15,339)
Net realized gain (loss) ................................... 27,433,324 6,011,054 101,923
Change in unrealized appreciation / (depreciation)
of investments .......................................... 22,094,993 1,504,011 37,510
------------- ------------ ------------
Net increase (decrease) in net assets from operations ...... 48,318,693 7,472,200 124,094
------------- ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 175,880,351 36,558,323 9,502,168
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 61,077,537 34,378,499 2,602,553
------------- ------------ ------------
Total ................................................ 236,957,888 70,936,822 12,104,721
------------- ------------ ------------
Benefit & other policy transaction ...................... 4,271,079 427,323 28,630
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 1,459,175 290,642 23,738
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 35,438,036 8,933,676 209,610
------------- ------------ ------------
Total ................................................ 41,168,290 9,651,641 261,978
------------- ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 195,789,598 61,285,181 11,842,743
------------- ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (305,436) (85,006) (2,051)
------------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 243,802,855 68,672,375 11,964,786
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 75,506,795 6,834,420 --
------------- ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 319,309,650 $ 75,506,795 $ 11,964,786
============= ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------------
ALLIANCE ALLIANCE
GLOBAL FUND INTERNATIONAL FUND
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ 328,372 $ 88,313 $ 288,466 $ 53,333
Net realized gain (loss) ................................... 2,837,865 543,216 1,093,826 234,294
Change in unrealized appreciation / (depreciation)
of investments .......................................... (443,882) 184,372 (2,169,239) 16,354
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from operations ...... 2,722,355 815,901 (786,947) 303,981
------------ ------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 20,384,580 9,199,245 9,574,522 3,782,377
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 7,792,945 6,255,073 18,180,472 5,791,839
------------ ------------ ------------ -----------
Total ................................................ 28,177,525 15,454,318 27,754,994 9,574,216
------------ ------------ ------------ -----------
Benefit & other policy transaction ...................... 621,118 70,774 341,327 38,451
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 155,169 36,757 97,083 75,353
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 6,961,429 1,836,433 18,593,662 1,979,003
------------ ------------ ------------ -----------
Total ................................................ 7,737,716 1,943,964 19,032,072 2,092,807
------------ ------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ............................................ 20,439,809 13,510,354 8,722,922 7,481,409
------------ ------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (28,799) (18,054) (36,637) (11,874)
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 23,133,365 14,308,201 7,899,338 7,773,516
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,376,304 1,068,103 8,584,004 810,488
------------ ------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 38,509,669 $ 15,376,304 $ 16,483,342 $ 8,584,004
============ ============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING
NATIONAL MARKETS ALLIANCE
STOCK EQUITY AGGRESSIVE STOCK
FUND(A) FUND(B) FUND
------------- ----------- --------------------------------
1997 1997 1997 1996
------------- ----------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ...................................... $ (45,798) $ 1,234 $ (880,189) $ (121,400)
Net realized gain (loss) ................................... (53,503) (26,406) 9,879,526 4,080,335
Change in unrealized appreciation / (depreciation)
of investments .......................................... (576,978) (238,282) (1,686,216) (1,995,216)
------------ ----------- ------------- ------------
Net increase (decrease) in net assets from operations ...... (676,279) (263,454) 7,313,121 1,963,719
------------ ----------- ------------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 9,658,570 1,617,148 66,019,813 22,776,845
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 5,113,170 889,247 17,726,363 20,452,746
------------ ----------- ------------- ------------
Total ................................................ 14,771,740 2,506,395 83,746,176 43,229,591
------------ ----------- ------------- ------------
Benefit & other policy transaction ...................... 37,224 -- 1,854,804 245,070
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 22,024 394 482,491 90,356
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 1,416,476 2,488 11,669,668 7,099,325
------------ ----------- ------------- ------------
Total ................................................ 1,475,724 2,882 14,006,963 7,434,751
------------ ----------- ------------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 13,296,016 2,503,513 69,739,213 35,794,840
------------ ----------- ------------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (3,030) (966) (111,908) (33,503)
------------ ----------- ------------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 12,616,707 2,239,093 76,940,426 37,725,056
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- 40,887,252 3,162,196
------------ ----------- ------------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 12,616,707 $ 2,239,093 $ 117,827,678 $ 40,887,252
============ =========== ============= ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
WARBURG MFS
PINCUS SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
------------ ------------- ----------------
1997 1997 1997
------------ ------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ...................................... $ (64,437) $ (49,856) $ (15,821)
Net realized gain (loss) ................................... 338,068 440,546 327,209
Change in unrealized appreciation / (depreciation)
of investments .......................................... (300,436) (344,436) (259,194)
------------ ------------ ------------
Net increase (decrease) in net assets from operations ...... (26,805) 46,254 52,194
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 17,791,841 12,116,331 9,607,211
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 11,695,862 5,602,864 3,864,604
------------ ------------ ------------
Total ................................................ 29,487,703 17,719,195 13,471,815
------------ ------------ ------------
Benefit & other policy transaction ...................... 134,692 20,842 45,537
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 23,284 8,570 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 4,520,417 1,504,600 1,527,808
------------ ------------ ------------
Total ................................................ 4,678,393 1,534,012 1,587,690
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 24,809,310 16,185,183 11,884,125
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (10,579) (3,378) (1,959)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 24,771,926 16,228,059 11,934,360
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 24,771,926 $ 16,228,059 $ 11,934,360
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------
ALLIANCE EQ/PUTNAM
CONSERVATIVE BALANCED
INVESTORS FUND FUND(A)
--------------------------- ----------- -
1997 1996 1997
------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 481,754 $ 193,429 $ 51,548
Net realized gain (loss) ............................. 687,695 154,966 45,528
Change in unrealized appreciation / (depreciation)
of investments .................................... 478,094 (12,221) 73,582
----------- ----------- -----------
Net increase (decrease) in net assets from operations 1,647,543 336,174 170,658
------------ ----------- -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 10,862,780 3,977,495 4,294,496
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 3,151,066 2,837,790 1,721,220
------------ ----------- -----------
Total .......................................... 14,013,846 6,815,285 6,015,716
------------ ----------- -----------
Benefit & other policy transaction ................ 567,547 60,271 17,533
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 138,461 100,314 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 1,428,179 814,338 120,099
------------ ----------- -----------
Total .......................................... 2,134,187 974,923 152,925
------------ ----------- -----------
Net increase in net assets from Contract Owner
transactions ...................................... 11,879,659 5,840,362 5,862,791
------------ ----------- -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (57,026) (12,633) (483)
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 13,470,176 6,163,903 6,032,966
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 7,858,282 1,694,379 --
------------ ----------- -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 21,328,458 $ 7,858,282 $ 6,032,966
============ =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------
ALLIANCE MERRILL LYNCH
GROWTH WORLD STRATEGY
INVESTORS FUND FUND(A)
---------------------------- --------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 736,541 $ 218,025 $ 2,974
Net realized gain (loss) ............................. 3,620,598 1,601,901 24,219
Change in unrealized appreciation / (depreciation)
of investments .................................... 1,844,488 (197,988) (129,123)
------------ ------------ -----------
Net increase (decrease) in net assets from operations 6,201,627 1,621,938 (101,930)
------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 32,084,069 11,004,121 2,043,811
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 7,981,423 9,331,901 561,601
------------ ------------ -----------
Total .......................................... 40,065,492 20,336,022 2,605,412
------------ ------------ -----------
Benefit & other policy transaction ................ 1,014,211 206,468 3,514
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 421,582 228,021 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 2,744,848 1,177,040 84,455
------------ ------------ -----------
Total .......................................... 4,180,641 1,611,529 90,566
------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ...................................... 35,884,851 18,724,493 2,514,846
------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (111,839) (32,214) (121)
------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 41,974,639 20,314,217 2,412,795
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 24,008,395 3,694,178 --
------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 65,983,034 $ 24,008,395 $ 2,412,795
============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
1940 Act"). The Account consists of 22 investment funds (Funds): Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund,
Alliance High Yield Fund, T. Rowe Price Equity Income Fund, EQ/Putnam
Growth & Income Value Fund, Alliance Growth & Income Fund, Alliance Equity
Index Fund, Merrill Lynch Basic Value Equity Fund, Alliance Common Stock
Fund, MFS Research Fund, Alliance Global Fund, Alliance International
Fund, T. Rowe Price International Stock Fund, Morgan Stanley Emerging
Markets Equity Fund, Alliance Aggressive Stock Fund, Warburg Pincus Small
Company Value Fund, Alliance Small Cap Growth Fund, MFS Emerging Growth
Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam Balanced
Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund. The assets in each Fund are invested in shares of a corresponding
portfolio (Portfolio) of a mutual fund, Class IA and IB shares of The
Hudson River Trust (HRT) or Class IB shares of EQ Advisors Trust (EQAT)
(collectively known as the Trusts). Class IB shares are offered by the
Funds at net asset value and are subject to distribution fees imposed
under a distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act. Class IA shares of HRT continue to be purchased by contracts in-force
prior to May 1, 1997. The Trusts are open-end, diversified management
investment companies that sell its shares to 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 is also available
for purchase by certain types of qualified plans. 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 less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth 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.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 charges for mortality and expense
risks at an annual rate of 0.90% of daily net assets. In addition, asset
based administrative charges are also charged to the account at an annual
rate of 0.25% of daily net assets. The charges may be retained in the
Account by Equitable Life and participate in the net investment results of
the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.15% of daily net assets. Trust shares are
valued at their net asset value with investment advisory or management
fees, the 12b-1 fee, and other expenses of the Trust, in effect, passed on
to the Account and reflected in the accumulation unit values of the
Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
------------------------------------------
<S> <C> <C>
Class A Net Issued........................................... -- 1,128
Net Redeemed......................................... (374) --
Class B Net Issued........................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
------------------------------------------------
Class A Net Issued........................................... 161 92
Class B Net Issued........................................... 345 --
ALLIANCE HIGH YIELD FUND
------------------------------------
Class A Net Issued........................................... 98 --
Class B Net Issued........................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,565 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
----------------------------------------------
Class A Net Issued........................................... 2,377 905
Class B Net Issued........................................... 1,829 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-----------------------------------------
ALLIANCE EQUITY INDEX FUND (A) (IN THOUSANDS)
<S> <C> <C>
Class B Net Issued............................................ 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
-----------------------------------------
Class B Net Issued............................................ 849 --
ALLIANCE COMMON STOCK FUND
--------------------------
Class A Net Issued............................................ 620 439
Class B Net Issued............................................ 519 --
MFS RESEARCH FUND (A)
---------------------
Class B Net Issued............................................ 1,039 --
ALLIANCE GLOBAL FUND
---------------------
Class A Net Issued............................................ 444 561
Class B Net Issued............................................ 308 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Class A Net Issued............................................ 438 643
Class B Net Issued............................................ 285 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (A)
------------------------------------------
Class B Net Issued............................................ 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
-----------------------------------------------
Class B Net Issued............................................ 282 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Concluded):
Accumulation units issued and redeemed during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- ----------------
ALLIANCE AGGRESSIVE STOCK FUND (IN THOUSANDS)
------------------------------
<S> <C> <C>
Class A Net Issued....................................... 641 562
Class B Net Issued....................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
-------------------------------------------
Class B Net Issued....................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND
------------------------------
Class A Net Issued....................................... 208 --
Class B Net Issued....................................... 1,084 --
MFS EMERGING GROWTH COMPANIES FUND (A)
--------------------------------------
Class B Net Issued....................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
------------------------------------
Class A Net Issued....................................... 356 354
Class B Net Issued....................................... 295 --
EQ/PUTNAM BALANCED FUND (A)
---------------------------
Class B Net Issued....................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Class A Net Issued....................................... 681 758
Class B Net Issued....................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
------------------------------------
Class B Net Issued....................................... 232 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. 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 contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
INVESTMENT FUND 1997 1996
------------------------------ ----------------------------
<S> <C> <C>
Alliance Money Market Fund..................................... $(240,000) $(125,000)
Alliance Intermediate Government Securities Fund............... (60,000) (25,000)
Alliance High Yield Fund(1).................................... 10,000 --
T. Rowe Price Equity Income Fund(1)............................ -- --
EQ/Putnam Growth & Income Value Fund(1)........................ -- --
Alliance Growth & Income Fund.................................. (250,000) (60,000)
Alliance Equity Index Fund..................................... 5,000 --
Merrill Lynch Basic Value Equity Fund(1)....................... -- --
Alliance Common Stock Fund..................................... (840,000) (223,000)
MFS Research Fund(1)........................................... -- --
Alliance Global Fund........................................... (185,000) (52,000)
Alliance International Fund.................................... (120,000) (35,000)
T. Rowe Price International Stock Fund(1)...................... -- --
Morgan Stanley Emerging Markets Equity Fund(2)................. -- --
Alliance Aggressive Stock Fund................................. (435,000) (110,000)
Warburg Pincus Small Company Value Fund(1)..................... -- --
Alliance Small Cap Growth Fund(1).............................. 10,000 --
MFS Emerging Growth Companies Fund(1).......................... -- --
Alliance Conservative Investors Fund........................... (87,000) (45,000)
EQ/Putnam Balanced Fund(1)..................................... -- --
Alliance Growth Investors Fund................................. (185,000) (105,000)
Merrill Lynch World Strategy Fund(1)........................... -- --
</TABLE>
----------------------
(1) Commenced operations on May 1, 1997.
(2) Commenced operations on November 20, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
ALLIANCE MONEY MARKET FUND ----------------------------- --------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period....................... $24.81 $23.83
Class A Unit value, end of period............................. $25.85 $24.81
Class B Unit value, beginning of period (c)................... $25.17 --
Class B Unit value, end of period (c)......................... $25.85 --
Number of units outstanding, end of period (000's):
Class A.................................................... 928 1,302
Class B.................................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A Unit value, beginning of period....................... $13.77 $13.42
Class A Unit value, end of period............................. $14.60 $13.77
Class B Unit value, beginning of period (c)................... $13.88 --
Class B Unit value, end of period (c)......................... $14.58 --
Number of units outstanding, end of period (000's):
Class A.................................................... 413 252
Class B.................................................... 345 --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A Unit value, beginning of period....................... $26.95 --
Class A Unit value, end of period............................. $30.73 --
Class B Unit value, beginning of period....................... $26.91 --
Class B Unit value, end of period............................. $30.63 --
Number of units outstanding, end of period (000's):
Class A.................................................... 98 --
Class B.................................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
- ------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.12 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,565 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A) ------------------------------ ---------------------------
- --------------------------------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.53 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A Unit value, beginning of period....................... $14.23 $11.99
Class A Unit value, end of period............................. $17.83 $14.23
Class B Unit value, beginning of period (c)................... $14.67 --
Class B Unit value, end of period (c)......................... $17.80 --
Number of units outstanding, end of period (000's):
Class A.................................................... 3,433 1,056
Class B.................................................... 1,829 --
ALLIANCE EQUITY INDEX FUND (A)
- ------------------------------
Class A Unit value, beginning of period....................... $17.62 --
Class A Unit value, end of period............................. $21.41 --
Class B Unit value, beginning of period....................... $17.62 --
Class B Unit value, end of period............................. $21.38 --
Number of units outstanding, end of period (000's):
Class A.................................................... -- --
Class B.................................................... 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
- -----------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.61 --
Number of units outstanding, end of period (000's):
Class B.................................................... 849 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
ALLIANCE COMMON STOCK FUND ------------------------- ------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period........................... $152.96 $124.52
Class A Unit value, end of period................................. $195.37 $152.96
Class B Unit value, beginning of period (c)....................... $153.35 --
Class B Unit value, end of period (c)............................. $194.74 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,114 494
Class B........................................................ 519 --
MFS RESEARCH FUND (A)
- ---------------------
Class B Unit value, beginning of period........................... $10.00 --
Class B Unit value, end of period................................. $11.52 --
Number of units outstanding, end of period (000's):
Class B........................................................ 1,039 --
ALLIANCE GLOBAL FUND
- --------------------
Class A Unit value, beginning of period........................... $25.25 $22.29
Class A Unit value, end of period................................. $27.85 $25.25
Class B Unit value, beginning of period (c)....................... $24.87 --
Class B Unit value, end of period (c)............................. $27.76 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,074 609
Class B........................................................ 308 --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A Unit value, beginning of period........................... $11.98 $11.03
Class A Unit value, end of period................................. $11.48 $11.98
Class B Unit value, beginning of period (c)....................... $11.86 --
Class B Unit value, end of period (c)............................. $11.46 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,151 717
Class B........................................................ 285 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
T. ROWE PRICE INTERNATIONAL STOCK FUND (A) --------------------------- ------------------------
- -----------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 9.77 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
- -----------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 7.95 --
Number of units outstanding, end of period (000's):
Class B.................................................... 282 --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A Unit value, beginning of period....................... $65.94 $54.59
Class A Unit value, end of period............................. $72.23 $65.94
Class B Unit value, beginning of period (c)................... $62.84 --
Class B Unit value, end of period (c)......................... $72.00 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,261 620
Class B.................................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
- -------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.82 --
Number of units outstanding, end of period (000's):
Class B.................................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND (A)
- ----------------------------------
Class A Unit value, beginning of period....................... $10.00 --
Class A Unit value, end of period............................. $12.57 --
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.55 --
Number of units outstanding, end of period (000's):
Class A.................................................... 208 --
Class B.................................................... 1,084 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
MFS EMERGING GROWTH FUND (A) --------------------------- ------------------------
- ----------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.15 --
Number of units outstanding, end of period (000's):
Class B.................................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A Unit value, beginning of period....................... $17.21 $16.55
Class A Unit value, end of period............................. $19.26 $17.21
Class B Unit value, beginning of period (c)................... $17.33 --
Class B Unit value, end of period (c)......................... $19.23 --
Number of units outstanding, end of period (000's):
Class A.................................................... 813 457
Class B.................................................... 295 --
EQ/PUTMAN BALANCED FUND (A)
- ---------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.36 --
Number of units outstanding, end of period (000's):
Class B.................................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A Unit value, beginning of period....................... $26.26 $23.59
Class A Unit value, end of period............................. $30.31 $26.26
Class B Unit value, beginning of period (c)................... $26.23 --
Class B Unit value, end of period (c)......................... $30.22 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,596 914
Class B.................................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
- -------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $10.39 --
Number of units outstanding, end of period (000's):
Class B.................................................... 232 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-23
<PAGE>
February 10, 1998
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 and for loan impairments in 1995.
/s/ Price Waterhouse, LLP
- ---------------------------
Price Waterhouse LLP
New York, New York
February 10, 1998
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 19,630.9 $ 18,077.0
Mortgage loans on real estate............................................. 2,611.4 3,133.0
Equity real estate........................................................ 2,749.2 3,297.5
Policy loans.............................................................. 2,422.9 2,196.1
Other equity investments.................................................. 951.5 860.6
Investment in and loans to affiliates..................................... 731.1 685.0
Other invested assets..................................................... 624.7 25.4
----------------- -----------------
Total investments..................................................... 29,721.7 28,274.6
Cash and cash equivalents................................................... 300.5 538.8
Deferred policy acquisition costs........................................... 3,236.6 3,104.9
Amounts due from discontinued operations.................................... 572.8 996.2
Other assets................................................................ 2,685.2 2,552.2
Closed Block assets......................................................... 8,566.6 8,495.0
Separate Accounts assets.................................................... 36,538.7 29,646.1
----------------- -----------------
Total Assets................................................................ $ 81,622.1 $ 73,607.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,579.5 $ 21,865.6
Future policy benefits and other policyholder's liabilities................. 4,553.8 4,416.6
Short-term and long-term debt............................................... 1,991.2 1,766.9
Other liabilities........................................................... 3,257.1 2,785.1
Closed Block liabilities.................................................... 9,073.7 9,091.3
Separate Accounts liabilities............................................... 36,306.3 29,598.3
----------------- -----------------
Total liabilities..................................................... 76,761.6 69,523.8
----------------- -----------------
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........................................................... 1,235.9 798.7
Net unrealized investment gains............................................. 533.6 189.9
Minimum pension liability................................................... (17.3) (12.9)
----------------- -----------------
Total shareholder's equity............................................ 4,860.5 4,084.0
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 81,622.1 $ 73,607.8
================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 950.6 $ 874.0 $ 788.2
Premiums...................................................... 601.5 597.6 606.8
Net investment income......................................... 2,282.8 2,203.6 2,088.2
Investment (losses) gains, net................................ (45.2) (9.8) 5.3
Commissions, fees and other income............................ 1,227.2 1,081.8 897.1
Contribution from the Closed Block............................ 102.5 125.0 143.2
----------------- ----------------- -----------------
Total revenues.......................................... 5,119.4 4,872.2 4,528.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,266.2 1,270.2 1,248.3
Policyholders' benefits....................................... 978.6 1,317.7 1,008.6
Other operating costs and expenses............................ 2,203.9 2,075.7 1,775.8
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,448.7 4,663.6 4,032.7
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 670.7 208.6 496.1
Federal income taxes.......................................... 91.5 9.7 120.5
Minority interest in net income of consolidated subsidiaries.. 54.8 81.7 62.8
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 524.4 117.2 312.8
Discontinued operations, net of Federal income taxes.......... (87.2) (83.8) -
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (23.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 437.2 $ 10.3 $ 312.8
================= ================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(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 and end of year..... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 798.7 788.4 475.6
Net earnings.................................................. 437.2 10.3 312.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,235.9 798.7 788.4
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year... 189.9 396.5 (220.5)
Change in unrealized investment gains (losses)................ 343.7 (206.6) 617.0
----------------- ----------------- -----------------
Net unrealized investment gains, end of year.................. 533.6 189.9 396.5
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (12.9) (35.1) (2.7)
Change in minimum pension liability........................... (4.4) 22.2 (32.4)
-----------------
----------------- -----------------
Minimum pension liability, end of year........................ (17.3) (12.9) (35.1)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 437.2 $ 10.3 $ 312.8
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Interest credited to policyholders' account balances........ 1,266.2 1,270.2 1,248.3
Universal life and investment-type product
policy fee income......................................... (950.6) (874.0) (788.2)
Investment losses (gains)................................... 45.2 9.8 (5.3)
Change in Federal income tax payable........................ (74.4) (197.1) 221.6
Other, net.................................................. 169.4 330.2 80.5
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 893.0 549.4 1,069.7
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,702.9 2,275.1 1,897.4
Sales....................................................... 10,385.9 8,964.3 8,867.1
Purchases................................................... (13,205.4) (12,559.6) (11,675.5)
(Increase) decrease in short-term investments............... (555.0) 450.3 (99.3)
Decrease in loans to discontinued operations................ 420.1 1,017.0 1,226.9
Sale of subsidiaries........................................ 261.0 - -
Other, net.................................................. (612.6) (281.0) (413.4)
----------------- ----------------- -----------------
Net cash used by investing activities......................... (603.1) (133.9) (196.8)
----------------- ----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................. 1,281.7 1,925.4 2,586.5
Withdrawals............................................... (1,886.8) (2,385.2) (2,657.1)
Net increase (decrease) in short-term financings............ 419.9 (.3) (16.4)
Additions to long-term debt................................. 32.0 - 599.7
Repayments of long-term debt................................ (196.4) (124.8) (40.7)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (83.9) - (1,215.4)
Other, net.................................................. (94.7) (66.5) (48.4)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (528.2) (651.4) (791.8)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (238.3) (235.9) 81.1
Cash and cash equivalents, beginning of year.................. 538.8 774.7 693.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 300.5 $ 538.8 $ 774.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 217.1 $ 109.9 $ 89.6
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 170.0 $ (10.0) $ (82.7)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and, prior to
December 31, 1996, its wholly owned life insurance subsidiary, Equitable
Variable Life Insurance Company ("EVLICO"). Effective January 1, 1997,
EVLICO was merged into Equitable Life, which continues to conduct the
Company's insurance business. Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance") 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 58.7% at December 31, 1997 (54.3% 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") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and, through
June 10, 1997, Equitable Real Estate Investment Management, Inc.
("EREIM"), a real estate investment management subsidiary which was sold
(see Note 5); 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.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued operations (see Note
7).
The years "1997," "1996" and "1995" refer to the years ended December
31, 1997, 1996 and 1995, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1997 presentation.
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.
F-6
<PAGE>
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. No reallocation, transfer, borrowing
or lending of assets can be made between the Closed Block and other
portions of Equitable Life's General Account, any of its Separate
Accounts or any affiliate of Equitable Life without the approval of the
New York Superintendent of Insurance (the "Superintendent"). Closed
Block assets and liabilities are carried on the same basis as similar
assets and liabilities held in the General Account. The excess of Closed
Block liabilities over Closed Block assets represents the expected
future post-tax contribution from the Closed Block which would be
recognized in income over the period the policies and contracts in the
Closed Block remain in force.
Discontinued Operations
Discontinued operations consist of the business of the former Guaranteed
Interest Contract ("GIC") segment which includes the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and the GIC
lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and, during the 1997 and 1996 fourth quarter
reviews, the allowance for future losses was increased. Management
believes the allowance for future losses at December 31, 1997 is
adequate to provide for all future losses; however, the determination of
the allowance continues to involve numerous estimates and subjective
judgments regarding the expected performance of Discontinued Operations
Investment Assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of the discontinued operations
differ from management's current best estimates and assumptions
underlying the allowance for future losses, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management's previous
assumptions, periodic adjustments to the allowance are likely to result
(see Note 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 SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". (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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to The Equitable'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 for production of income. Real estate
which management has committed to disposing of by sale or abandonment is
classified as real estate held for sale. Valuation allowances on real
estate held for sale continue to be computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
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 vacated in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impaired loans
within SFAS No. 114's scope are to be 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 adoption of
this statement did not have a material effect on the level of the
allowances for possible losses or on the Company's consolidated
statements of earnings and shareholder's equity.
F-7
<PAGE>
New Accounting Pronouncements
In January 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits," which revises current note disclosure
requirements for employers' pension and other retiree benefits. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt the provisions of SFAS No. 132 in the 1998
consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP
97-3 provides guidance for assessments related to insurance activities
and requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual and interim financial statements
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment
performance and for deciding how to allocate resources to segments. This
statement is effective for fiscal years beginning after December 15,
1997 and need not be applied to interim reporting in the initial year of
adoption. Restatement of comparative information for earlier periods is
required. Management is currently reviewing its definition of business
segments in light of the requirements of SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires an enterprise to classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt
the provisions of SFAS No. 130 in its 1998 consolidated financial
statements.
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.
Implementation of SFAS No. 125 did not have nor is SFAS No. 127 expected
to have a material impact on the Company's consolidated financial
statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
F-8
<PAGE>
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains 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 discontinued operations,
participating group annuity contracts and deferred policy acquisition
costs ("DAC") related to universal life and investment-type products and
participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
F-9
<PAGE>
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, 1997, the expected investment yield, excluding
policy loans, generally ranged from 7.53% grading to 7.92% over a 20
year period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its 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.
F-11
<PAGE>
Claim reserves and associated liabilities for individual DI and major
medical policies were $886.7 million and $869.4 million at December 31,
1997 and 1996, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 190.2 $ 189.0 $ 176.0
Incurred benefits related to prior years........... 2.1 69.1 67.8
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 192.3 $ 258.1 $ 243.8
================= ================ =================
Benefits paid related to current year.............. $ 28.8 $ 32.6 $ 37.0
Benefits paid related to prior years............... 146.2 153.3 137.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 175.0 $ 185.9 $ 174.8
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1997, participating policies, including those in the
Closed Block, represent approximately 21.2% ($50.2 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1997, 1996 and 1995, investment results of
such Separate Accounts were $3,411.1 million, $2,970.6 million and
$1,963.2 million, respectively.
F-12
<PAGE>
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the opinion, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the
exercise price. See Note 21 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,230.3 $ 785.0 $ 74.5 $ 14,940.8
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 673.0 6.8 .1 679.7
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
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......................... $ 362.0 $ 49.3 $ 17.7 $ 393.6
================= ================= ================ =================
</TABLE>
F-13
<PAGE>
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 on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1997 and 1996, securities
without a readily ascertainable market value having an amortized cost of
$3,759.2 million and $3,915.7 million, respectively, had estimated fair
values of $3,903.9 million and $4,024.6 million, respectively.
The contractual maturity of bonds at December 31, 1997 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 149.9 $ 151.3
Due in years two through five.......................................... 2,962.8 3,025.2
Due in years six through ten........................................... 6,863.9 7,093.0
Due after ten years.................................................... 6,952.3 7,502.7
Mortgage-backed securities............................................. 1,702.8 1,725.0
---------------- -----------------
Total.................................................................. $ 18,631.7 $ 19,497.2
================ =================
</TABLE>
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,
1997, approximately 17.85% of the $18,610.6 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.
Fixed maturity investments with restructured or modified terms are not
material.
F-14
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 137.1 $ 325.3 $ 284.9
SFAS No. 121 release............................... - (152.4) -
Additions charged to income........................ 334.6 125.0 136.0
Deductions for writedowns and
asset dispositions............................... (87.2) (160.8) (95.6)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 55.8 $ 50.4 $ 65.5
Equity real estate............................... 328.7 86.7 259.8
----------------- ---------------- -----------------
Total.............................................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
</TABLE>
At December 31, 1997, 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 $12.6 million
of fixed maturities and $.9 million of mortgage loans on real estate.
At December 31, 1997 and 1996, 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 $23.4 million (0.9% of total
mortgage loans on real estate) and $12.4 million (0.4% 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 $183.4
million and $388.3 million at December 31, 1997 and 1996, 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 $17.2 million, $35.5 million and $52.1 million in
1997, 1996 and 1995, respectively. Gross interest income on these loans
included in net investment income aggregated $12.7 million, $28.2
million and $37.4 million in 1997, 1996 and 1995, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 196.7 $ 340.0
Impaired mortgage loans without provision for losses............... 3.6 122.3
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 200.3 462.3
Provision for losses............................................... (51.8) (46.4)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 148.5 $ 415.9
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
F-15
<PAGE>
During 1997, 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $246.9 million, $552.1 million
and $429.0 million. Interest income recognized on these impaired
mortgage loans totaled $15.2 million, $38.8 million and $27.9 million
($2.3 million, $17.9 million and $13.4 million recognized on a cash
basis) for 1997, 1996 and 1995, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1997 and 1996, the carrying value of equity real estate
held for sale amounted to $1,023.5 million and $345.6 million,
respectively. For 1997, 1996 and 1995, respectively, real estate of
$152.0 million, $58.7 million and $35.3 million was acquired in
satisfaction of debt. At December 31, 1997 and 1996, the Company owned
$693.3 million and $771.7 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 $541.1
million and $587.5 million at December 31, 1997 and 1996, respectively.
Depreciation expense on real estate totaled $74.9 million, $91.8 million
and $121.7 million for 1997, 1996 and 1995, respectively.
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(29 and 34 individual ventures as of December 31, 1997 and 1996,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 1,700.9 $ 1,883.7
Investments in securities, generally at estimated fair value........... 1,374.8 2,430.6
Cash and cash equivalents.............................................. 105.4 98.0
Other assets........................................................... 584.9 427.0
---------------- -----------------
Total Assets........................................................... $ 3,766.0 $ 4,839.3
================ =================
Borrowed funds - third party........................................... $ 493.4 $ 1,574.3
Borrowed funds - the Company........................................... 31.2 137.9
Other liabilities...................................................... 284.0 415.8
---------------- -----------------
Total liabilities...................................................... 808.6 2,128.0
---------------- -----------------
Partners' capital...................................................... 2,957.4 2,711.3
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 3,766.0 $ 4,839.3
================ =================
Equity in partners' capital included above............................. $ 568.5 $ 806.8
Equity in limited partnership interests not included above............. 331.8 201.8
Other.................................................................. 4.3 9.8
---------------- -----------------
Carrying Value......................................................... $ 904.6 $ 1,018.4
================ =================
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 310.5 $ 348.9 $ 463.5
Revenues of other limited partnership interests.... 506.3 386.1 242.3
Interest expense - third party..................... (91.8) (111.0) (135.3)
Interest expense - the Company..................... (7.2) (30.0) (41.0)
Other expenses..................................... (263.6) (282.5) (397.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.2 $ 311.5 $ 131.8
================= ================ =================
Equity in net earnings included above.............. $ 76.7 $ 73.9 $ 49.1
Equity in net earnings of limited partnerships
interests not included above..................... 69.5 35.8 44.8
Other.............................................. (.9) .9 1.0
-----------------
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 145.3 $ 110.6 $ 94.9
================= ================ =================
</TABLE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,459.4 $ 1,307.4 $ 1,151.1
Mortgage loans on real estate...................... 260.8 303.0 329.0
Equity real estate................................. 390.4 442.4 560.4
Other equity investments........................... 156.9 122.0 76.9
Policy loans....................................... 177.0 160.3 144.4
Other investment income............................ 181.7 217.4 273.0
----------------- ---------------- -----------------
Gross investment income.......................... 2,626.2 2,552.5 2,534.8
----------------- ---------------- -----------------
Investment expenses.............................. 343.4 348.9 446.6
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,282.8 $ 2,203.6 $ 2,088.2
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 88.1 $ 60.5 $ 119.9
Mortgage loans on real estate...................... (11.2) (27.3) (40.2)
Equity real estate................................. (391.3) (79.7) (86.6)
Other equity investments........................... 14.1 18.9 12.8
Sale of subsidiaries............................... 252.1 - -
Issuance and sales of Alliance Units............... - 20.6 -
Other.............................................. 3.0 (2.8) (.6)
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (45.2) $ (9.8) $ 5.3
================= ================ =================
</TABLE>
F-17
<PAGE>
Writedowns of fixed maturities amounted to $11.7 million, $29.9 million
and $46.7 million for 1997, 1996 and 1995, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million and $23.7 million for 1997 and 1996,
respectively. In the fourth quarter of 1997, the Company reclassified
$1,095.4 million depreciated cost of equity real estate from real estate
held for the production of income to real estate held for sale.
Additions to valuation allowances of $227.6 million were recorded upon
these transfers. Additionally in the fourth quarter, $132.3 million of
writedowns on real estate held for production of income were recorded.
For 1997, 1996 and 1995, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $9,789.7
million, $8,353.5 million and $8,206.0 million. Gross gains of $166.0
million, $154.2 million and $211.4 million and gross losses of $108.8
million, $92.7 million and $64.2 million, respectively, were realized on
these sales. The change in unrealized investment gains (losses) related
to fixed maturities classified as available for sale for 1997, 1996 and
1995 amounted to $513.4 million, $(258.0) million and $1,077.2 million,
respectively.
For 1997, 1996 and 1995, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $137.5 million, $136.7
million and $131.2 million, respectively.
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note maturing in eight years and bearing interest at the rate of
7.4%, subject to certain adjustments. Equitable Life recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE will continue to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively, the businesses sold reported combined revenues of $91.6
million, $226.1 million and $245.6 million and combined net earnings of
$10.7 million, $30.7 million and $27.9 million. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 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 to 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. The Company recognized an investment gain
of $20.6 million as a result of the issuance of Alliance Units in this
transaction. On June 30, 1997, Alliance reduced the recorded value of
goodwill and contracts associated with Alliance's acquisition of
Cursitor by $120.9 million. This charge reflected Alliance's view that
Cursitor's continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1997, the Company's ownership of Alliance Units was approximately 56.9%.
F-18
<PAGE>
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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 189.9 $ 396.5 $ (220.5)
Changes in unrealized investment gains (losses).... 543.3 (297.6) 1,198.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 53.2 - (78.1)
DAC............................................ (89.0) 42.3 (216.8)
Deferred Federal income taxes.................. (163.8) 48.7 (287.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 533.6 $ 189.9 $ 396.5
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 871.2 $ 357.8 $ 615.9
Other equity investments....................... 33.7 31.6 31.1
Other, principally Closed Block................ 80.9 53.1 93.1
----------------- ---------------- -----------------
Total........................................ 985.8 442.5 740.1
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (19.0) (72.2) (72.2)
DAC.......................................... (141.0) (52.0) (94.3)
Deferred Federal income taxes................ (292.2) (128.4) (177.1)
----------------- ---------------- -----------------
Total.............................................. $ 533.6 $ 189.9 $ 396.5
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,059.4 and $3,820.7)........................................... $ 4,231.0 $ 3,889.5
Mortgage loans on real estate........................................ 1,341.6 1,380.7
Policy loans......................................................... 1,700.2 1,765.9
Cash and other invested assets....................................... 282.7 336.1
DAC.................................................................. 775.2 876.5
Other assets......................................................... 235.9 246.3
----------------- -----------------
Total Assets......................................................... $ 8,566.6 $ 8,495.0
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 8,993.2 $ 8,999.7
Other liabilities.................................................... 80.5 91.6
----------------- -----------------
Total Liabilities.................................................... $ 9,073.7 $ 9,091.3
================= =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 687.1 $ 724.8 $ 753.4
Investment income (net of investment
expenses of $27.0, $27.3 and $26.7).............. 574.9 546.6 538.9
Investment losses, net............................. (42.4) (5.5) (20.2)
----------------- ---------------- -----------------
Total revenues............................... 1,219.6 1,265.9 1,272.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,066.7 1,106.3 1,077.6
Other operating costs and expenses................. 50.4 34.6 51.3
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,117.1 1,140.9 1,128.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 102.5 $ 125.0 $ 143.2
================= ================ =================
</TABLE>
At December 31, 1997 and 1996, problem mortgage loans on real estate had
an amortized cost of $8.1 million and $4.3 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $70.5 million and $114.2 million,
respectively. At December 31, 1996, the restructured mortgage loans on
real estate amount included $.7 million 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 109.1 $ 128.1
Impaired mortgage loans without provision for losses................... .6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 109.7 128.7
Provision for losses................................................... (17.4) (12.9)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 92.3 $ 115.8
================ =================
</TABLE>
During 1997, 1996 and 1995, the Closed Block's average recorded
investment in impaired mortgage loans was $110.2 million, $153.8 million
and $146.9 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $9.4 million, $10.9 million and $5.9
million ($4.1 million, $4.7 million and $1.3 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $18.5 million and $13.8 million on
mortgage loans on real estate and $16.8 million and $3.7 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million, $12.8 million and $16.8 million for 1997, 1996 and 1995,
respectively and writedowns of equity real estate subsequent to the
adoption of SFAS No. 121 amounted to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in the fourth
quarter, $28.8 million of writedowns on real estate held for production
of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-20
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 655.5 $ 1,111.1
Equity real estate................................................... 655.6 925.6
Other equity investments............................................. 209.3 300.5
Short-term investments............................................... 102.0 63.2
Other invested assets................................................ 41.9 50.9
----------------- -----------------
Total investments.................................................. 1,664.3 2,451.3
Cash and cash equivalents............................................ 106.8 42.6
Other assets......................................................... 253.9 242.9
----------------- -----------------
Total Assets......................................................... $ 2,025.0 $ 2,736.8
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,048.3 $ 1,335.9
Allowance for future losses.......................................... 259.2 262.0
Amounts due to continuing operations................................. 572.8 996.2
Other liabilities.................................................... 144.7 142.7
----------------- -----------------
Total Liabilities.................................................... $ 2,025.0 $ 2,736.8
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $97.3, $127.5 and $153.1)............ $ 188.6 $ 245.4 $ 323.6
Investment losses, net............................. (173.7) (18.9) (22.9)
Policy fees, premiums and other income............. .2 .2 .7
----------------- ---------------- -----------------
Total revenues..................................... 15.1 226.7 301.4
Benefits and other deductions...................... 169.5 250.4 326.5
Losses charged to allowance for future losses...... (154.4) (23.7) (25.1)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (134.1) (129.0) -
Federal income tax benefit......................... 46.9 45.2 -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (87.2) $ (83.8) $ -
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses, and
adjusts the allowance, if appropriate. Additionally, as part of the
Company's annual planning process which takes place in the fourth
quarter of each year, investment and benefit cash flow projections are
prepared. These updated assumptions and estimates resulted in the need
to strengthen the allowance in 1997 and 1996, respectively.
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in the fourth quarter, $92.5 million of writedown on real
estate held for production of income were recognized.
Benefits and other deductions includes $53.3 million, $114.3 million and
$154.6 million of interest expense related to amounts borrowed from
continuing operations in 1997, 1996 and 1995, respectively.
F-21
<PAGE>
Valuation allowances amounted to $28.4 million and $9.0 million on
mortgage loans on real estate and $88.4 million and $20.4 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1997 and 1996, problem mortgage loans on real estate had
amortized costs of $11.0 million and $7.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $109.4 million and $208.1 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 101.8 $ 83.5
Impaired mortgage loans without provision for losses................... .2 15.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 102.0 98.5
Provision for losses................................................... (27.3) (8.8)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 74.7 $ 89.7
================ =================
</TABLE>
During 1997, 1996 and 1995, the discontinued operations' average
recorded investment in impaired mortgage loans was $89.2 million, $134.8
million and $177.4 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $6.6 million, $10.1 million and
$4.5 million ($5.3 million, $7.5 million and $.4 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, discontinued operations had carrying
values of $156.2 million and $263.0 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,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 422.2 $ 174.1
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.6
Other.............................................................. .3 .5
----------------- -----------------
Total Equitable Life........................................... 599.4 599.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.87% - 12.00% due through 2006.................... 951.1 968.6
----------------- -----------------
Alliance:
Other.............................................................. 18.5 24.7
----------------- -----------------
Total long-term debt................................................. 1,569.0 1,592.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,991.2 $ 1,766.9
================= =================
</TABLE>
F-22
<PAGE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in June 2000.
The interest rates are based on external indices dependent on the type
of borrowing and at December 31, 1997 range from 5.88% to 8.50%. There
were no borrowings outstanding under this bank credit facility at
December 31, 1997.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1997, $50.0 million was outstanding under this program.
During 1996, Alliance entered into a $250.0 million five-year revolving
credit facility with a group of banks. Under the facility, the interest
rate, at the option of Alliance, is a floating rate generally based upon
a defined prime rate, a rate related to the London Interbank Offered
Rate ("LIBOR") or the Federal funds rate. A facility fee is payable on
the total facility. The revolving credit facility will be used to
provide back-up liquidity for Alliance's $250.0 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. At December 31, 1997,
Alliance had $72.0 million in commercial paper outstanding and there
were no borrowings under the revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
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. 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 $1,164.0 million and $1,406.4 million at December 31, 1997
and 1996, respectively, as collateral for certain long-term debt.
At December 31, 1997, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1998 and the succeeding
four years are $565.8 million, $201.4 million, $8.6 million, $1.7
million and $1.8 million, respectively, and $790.6 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 186.5 $ 97.9 $ (11.7)
Deferred......................................... (95.0) (88.2) 132.2
----------------- ---------------- -----------------
Total.............................................. $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
F-23
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 234.7 $ 73.0 $ 173.7
Non-taxable minority interest...................... (38.0) (28.6) (22.0)
Adjustment of tax audit reserves................... (81.7) 6.9 4.1
Equity in unconsolidated subsidiaries.............. (45.1) (32.3) (19.4)
Other.............................................. 21.6 (9.3) (15.9)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 257.9 $ - $ 259.2 $ -
Other.................................. 30.7 - - 1.8
DAC, reserves and reinsurance.......... - 222.8 - 166.0
Investments............................ - 405.7 - 328.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 288.6 $ 628.5 $ 259.2 $ 496.4
=============== ================ =============== ===============
</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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 46.2 $ (156.2) $ 63.3
Investments........................................ (113.8) 78.6 13.0
Compensation and related benefits.................. 3.7 22.3 30.8
Other.............................................. (31.1) (32.9) 25.1
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................................ $ (95.0) $ (88.2) $ 132.2
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the 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.
F-24
<PAGE>
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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 448.6 $ 461.4 $ 474.2
Reinsurance assumed................................ 198.3 177.5 171.3
Reinsurance ceded.................................. (45.4) (41.3) (38.7)
----------------- ---------------- -----------------
Premiums........................................... $ 601.5 $ 597.6 $ 606.8
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 61.0 $ 48.2 $ 44.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 70.6 $ 54.1 $ 48.9
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 36.4 $ 32.3 $ 28.5
================= ================ =================
</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 $1.6 million,
$2.4 million and $260.6 million for 1997, 1996 and 1995, respectively.
Ceded death and disability benefits totaled $4.3 million, $21.2 million
and $188.1 million for 1997, 1996 and 1995, respectively. Insurance
liabilities ceded totaled $593.8 million and $652.4 million at December
31, 1997 and 1996, 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 benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 32.5 $ 33.8 $ 30.0
Interest cost on projected benefit obligations..... 128.2 120.8 122.0
Actual return on assets............................ (307.6) (181.4) (309.2)
Net amortization and deferrals..................... 166.6 43.4 155.6
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 19.7 $ 16.6 $ (1.6)
================= ================ =================
</TABLE>
F-25
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,702.6 $ 1,672.2
Non-vested........................................................... 3.9 10.1
---------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,706.5 $ 1,682.3
================ =================
Plan assets at fair value.............................................. $ 1,867.4 $ 1,626.0
Projected benefit obligations.......................................... 1,801.3 1,765.5
---------------- -----------------
Projected benefit obligations (in excess of) or less than plan assets.. 66.1 (139.5)
Unrecognized prior service cost........................................ (9.9) (17.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 95.0 280.0
Unrecognized net asset at transition................................... 3.1 4.7
Additional minimum liability........................................... - (19.3)
---------------- -----------------
Prepaid Pension Cost.................................................. $ 154.3 $ 108.0
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.07%, respectively, at December 31, 1997 and
7.5% and 4.25%, respectively, at December 31, 1996. As of January 1,
1997 and 1996, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
The Company recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $17.3 million and $12.9 million,
net of Federal income taxes, at December 31, 1997 and 1996,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $33.2 million,
$34.7 million and $36.4 million for 1997, 1996 and 1995, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1997, 1996 and 1995, the Company made
estimated postretirement benefits payments of $18.7 million, $18.9
million and $31.1 million, respectively.
F-26
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.5 $ 5.3 $ 4.0
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 34.6 34.7
Net amortization and deferrals..................... 1.9 2.4 (2.3)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 41.1 $ 42.3 $ 36.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 388.5 $ 381.8
Fully eligible active plan participants.............................. 45.7 50.7
Other active plan participants....................................... 56.6 60.7
---------------- -----------------
490.8 493.2
Unrecognized prior service cost........................................ 40.3 50.5
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (140.6) (150.5)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 390.5 $ 393.2
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and costs to the Company of providing these
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 8.75% in 1997,
gradually declining to 2.75% in the year 2009 and in 1996 was 9.5%,
gradually declining to 3.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.50% at December 31, 1997 and 1996, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1997
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, 1997 and 1996, respectively, was $1,353.4 million and
$649.9 million. The average unexpired terms at December 31, 1997 ranged
from 1.5 to 3.8 years. At December 31, 1997, the cost of terminating
outstanding matched swaps in a loss position was $10.9 million and the
unrealized gain on outstanding matched swaps in a gain position was
$38.9 million. The Company has no intention of terminating these
contracts prior to maturity. During 1996 and 1995, net gains of $.2
million and $1.4 million, respectively, were recorded in connection with
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
F-27
<PAGE>
December 31, 1997 of contracts purchased and sold were $7,250.0 million
and $875.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $48.5 million and is being amortized ratably over
the contract periods ranging from 1 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1997 and 1996.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
F-28
<PAGE>
Fair values 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,611.4 $ 2,822.8 $ 3,133.0 $ 3,394.6
Other limited partnership interests.... 509.4 509.4 467.0 467.0
Policy loans........................... 2,422.9 2,493.9 2,196.1 2,221.6
Policyholders' account balances -
investment contracts................. 12,611.0 12,714.0 12,908.7 12,992.2
Long-term debt......................... 1,569.0 1,531.5 1,592.8 1,557.7
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,341.6 1,420.7 1,380.7 1,425.6
Other equity investments............... 86.3 86.3 105.0 105.0
Policy loans........................... 1,700.2 1,784.2 1,765.9 1,798.0
SCNILC liability....................... 27.6 30.3 30.6 34.9
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 655.5 779.9 1,111.1 1,220.3
Fixed maturities....................... 38.7 38.7 42.5 42.5
Other equity investments............... 209.3 209.3 300.5 300.5
Guaranteed interest contracts.......... 37.0 34.0 290.7 300.5
Long-term debt......................... 102.0 102.1 102.1 102.2
</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 $202.6 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $362.1 million at December 31, 1997, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $47.4 million of letters of credit outstanding
at December 31, 1997.
F-29
<PAGE>
14) LITIGATION
Equitable Life recently agreed to settle, subject to court approval,
previously disclosed cases brought by persons insured under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life (the "Policies") in New York (Golomb et al. v. The
Equitable Life Assurance Society of the United States), Pennsylvania
(Malvin et al. v. The Equitable Life Assurance Society of the United
States), Texas (Bowler et al. v. The Equitable Life Assurance Society of
the United States), Florida (Bachman v. The Equitable Life Assurance
Society of the United States) and California (Fletcher v. The Equitable
Life Assurance Society of the United States). Plaintiffs in these cases
claimed that Equitable Life's method for determining premium increases
breached the terms of certain forms of the Policies and was
misrepresented. Plaintiffs in Bowler and Fletcher also claimed that
Equitable Life misrepresented to policyholders in Texas and California,
respectively, that premium increases had been approved by insurance
departments in those states and determined annual rate increases in a
manner that discriminated against policyholders in those states in
violation of the terms of the Policies, representations to policyholders
and/or state law. The New York trial court dismissed the Golomb action
with prejudice and plaintiffs appealed. In Bowler and Fletcher,
Equitable Life denied the material allegations of the complaints and
filed motions for summary judgment which have been fully briefed. The
Malvin action was stayed indefinitely pending the outcome of proceedings
in Golomb and in Fletcher the magistrate concluded that the case should
be remanded to California state court and Equitable Life appealed that
determination to the district judge. On December 23, 1997, Equitable
Life entered into a settlement agreement, subject to court approval,
which would result in the dismissal with prejudice of each of the five
pending actions and the resolution of all similar claims on a nationwide
basis.
The settlement agreement provides for the creation of a nationwide class
consisting of all persons holding, and paying premiums on, the Policies
at any time since January 1, 1988. An amended complaint will be filed in
the federal district court in Tampa, Florida (where the Florida action
is pending), that would assert claims of the kind previously made in the
cases described above on a nationwide basis, on behalf of policyholders
in the nationwide class, which consists of approximately 127,000 former
and current policyholders. If the settlement is approved, Equitable Life
would pay $14,166,000 in exchange for release of all claims for past
damages on claims of the type described in the five pending actions and
the amended complaint. Costs of administering the settlement and any
attorneys' fees awarded by the court to plaintiffs' counsel would be
deducted from this fund before distribution of the balance to the class.
In addition to this payment, Equitable Life will provide future relief
to current holders of certain forms of the Policies in the form of an
agreement to be embodied in the court's judgment, restricting the
premium increases Equitable Life can seek on these Policies in the
future. The parties estimate the present value of these restrictions at
$23,333,000, before deduction of any attorneys' fees that may be awarded
by the court. The estimate is based on assumptions about future events
that cannot be predicted with certainty and accordingly the actual value
of the future relief may differ. The parties to the settlement shortly
will be asking the court to approve preliminarily the settlement and
settlement class and to permit distribution of notice of the settlement
to policyholders, establish procedures for objections, an opportunity to
opt out of the settlements as it affects past damages, and a court
hearing on whether the settlement should be finally approved. Equitable
Life cannot predict whether the settlement will be approved or, if it is
not approved, the outcome of the pending litigations. As noted,
proceedings in Malvin were stayed indefinitely; proceedings in the other
actions have been stayed or deferred to accommodate the settlement
approval process.
A number of lawsuits have 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,
alleged 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, Equitable
Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues
for certain limited purposes, including the defense of litigation) and
The Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. Among
litigations pending against Equitable Life, EVLICO and EOC of the type
referred to in this paragraph are the litigations described in the
following seven paragraphs.
F-30
<PAGE>
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. 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 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. In June 1996, the Court
issued a decision and order dismissing with prejudice plaintiffs' causes
of action for fraud, constructive fraud, breach of fiduciary duty,
negligence, and unjust enrichment, and dismissing without prejudice
plaintiffs' 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. In April 1997, plaintiffs noticed an
appeal from the court's June 1996 order. Subsequently, Equitable Life
and EOC noticed a cross-appeal from so much of the June 1996 order that
denied their motion to dismiss. Briefing on the appeals is scheduled to
begin on February 23, 1998. In June 1997, plaintiffs filed their
memorandum of law and affidavits in support of their motion for class
certification. That memorandum states that plaintiffs seek to certify a
class solely on their breach of contract claims, and not on their
negligent misrepresentation claim. Plaintiffs' class certification
motion has been fully briefed by the parties and is sub judice. In
August 1997, Equitable Life and EOC moved for summary judgment
dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation. Defendants' summary judgment motion has
been fully briefed by the parties. On January 5, 1998, plaintiffs filed
a note of issue (placing the case on the trial calendar).
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 originally was brought by an
individual who purchased a whole life policy from Equitable Life in
1989. In September 1997, with leave of the court, plaintiff filed a
second amended petition naming six additional policyholder plaintiffs
and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the
second amended petition. Plaintiffs purport to represent a class
consisting of all persons who purchased whole life or universal life
insurance policies from Equitable Life from January 1, 1981 through July
22, 1992. Plaintiffs allege improper sales practices based on
allegations of misrepresentations concerning one or more of the
following: the number of years that premiums would need to be paid; a
policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages,
including punitive damages, in an unspecified amount. In October 1997,
Equitable Life filed (i) exceptions to the second amended petition,
asserting deficiencies in pleading of venue and vagueness; and (ii) a
motion to strike certain allegations. On January 23, 1998, the court
heard argument on Equitable Life's exceptions and motion to strike.
Those motions are sub judice. Motion practice regarding discovery
continues.
On July 26, 1996, an action entitled Michael Bradley v. Equitable
Variable Life Insurance Company was commenced in New York state court,
Kings County. 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. EVLICO answered the complaint,
denying the material allegations. In September 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 in Cole in
January 1997. Plaintiff then moved for certification of a nationwide
class consisting of all persons or entities who, since January 1, 1980,
were sold one or more life insurance products based on
misrepresentations as to the number of years that the annual premium
would need to be paid, and/or who were allegedly induced to purchase
additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. Discovery and
briefing regarding plaintiff's motion for class certification are
ongoing.
F-31
<PAGE>
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 in 1988. The complaint puts
in 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 alleges 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. In May
1997, plaintiff served a motion for class certification. In July 1997,
the parties submitted to the Court a joint scheduling report, joint
scheduling order and a confidentiality stipulation and order. The Court
signed the latter stipulation, and the others remain sub judice. Further
briefing on plaintiff's class certification motion will await entry of a
scheduling order and further class certification discovery, which has
commenced and is on-going. In January 1998, the judge assigned to the
case recused himself, and the case was reassigned. Defendants are to
serve their answer in February 1998.
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 amended complaint alleges that Equitable Life's and EVLICO's
agents were trained not to 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. Equitable Life and EVLICO have
answered the amended complaint, denying the material allegations and
asserting certain affirmative defenses. Motion practice regarding
discovery continues.
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. Plaintiff
filed an amended complaint in April 1997. In July 1997, Equitable Life
served a motion to dismiss the amended complaint or, in the alternative,
for summary judgment. On September 12, 1997, plaintiff moved for class
certification. This motion is scheduled for hearing on February 18,
1998.
On September 11, 1997, an action entitled Pamela L. and James A. Luther,
individually and as representatives of all people similarly situated v.
The Equitable Life Assurance Society of the United States, The Equitable
Companies Incorporated, and Casey Cammack, individually and as agent for
The Equitable Life Assurance Society of the United States and The
Equitable Companies Incorporated, was filed in Texas state court. The
action was brought by holders of a whole life policy and the beneficiary
under that policy. Plaintiffs purport to represent a nationwide class of
persons having an ownership or beneficial interest in whole and
universal life policies issued by Equitable Life from January 1, 1982
through December 31, 1996. Also included in the purported class are
persons having an ownership interest in variable annuities purchased
from Equitable Life from January 1, 1992 to the present. The complaint
puts in issue the allegations that uniform sales presentations,
illustrations, and materials that Equitable Life agents used
misrepresented the stated number of years that premiums would need to be
paid and misrepresented the extent to which the policies at issue were
F-32
<PAGE>
proper replacement policies. Plaintiffs seek compensatory damages,
attorneys' fees and expenses. In October 1997, Equitable Life served a
general denial of the allegations against it. The same day, the Holding
Company entered a special appearance contesting the court's jurisdiction
over it. In November 1997, Equitable Life filed a plea in abatement,
which, under Texas law, stayed further proceedings in the case because
plaintiffs had not served a demand letter. Plaintiffs served a demand
letter upon Equitable Life and the Holding Company, the response to
which is due 60 days thereafter. 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, Dillon, Franze, Chaviano and
Luther litigations should not have a material adverse effect on the
financial position of the Company. The Company's management cannot make
an estimate of loss, if any, or predict whether or not any such
litigation will have a material adverse effect on the Company's results
of operations in any particular period.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of The Equitable from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States, alleges, among other things, that Equitable Life
discriminated on the basis of race against African-American applicants
and potential applicants in hiring individuals as sales agents.
Plaintiffs seek a declaratory judgment and affirmative and negative
injunctive relief, including the payment of back-pay, pension and other
compensation. Although the outcome of any litigation cannot be predicted
with certainty, the Company's management believes that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position of the Company. The Company's management cannot
make an estimate of loss, if any, or predict whether or not such matter
will have a material adverse effect on the Company's results of
operations in any particular period.
The U.S. Department of Labor ("DOL") is conducting an investigation of
Equitable Life's management of 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 retains EREIM as advisor. Equitable Life agreed to indemnify the
purchaser of EREIM (which Equitable Life sold in June 1997) with respect
to any fines, penalties and rebates to clients in connection with this
investigation. In early 1995, the DOL commenced a national investigation
of commingled real estate funds with pension investors, including PPF.
The investigation 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, the Company's management believes
that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of the Company. The Company's
management cannot make an estimate of loss, if any, or predict whether
or not this investigation will have a material adverse effect on the
Company's results of operations in any particular period.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which sought 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, sought an
unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that 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 alleged 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
F-33
<PAGE>
New York granted the defendants' motion to dismiss all counts of the
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996,
the court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for
the Second Circuit issued an order granting defendants' motion to strike
and dismissing plaintiffs' appeal of the First Decision. 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 (i)
the Fund failed to hedge against the risks of investing in foreign
securities despite representations that it would do so, (ii) the Fund
did not properly disclose that it planned to invest in mortgage-backed
derivative securities and (iii) two advertisements used by the Fund
misrepresented the risks of investing in the Fund. On July 15, 1997, the
District Court denied plaintiffs' motion for leave to file an amended
complaint and ordered that the case be dismissed ("Second Decision").
The plaintiffs have appealed the Second Decision to the United States
Court of Appeals for the Second Circuit. 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 U. S. 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 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 that 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 U.S. 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. On October 10, 1997, DLJSC and
F-34
<PAGE>
others were named as defendants in a new adversary proceeding in the
Bankruptcy Court brought by the NGC Settlement Trust, an entity created
by the NGC plan of reorganization to deal with asbestos-related claims.
The Trust's allegations are substantially similar to the claims in the
State Court action. In court papers dated October 16, 1997, the State
Court plaintiff indicated that he would intervene in the Trust's
adversary proceeding. On January 21, 1998, the Bankruptcy Court ruled
that the State Court plaintiff's claims were not barred by the NGC plan
of reorganization insofar as they alleged nondisclosure of certain cost
reductions announced by NGC in October 1993. The Texas State Court
action, which 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 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 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. On
February 26, 1997, the parties agreed to a settlement of these actions,
subject to the District Court's approval, which was granted on July 31,
1997. The settlement is also subject to approval by the U.S. Bankruptcy
Court for the Eastern District of Louisiana of proposed modifications to
a confirmed plan of reorganization for Harrah's Jazz Company and
Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan.
There can be no assurance of the Bankruptcy Court's approval of the
modifications to the plan of reorganization, or that the conditions to
the effectiveness of the plan will be satisfied or waived. In the
opinion of DLJ's management, the settlement, if approved, will not have
a material adverse effect on DLJ's results of operations or on its
consolidated financial condition.
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 1998 and the succeeding four years are $93.5 million, $84.4
million, $70.2 million, $56.4 million, $47.0 million and $489.3 million
thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1998 and the succeeding four years are $7.3
million, $5.9 million, $3.8 million, $2.4 million, $.8 million and $2.9
million thereafter.
At December 31, 1997, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $247.0 million, $238.1 million, $218.7
million, $197.9 million, $169.1 million and $813.0 million thereafter.
F-35
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 721.5 $ 704.8 $ 628.4
Commissions........................................ 409.6 329.5 314.3
Short-term debt interest expense................... 31.7 8.0 11.4
Long-term debt interest expense.................... 121.2 137.3 108.1
Amortization of policy acquisition costs........... 287.3 405.2 317.8
Capitalization of policy acquisition costs......... (508.0) (391.9) (391.0)
Rent expense, net of sub-lease income.............. 101.8 113.7 109.3
Cursitor intangible assets writedown............... 120.9 - -
Other.............................................. 917.9 769.1 677.5
----------------- ---------------- -----------------
Total.............................................. $ 2,203.9 $ 2,075.7 $ 1,775.8
================= ================ =================
</TABLE>
During 1997, 1996 and 1995, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $42.4 million, $24.4 million and $32.0 million,
respectively. The amounts paid during 1997, associated with cost
reduction programs, totaled $22.8 million. At December 31, 1997, the
liabilities associated with cost reduction programs amounted to $62.0
million. The 1997 cost reduction program include costs related to
employee termination and exit costs. The 1996 cost reduction program
included restructuring costs related to the consolidation of insurance
operations' service centers. The 1995 cost reduction program included
relocation expenses, including the accelerated amortization of building
improvements associated with the relocation of the home office.
Amortization of DAC in 1996 included a $145.0 million writeoff of DAC
related to DI contracts.
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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1997, 1996 and 1995, statutory net
loss totaled $351.7 million, $351.1 million and $352.4 million,
respectively. No amounts are expected to be available for dividends from
Equitable Life to the Holding Company in 1998.
At December 31, 1997, the Insurance Group, in accordance with various
government and state regulations, had $19.7 million of securities
deposited with such government or state agencies.
F-36
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 203.6 $ 56.0 $ 78.1
Change in asset valuation reserves................. 147.1 (48.4) 365.7
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 350.7 7.6 443.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (31.1) (298.5) (66.0)
DAC.............................................. 220.7 (13.3) 73.2
Deferred Federal income taxes.................... 103.1 108.0 (158.1)
Valuation of investments......................... 46.8 289.8 189.1
Valuation of investment subsidiary............... (555.8) (117.7) (188.6)
Limited risk reinsurance......................... 82.3 92.5 416.9
Issuance of surplus notes........................ - - (538.9)
Postretirement benefits.......................... (3.1) 28.9 (26.7)
Other, net....................................... 30.3 12.4 115.1
GAAP adjustments of Closed Block................. 3.6 (9.8) 15.7
GAAP adjustments of discontinued operations...... 189.7 (89.6) 37.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 437.2 $ 10.3 $ 312.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,462.5 $ 2,258.9 $ 2,202.9
Asset valuation reserves........................... 1,444.6 1,297.5 1,345.9
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,907.1 3,556.4 3,548.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,336.1) (1,305.0) (1,006.5)
DAC.............................................. 3,236.6 3,104.9 3,075.8
Deferred Federal income taxes.................... (370.8) (306.1) (452.0)
Valuation of investments......................... 783.5 286.8 417.7
Valuation of investment subsidiary............... (1,338.6) (782.8) (665.1)
Limited risk reinsurance......................... (254.2) (336.5) (429.0)
Issuance of surplus notes........................ (539.0) (539.0) (538.9)
Postretirement benefits.......................... (317.5) (314.4) (343.3)
Other, net....................................... 203.7 126.3 4.4
GAAP adjustments of Closed Block................. 814.3 783.7 830.8
GAAP adjustments of discontinued operations...... 71.5 (190.3) (184.6)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================ =================
</TABLE>
F-37
<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.
Insurance Operations 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.
Investment Services 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 $81.9
million, $127.5 million and $124.1 million for 1997, 1996 and 1995,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the GIC Segment of
$5.1 million, $15.7 million and $14.7 million for 1997, 1996 and 1995,
respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,684.2 $ 3,770.6 $ 3,614.6
Investment services................................ 1,455.1 1,126.1 949.1
Consolidation/elimination.......................... (19.9) (24.5) (34.9)
----------------- ---------------- -----------------
Total.............................................. $ 5,119.4 $ 4,872.2 $ 4,528.8
================= ================ =================
Earnings (loss) from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change
Insurance operations............................... $ 250.3 $ (36.6) $ 303.1
Investment services................................ 485.7 311.9 224.0
Consolidation/elimination.......................... - .2 (3.1)
----------------- ---------------- -----------------
Subtotal..................................... 736.0 275.5 524.0
Corporate interest expense......................... (65.3) (66.9) (27.9)
----------------- ---------------- -----------------
Total.............................................. $ 670.7 $ 208.6 $ 496.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................................................... $ 68,305.9 $ 60,464.9
Investment services.................................................... 13,719.8 13,542.5
Consolidation/elimination.............................................. (403.6) (399.6)
---------------- -----------------
Total.................................................................. $ 81,622.1 $ 73,607.8
================ =================
</TABLE>
F-38
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1997 and 1996, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
1996
Total Revenues................ $ 1,176.5 $ 1,199.4 $ 1,198.4 $ 1,297.9
================= ================= ================== ==================
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)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million. 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 and
reserve strengthenings on DI business of $113.7 million, Pension Par of
$47.5 million and Discontinued Operations of $83.8 million.
20) INVESTMENT IN DLJ
At December 31, 1997, the Company's ownership of DLJ interest was
approximately 34.4%. 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-39
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 16,535.7 $ 15,728.1
Securities purchased under resale agreements........................... 22,628.8 20,598.7
Broker-dealer related receivables...................................... 28,159.3 16,858.8
Other assets........................................................... 3,182.0 2,318.1
---------------- -----------------
Total Assets........................................................... $ 70,505.8 $ 55,503.7
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 36,006.7 $ 29,378.3
Broker-dealer related payables......................................... 25,706.1 19,409.7
Short-term and long-term debt.......................................... 3,670.6 2,704.5
Other liabilities...................................................... 2,860.9 2,164.0
---------------- -----------------
Total liabilities...................................................... 68,244.3 53,656.5
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,061.5 1,647.2
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 70,505.8 $ 55,503.7
================ =================
DLJ's equity as reported............................................... $ 2,061.5 $ 1,647.2
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.5 23.9
The Holding Company's equity ownership in DLJ.......................... (740.2) (590.2)
Minority interest in DLJ............................................... (729.3) (588.6)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 615.5 $ 492.3
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 2,356.8 $ 1,818.2
Net investment income.................................................. 1,652.1 1,074.2
Dealer, trading and investment gains, net.............................. 631.6 598.4
---------------- -----------------
Total revenues......................................................... 4,640.5 3,490.8
Total expenses including income taxes.................................. 4,232.3 3,199.5
---------------- -----------------
Net earnings........................................................... 408.2 291.3
Dividends on preferred stock........................................... 12.1 18.7
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 396.1 $ 272.6
================ =================
DLJ's earnings applicable to common shares as reported................. $ 396.1 $ 272.6
Amortization of cost in excess of net assets acquired in 1985.......... (1.3) (3.1)
The Holding Company's equity in DLJ's earnings......................... (156.8) (107.8)
Minority interest in DLJ............................................... (109.1) (73.4)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 128.9 $ 88.3
================ =================
</TABLE>
F-40
<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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1997, 1996 and 1995 would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As Reported............................................. $ 437.2 $ 10.3 $ 312.8
Pro Forma............................................... $ 426.3 $ 3.3 $ 311.3
</TABLE>
The fair value of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, was estimated as of the date
of grants using the Black-Scholes option pricing model. The option
pricing assumptions for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------------------- --------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield.... 0.48% 0.80% 0.96% 0.86% 1.54% 1.85% 8.00% 8.00% 8.00%
Expected volatility 20.00% 20.00% 20.00% 33.00% 25.00% 25.00% 26.00% 23.00% 23.00%
Risk-free interest
rate............ 5.99% 5.92% 6.83% 5.96% 6.07% 5.86% 5.70% 5.80% 6.00%
Expected life..... 5 years 5 years 5 years 5 years 5 years 5 years 7.6 years 7.43 years 7.43 years
Weighted average
grant-date fair
value per option $12.25 $6.94 $5.90 $22.45 $9.35 $7.36 $4.36 $2.69 $2.24
</TABLE>
F-41
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is 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, 1995........ 6.8 $20.31 - 3.8 $15.46
Granted................ .4 $20.27 9.2 $27.00 1.8 $20.54
Exercised.............. (.1) $20.00 - (.5) $11.20
Expired................ (.1) $20.00 - -
Forfeited.............. (.3) $22.24 - (.3) $16.64
--------------- ------------- ---------------
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................ - - -
Forfeited.............. (.6) $20.21 (.2) $27.00 (.1) $19.32
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
Granted................ 3.2 $41.85 3.2 $61.07 1.1 $36.56
Exercised.............. (1.6) $20.26 (.1) $32.03 (.6) $16.11
Forfeited.............. (.4) $23.43 (.1) $27.51 (.2) $21.28
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 14.1 $35.56 5.3 $22.82
=============== ============= ===============
</TABLE>
F-42
<PAGE>
Information about options outstanding and exercisable at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- ----------------- --------------- ------------------- ----------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 4.8 5.84 $20.94 3.0 $20.41
$28.50 -$45.25 3.1 9.57 $41.84 - -
----------------- -------------------
$18.125 -$45.25 7.9 7.29 $29.05 3.0 $20.41
================= ================= =============== =================== ================
DLJ
----------------------
$27.00 -$35.99 10.9 8.0 $28.05 4.9 $27.58
$36.00 -$50.99 .8 9.3 $40.04 - -
$51.00 -$76.00 2.4 9.8 $67.77 - -
----------------- -------------------
$27.00 -$76.00 14.1 8.4 $35.56 4.9 $27.58
================= ================= ================ =================== =================
Alliance
----------------------
$ 6.0625 -$17.75 1.1 3.86 $13.20 1.0 $13.04
$19.375 -$19.75 .8 7.34 $19.39 .3 $19.39
$19.875 -$21.375 1.1 8.28 $20.13 .6 $20.19
$22.25 -$27.50 1.3 9.81 $23.81 .4 $23.29
$36.9375 -$37.5625 1.0 9.95 $36.95 - -
----------------- -------------------
$ 6.0625 -$37.5625 5.3 7.58 $22.82 2.3 $17.43
================= ================== ============== ====================== =============
</TABLE>
F-43
<PAGE>
INCOME MANAGER(R) ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
------------------
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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
MFS Research Equity Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity T. Rowe Price International Stock
T. Rowe Price Equity Income
- -------------------------------------------------------------------------------------------------------------------------------
</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
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
- -------------------------------------------------------------------------------------------------------------------------------
</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 October 17, 1996 and prospectus supplements dated May 1, 1998,
December 31, and May 1, 1997. Definitions of special terms used in the SAI are
found in the prospectus.
Copies of the prospectus and supplements are available free of charge by writing
the Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your agent.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
- --------------------------------------------------------------------------------
Part 1 Minimum Distribution Withdrawals --
Traditional IRA Certificates 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, Alliance Intermediate
Government Securities Fund and Alliance High
Yield Fund Yield Information 3
- --------------------------------------------------------------------------------
Part 6 Long-Term Market Trends 5
- --------------------------------------------------------------------------------
Part 7 Financial Statements 6
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of the United States,
New York, New York 10104.
All rights reserved. Income Manager is a registered service mark of
The Equitable Life Assurance Society of the United States.
(IM-98-IRA1096)
<PAGE>
- --------------------------------------------------------------------------------
PART 1 -- MINIMUM DISTRIBUTION WITHDRAWALS -- TRADITIONAL IRA CERTIFICATES
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 Traditional 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
(b)
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 HRT or
EQAT, 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 each Fund's respective effective
date (as shown in the prospectus) 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
2
<PAGE>
- --------------------------------------------------------------------------------
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 HRT and EQAT owned by the Separate
Account.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 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, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND AND ALLIANCE HIGH YIELD 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.
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:
3
<PAGE>
- --------------------------------------------------------------------------------
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) [superscript: (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 and Alliance High Yield Fund
The Alliance Intermediate Government Securities and Alliance High Yield Funds
calculate 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 or Alliance High Yield 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 or Alliance High Yield Fund will
vary for each Certificate depending upon the percentage of the Annuity Account
Value allocated to the Alliance Intermediate Government Securities or Alliance
High Yield 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 or Alliance High Yield 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 or
Alliance High Yield 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)
[superscript: (365/30)] - 1. The yields for the Alliance Intermediate Government
Securities and Alliance High Yield Funds 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 and Alliance High Yield Funds will fluctuate
and not remain constant.
Alliance Money Market Fund, Alliance Intermediate Government Securities Fund and
Alliance High Yield Fund Yield Information
The yields for the Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund and Alliance High Yield Fund 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. The yields for the Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund and Alliance
High Yield Fund 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 yields be compared to the yields 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 5.35% for the
period ended December 31, 1997. The effective yield for that period was 5.49%
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 8.07% for the period ended December 31, 1997. The effective yield for
that period was 8.38%.
The 30-day current yield for the Alliance High Yield Fund was 16.14% for the
period ended December 31, 1997. The effective yield for that period was 17.39%.
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, Alliance Intermediate Government
Securities and Alliance High Yield Portfolios which reflect only the deduction
of HRT-level expenses.
4
<PAGE>
- --------------------------------------------------------------------------------
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, 1957
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE TYPESET DOCUMENT:]
Common Stock Inflation
1957 0.89 1.03
1958 1.28 1.05
1959 1.43 1.06
1960 1.44 1.08
1961 1.83 1.09
1962 1.67 1.10
1963 2.05 1.12
1964 2.38 1.13
1965 2.68 1.15
1966 2.41 1.19
1967 2.99 1.23
1968 3.32 1.29
1969 3.04 1.36
1970 3.16 1.44
1971 3.61 1.49
1972 4.30 1.54
1973 3.67 1.67
1974 2.70 1.88
1975 3.70 2.01
1976 4.58 2.11
1977 4.25 2.25
1978 4.53 2.45
1979 5.37 2.78
1980 7.11 3.12
1981 6.76 3.40
1982 8.20 3.54
1983 10.05 3.67
1984 10.68 3.81
1985 14.11 3.96
1986 16.72 4.00
1987 17.60 4.18
1988 20.55 4.36
1989 27.03 4.57
1990 26.17 4.85
1991 34.16 4.99
1992 36.78 5.14
1993 40.46 5.28
1994 40.99 5.42
1995 56.33 5.56
1996 69.33 5.74
1997 92.44 5.85
[WHITE AREA = COMMON STOCK]
[BLACK AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
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 1997.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK & WHITE LINE GRAPH
IN THE TYPESET DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[BLACK DOTS = INTERMEDIATE-TERM GOVT. BONDS]
[WHITE DOTS = COMMON STOCKS]
[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, 1997 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 nor 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.
5
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
- -------------------------------------------------------------------------------------------------------
LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM TREASURY CONSUMER
ENDING 12/31/97: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 33.36% 15.85% 12.95% 8.38% 5.26% 1.92%
3 Years 31.15% 14.76% 13.36% 8.93% 5.35% 2.59%
5 Years 20.24% 10.51% 9.22% 6.40% 4.57% 2.64%
10 Years 18.05% 11.32% 10.85% 8.33% 5.44% 3.43%
20 Years 16.65% 10.39% 10.29% 9.51% 7.29% 4.90%
30 Years 12.12% 8.63% 8.86% 8.52% 6.77% 5.34%
40 Years 12.30% 6.71% 7.09% 7.10% 5.85% 4.44%
50 Years 13.12% 5.70% 6.07% 6.04% 4.99% 3.94%
60 Years 12.53% 5.31% 5.54% 5.44% 4.18% 4.11%
Since 12/31/26 10.99% 5.19% 5.71% 5.25% 3.77% 3.17%
Inflation adjusted since 1926 7.58% 1.96% 2.46% 2.02% 0.58% --
- -------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969 -- 1997, 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
- -- 1997; 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 7 -- FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the Certificates.
6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO.45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1997........................................... FS-3
Statements of Operations for the Year Ended December 31, 1997..................................... FS-6
Statements of Changes in Net Assets for the Years Ended December 31, 1997 and 1996................ FS-9
Notes to Financial Statements..................................................................... FS-14
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996.............................................. F-2
Consolidated Statements of Earnings, Years Ended December 31, 1997, 1996 and 1995.................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1997,
1996 and 1995...................................................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1997, 1996 and 1995.................. F-5
Notes to Consolidated Financial Statements........................................................... F-6
</TABLE>
FS-1
<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 Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund, T.
Rowe Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, Alliance Equity Index Fund, Merrill Lynch Basic Value
Equity Fund, Alliance Common Stock Fund, MFS Research Fund, Alliance Global
Fund, Alliance International Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock Fund,
Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth Fund, MFS
Emerging Growth Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam
Balanced Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund, separate investment funds of The Equitable Life Assurance Society of the
United States ("Equitable Life") Separate Account No. 45 at December 31, 1997
and 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 owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1997 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
----------- ------------- ---------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $82,037,124.......... $81,571,923
11,097,635.......... $11,119,574
19,330,287.......... $18,544,101
Receivable (payable) for policy-related
transactions................................... 2,903,327 50,563 662,782
----------- ----------- ------------
Total Assets...................................... 84,475,250 11,170,137 19,206,883
----------- ----------- ------------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 2,910,079 52,140 665,890
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 206,810 55,747 59,654
----------- ----------- ------------
Total Liabilities................................. 3,116,889 107,887 725,544
----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $81,358,361 $11,062,250 $18,481,339
=========== =========== ============
<CAPTION>
EQUITY SERIES
--------------------------------------------------------------------------
MERRILL
T. ROWE PRICE EQ/PUTNAM ALLIANCE LYNCH
EQUITY GROWTH & ALLIANCE EQUITY BASIC VALUE
EQUITY INCOME VALUE GROWTH & INDEX EQUITY
INCOME FUND FUND INCOME FUND FUND FUND
------------- -------------- ----------- ----------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 18,007,458.......... $18,987,864
14,008,930.......... $14,200,058
88,651,911.......... $94,268,289
99,286.......... $104,008
9,928,247.......... $9,863,914
Receivable (payable) for policy-related
transactions................................... 105,202 186,146 809,151 (8) 34,834
----------- ----------- ----------- --------- ----------
Total Assets...................................... 19,093,066 14,386,204 95,077,440 104,000 9,898,748
----------- ----------- ----------- --------- ----------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 109,104 189,102 829,693 -- 36,845
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 15,447 11,682 366,973 6,482 7,463
----------- ----------- ----------- --------- ----------
Total Liabilities................................. 124,551 200,784 1,196,666 6,482 44,308
----------- ----------- ----------- --------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $18,968,515 $14,185,420 $93,880,774 $ 97,518 $9,854,440
=========== =========== =========== ========= ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
------------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $297,090,529................... $320,541,976
11,939,823................... $11,977,333
38,334,848................... $38,090,450
18,748,095................... $16,610,244
Receivable (payable) for policy-related transactions....... 1,219,096 44,794 646,213 31,494
------------ ----------- ----------- -----------
Total Assets............................................... 321,761,072 12,022,127 38,736,663 16,641,738
------------ ----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ 1,275,113 47,322 83,460 68,383
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 1,176,309 10,019 143,534 90,013
------------ ----------- ----------- -----------
Total Liabilities.......................................... 2,451,422 57,341 226,994 158,396
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $319,309,650 $11,964,786 $38,509,669 $16,483,342
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
T. ROWE MORGAN
PRICE STANLEY ALLIANCE
INTERNATIONAL EMERGING AGGRESSIVE
STOCK MARKETS STOCK
FUND EQUITY FUND FUND
------------- ----------- ------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 13,205,929................... $12,628,951
2,479,420................... $2,241,138
122,157,062................... $118,305,660
Receivable (payable) for policy-related transactions....... (241,260) 14,961 55,012
----------- ---------- ------------
Total Assets............................................... 12,387,691 2,256,099 118,360,672
----------- ---------- ------------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ (238,550) 15,412 76,530
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 9,534 1,594 456,464
----------- ---------- ------------
Total Liabilities.......................................... (229,016) 17,006 532,994
----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $12,616,707 $2,239,093 $117,827,678
=========== ========== ============
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP GROWTH
COMPANY GROWTH COMPANIES
VALUE FUND FUND FUND
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $25,096,987.................. $24,796,551
16,633,779.................. $16,289,343
12,205,272.................. $11,946,078
Receivable (payable) for policy-related transactions...... 208,290 107,600 73,764
----------- ----------- -----------
Total Assets.............................................. 25,004,841 16,396,943 12,019,842
----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 213,483 114,679 76,254
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 19,432 54,205 9,228
----------- ----------- -----------
Total Liabilities......................................... 232,915 168,884 85,482
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $24,771,926 $16,228,059 $11,934,360
=========== =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
------------ ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 20,991,531.................. $21,474,276
5,965,298.................. $6,038,880
64,675,197.................. $66,360,908
2,544,176.................. $2,415,053
Receivable (payable) for policy-related transactions...... 146,316 76,680 120,470 9,748
----------- ---------- ----------- ----------
Total Assets.............................................. 21,620,592 6,115,560 66,481,378 2,424,801
----------- ---------- ----------- ----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 149,280 77,927 132,026 10,238
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 142,854 4,667 366,318 1,768
----------- ---------- ----------- ----------
Total Liabilities......................................... 292,134 82,594 498,344 12,006
----------- ---------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $21,328,458 $6,032,966 $65,983,034 $2,412,795
=========== ========== =========== ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND(A)
----------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 2,767,636 $ 373,989 $ 654,819
Expenses (Note 3):
Asset based charges ....................................... 445,521 70,280 53,671
----------- --------- -----------
NET INVESTMENT INCOME (LOSS) .............................. 2,322,115 303,709 601,148
----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 59,011 12,754 76,963
Realized gain distribution from the Trusts ................ 5,264 -- 706,360
----------- --------- -----------
Net Realized Gain (Loss) ............................... 64,275 12,754 783,323
----------- --------- -----------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... (197,899) (36,715) --
End of period ............................................. (465,201) 21,939 (786,186)
----------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ......................................... (267,302) 58,654 (786,186)
----------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ (203,027) 71,408 (2,863)
----------- --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $ 2,119,088 $ 375,117 $ 598,285
=========== ========= ===========
<CAPTION>
EQUITY SERIES
---------------------------------------------------------------
T. ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & EQUITY BASIC VALUE
INCOME INCOME INCOME INDEX EQUITY
FUND(A) FUND(A) VALUE FUND FUND(A) FUND(A)
----------- -------- ---------- -------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 141,756 $ 65,607 $ 522,395 $ 596 $ 49,960
Expenses (Note 3):
Asset based charges ....................................... 62,938 44,334 617,639 409 29,450
---------- ----------- ------------ -------- --------
NET INVESTMENT INCOME (LOSS) .............................. 78,818 21,273 (95,244) 187 20,510
---------- ----------- ------------ -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 2,121 963 707,686 1,022 711
Realized gain distribution from the Trusts ................ 52,414 53,683 5,306,878 370 47,068
---------- ----------- ------------ -------- --------
Net Realized Gain (Loss) ............................... 54,535 54,646 6,014,564 1,392 47,779
---------- ----------- ------------ -------- --------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... -- -- 764,236 -- --
End of period ............................................. 980,406 191,128 5,616,378 4,722 (64,333)
---------- ----------- ------------ -------- --------
Change in unrealized appreciation (depreciation)
during the period ......................................... 980,406 191,128 4,852,142 4,722 (64,333)
---------- ----------- ------------ -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ 1,034,941 245,774 10,866,706 6,114 (16,554)
---------- ----------- ------------ -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $1,113,759 $ 267,047 $ 10,771,462 $ 6,301 $ 3,956
========== =========== ============ ======== ========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
---------------------------------------------------------
ALLIANCE ALLIANCE
COMMON MFS ALLIANCE INTER-
STOCK RESEARCH GLOBAL NATIONAL
FUND FUND(A) FUND FUND
------------ ---------- ------------ -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,007,250 $ 25,364 $ 662,565 $ 454,446
Expenses (Note 3):
Asset based charges .................................. 2,216,874 40,703 334,193 165,980
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (1,209,624) (15,339) 328,372 288,466
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 3,442,671 1,227 423,327 259,996
Realized gain distribution from the Trusts ........... 23,990,653 100,696 2,414,538 833,830
----------- -------- ---------- -----------
Net Realized Gain (Loss) .......................... 27,433,324 101,923 2,837,865 1,093,826
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 1,356,454 -- 199,484 31,388
End of period ........................................ 23,451,447 37,510 (244,398) (2,137,851)
----------- -------- ---------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. 22,094,993 37,510 (443,882) (2,169,239)
----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 49,528,317 139,433 2,393,983 (1,075,413)
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $48,318,693 $124,094 $2,722,355 $ (786,947)
=========== ======== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING ALLIANCE
NATIONAL MARKETS AGGRESSIVE
STOCK EQUITY STOCK
FUND(A) FUND(B) FUND
---------- --------- ------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,646 $ 6,387 $ 105,375
Expenses (Note 3):
Asset based charges .................................. 47,444 5,153 985,564
--------- --------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (45,798) 1,234 (880,189)
--------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. (53,503) (26,406) 61,253
Realized gain distribution from the Trusts ........... -- -- 9,818,273
--------- --------- -----------
Net Realized Gain (Loss) .......................... (53,503) (26,406) 9,879,526
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- (2,165,186)
End of period ........................................ (576,978) (238,282) (3,851,402)
--------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. (576,978) (238,282) (1,686,216)
--------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... (630,481) (264,688) 8,193,310
--------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $(676,279) $(263,454) $ 7,313,121
========= ========= ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
--------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 21,393 $ 773 $ 22,515
Expenses (Note 3):
Asset based charges .................................. 85,830 50,629 38,336
--------- --------- ---------
NET INVESTMENT INCOME (LOSS) ......................... (64,437) (49,856) (15,821)
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 228,992 62,796 52,672
Realized gain distribution from the Trusts ........... 109,076 377,750 274,537
--------- --------- ---------
Net Realized Gain (Loss) .......................... 338,068 440,546 327,209
--------- ---------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- --
End of period ........................................ (300,436) (344,436) (259,194)
--------- --------- ---------
Change in unrealized appreciation (depreciation)
during the period ................................. (300,436) (344,436) (259,194)
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 37,632 96,110 68,015
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $ (26,805) $ 46,254 $ 52,194
========= ========= =========
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND(A) FUND FUND(A)
---------- ---------- ----------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 647,522 $ 69,781 $ 1,260,100 $ 10,682
Expenses (Note 3):
Asset based charges .................................. 165,768 18,233 523,559 7,708
---------- --------- ----------- --------
NET INVESTMENT INCOME (LOSS) ......................... 481,754 51,548 736,541 2,974
---------- --------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 49,147 (1,203) 187,731 (109)
Realized gain distribution from the Trusts ........... 638,548 46,731 3,432,867 24,328
---------- --------- ----------- --------
Net Realized Gain (Loss) .......................... 687,695 45,528 3,620,598 24,219
---------- --------- ----------- --------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 4,651 -- (158,777) --
End of period ........................................ 482,745 73,582 1,685,711 (129,123)
---------- --------- ----------- --------
Change in unrealized appreciation (depreciation)
during the period ................................. 478,094 73,582 1,844,488 (129,123)
---------- --------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 1,165,789 119,110 5,465,086 (104,904)
---------- --------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $1,647,543 $ 170,658 $ 6,201,627 $(101,930)
========== ========= =========== =========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------
ALLIANCE
MONEY MARKET FUND
------------------------------
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................... $ 2,322,115 $ 791,163
Net realized gain (loss) ................................ 64,275 19,803
Change in unrealized appreciation /(depreciation)
of investments ....................................... (267,302) (165,897)
------------- -------------
Net increase in net assets from operations .............. 2,119,088 645,069
------------- -------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 137,532,670 95,681,367
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 55,819,439 19,687,669
------------- -------------
Total ............................................. 193,352,109 115,369,036
------------- -------------
Benefit & other policy transaction ................... 1,577,365 198,356
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 618,083 514,843
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 144,167,408 87,121,388
------------- -------------
Total ............................................. 146,362,856 87,834,587
------------- -------------
Net increase in net assets from Contract Owner
transactions ........................................ 46,989,253 27,534,449
------------- -------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT 45 (NOTE 5) ......................... (46,770) (17,582)
------------- -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 49,061,571 28,161,936
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 32,296,790 4,134,854
------------- -------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 81,358,361 $ 32,296,790
============= =============
<CAPTION>
FIXED INCOME SERIES:
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE HIGH YIELD
GOVERNMENT SECURITIES FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................... $ 303,709 $ 138,808 $ 601,148
Net realized gain (loss) ................................ 12,754 (21,067) 783,323
Change in unrealized appreciation /(depreciation)
of investments ....................................... 58,654 (41,524) (786,186)
------------ ------------ ------------
Net increase in net assets from operations .............. 375,117 76,217 598,285
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 5,416,131 1,798,660 13,779,925
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 3,270,944 8,533,013 22,095,921
------------ ------------ ------------
Total ............................................. 8,687,075 10,331,673 35,875,846
------------ ------------ ------------
Benefit & other policy transaction ................... 189,517 15,968 161,257
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 128,377 77,637 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 1,145,902 8,982,626 17,780,088
------------ ------------ ------------
Total ............................................. 1,463,796 9,076,231 17,986,890
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ........................................ 7,223,279 1,255,442 17,888,956
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ..................... (12,130) (6,709) (5,902)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 7,586,266 1,324,950 18,481,339
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 3,475,984 2,151,034 --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 11,062,250 $ 3,475,984 $ 18,481,339
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
------------------------------
T. ROWE EQ/PUTNAM
PRICE EQUITY GROWTH &
INCOME INCOME VALUE
FUND(A) FUND(A)
-------------- --------------
1997 1997
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss) ............................... $ 78,818 $ 21,273
Net realized gain (loss) ................................... 54,535 54,646
Change in unrealized appreciation / (depreciation)
of investments .......................................... 980,406 191,128
------------ ------------
Net increase in net assets from operations ................. 1,113,759 267,047
------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 13,813,772 10,975,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 4,356,204 3,217,543
------------ ------------
Total ................................................ 18,169,976 14,192,742
------------ ------------
Benefit & other policy transaction ...................... 86,052 58,925
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 40,797 32,578
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 183,349 180,506
------------ ------------
Total ................................................ 310,198 272,009
------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 17,859,778 13,920,733
------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (5,022) (2,360)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 18,968,515 14,185,420
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- --
------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 18,968,515 $ 14,185,420
============ ============
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------
ALLIANCE
ALLIANCE EQUITY MERRILL LYNCH
GROWTH & INCOME INDEX BASIC VALUE
FUND FUND(A) EQUITY FUND(A)
--------------------------- ---------- ---------------
1997 1996 1997 1997
------------ ------------ ---------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ (95,244) $ 64,283 $ 187 $ 20,510
Net realized gain (loss) ................................... 6,014,564 693,777 1,392 47,779
Change in unrealized appreciation / (depreciation)
of investments .......................................... 4,852,142 698,407 4,722 (64,333)
------------ ------------ -------- ------------
Net increase in net assets from operations ................. 10,771,462 1,456,467 6,301 3,956
------------ ------------ -------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 58,696,016 6,251,620 77,031 8,075,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 16,269,895 6,040,990 15,328 1,941,071
------------ ------------ -------- ------------
Total ................................................ 74,965,911 12,292,610 92,359 10,016,270
------------ ------------ -------- ------------
Benefit & other policy transaction ...................... 1,455,357 130,199 -- 9,691
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 425,279 31,991 -- 17,792
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 4,907,606 342,494 -- 137,464
------------ ------------ -------- ------------
Total ................................................ 6,788,242 504,684 -- 164,947
------------ ------------ -------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 68,177,669 11,787,926 92,359 9,851,323
------------ ------------ -------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (94,285) (27,565) (1,142 (839)
------------ ------------ -------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 78,854,846 13,216,828 97,518 9,854,440
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,025,928 1,809,100 -- --
------------ ------------ -------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 93,880,774 $ 15,025,928 $ 97,518 $ 9,854,440
============ ============ ======== ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
MFS
ALLIANCE RESEARCH
COMMON STOCK FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) ............................... $ (1,209,624) $ (42,865) $ (15,339)
Net realized gain (loss) ................................... 27,433,324 6,011,054 101,923
Change in unrealized appreciation / (depreciation)
of investments .......................................... 22,094,993 1,504,011 37,510
------------- ------------ ------------
Net increase (decrease) in net assets from operations ...... 48,318,693 7,472,200 124,094
------------- ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 175,880,351 36,558,323 9,502,168
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 61,077,537 34,378,499 2,602,553
------------- ------------ ------------
Total ................................................ 236,957,888 70,936,822 12,104,721
------------- ------------ ------------
Benefit & other policy transaction ...................... 4,271,079 427,323 28,630
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 1,459,175 290,642 23,738
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 35,438,036 8,933,676 209,610
------------- ------------ ------------
Total ................................................ 41,168,290 9,651,641 261,978
------------- ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 195,789,598 61,285,181 11,842,743
------------- ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (305,436) (85,006) (2,051)
------------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 243,802,855 68,672,375 11,964,786
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 75,506,795 6,834,420 --
------------- ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 319,309,650 $ 75,506,795 $ 11,964,786
============= ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------------
ALLIANCE ALLIANCE
GLOBAL FUND INTERNATIONAL FUND
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ 328,372 $ 88,313 $ 288,466 $ 53,333
Net realized gain (loss) ................................... 2,837,865 543,216 1,093,826 234,294
Change in unrealized appreciation / (depreciation)
of investments .......................................... (443,882) 184,372 (2,169,239) 16,354
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from operations ...... 2,722,355 815,901 (786,947) 303,981
------------ ------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 20,384,580 9,199,245 9,574,522 3,782,377
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 7,792,945 6,255,073 18,180,472 5,791,839
------------ ------------ ------------ -----------
Total ................................................ 28,177,525 15,454,318 27,754,994 9,574,216
------------ ------------ ------------ -----------
Benefit & other policy transaction ...................... 621,118 70,774 341,327 38,451
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 155,169 36,757 97,083 75,353
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 6,961,429 1,836,433 18,593,662 1,979,003
------------ ------------ ------------ -----------
Total ................................................ 7,737,716 1,943,964 19,032,072 2,092,807
------------ ------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ............................................ 20,439,809 13,510,354 8,722,922 7,481,409
------------ ------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (28,799) (18,054) (36,637) (11,874)
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 23,133,365 14,308,201 7,899,338 7,773,516
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,376,304 1,068,103 8,584,004 810,488
------------ ------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 38,509,669 $ 15,376,304 $ 16,483,342 $ 8,584,004
============ ============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING
NATIONAL MARKETS ALLIANCE
STOCK EQUITY AGGRESSIVE STOCK
FUND(A) FUND(B) FUND
------------- ----------- --------------------------------
1997 1997 1997 1996
------------- ----------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ...................................... $ (45,798) $ 1,234 $ (880,189) $ (121,400)
Net realized gain (loss) ................................... (53,503) (26,406) 9,879,526 4,080,335
Change in unrealized appreciation / (depreciation)
of investments .......................................... (576,978) (238,282) (1,686,216) (1,995,216)
------------ ----------- ------------- ------------
Net increase (decrease) in net assets from operations ...... (676,279) (263,454) 7,313,121 1,963,719
------------ ----------- ------------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 9,658,570 1,617,148 66,019,813 22,776,845
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 5,113,170 889,247 17,726,363 20,452,746
------------ ----------- ------------- ------------
Total ................................................ 14,771,740 2,506,395 83,746,176 43,229,591
------------ ----------- ------------- ------------
Benefit & other policy transaction ...................... 37,224 -- 1,854,804 245,070
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 22,024 394 482,491 90,356
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 1,416,476 2,488 11,669,668 7,099,325
------------ ----------- ------------- ------------
Total ................................................ 1,475,724 2,882 14,006,963 7,434,751
------------ ----------- ------------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 13,296,016 2,503,513 69,739,213 35,794,840
------------ ----------- ------------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (3,030) (966) (111,908) (33,503)
------------ ----------- ------------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 12,616,707 2,239,093 76,940,426 37,725,056
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- 40,887,252 3,162,196
------------ ----------- ------------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 12,616,707 $ 2,239,093 $ 117,827,678 $ 40,887,252
============ =========== ============= ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
WARBURG MFS
PINCUS SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
------------ ------------- ----------------
1997 1997 1997
------------ ------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ...................................... $ (64,437) $ (49,856) $ (15,821)
Net realized gain (loss) ................................... 338,068 440,546 327,209
Change in unrealized appreciation / (depreciation)
of investments .......................................... (300,436) (344,436) (259,194)
------------ ------------ ------------
Net increase (decrease) in net assets from operations ...... (26,805) 46,254 52,194
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 17,791,841 12,116,331 9,607,211
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 11,695,862 5,602,864 3,864,604
------------ ------------ ------------
Total ................................................ 29,487,703 17,719,195 13,471,815
------------ ------------ ------------
Benefit & other policy transaction ...................... 134,692 20,842 45,537
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 23,284 8,570 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 4,520,417 1,504,600 1,527,808
------------ ------------ ------------
Total ................................................ 4,678,393 1,534,012 1,587,690
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 24,809,310 16,185,183 11,884,125
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (10,579) (3,378) (1,959)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 24,771,926 16,228,059 11,934,360
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 24,771,926 $ 16,228,059 $ 11,934,360
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------
ALLIANCE EQ/PUTNAM
CONSERVATIVE BALANCED
INVESTORS FUND FUND(A)
--------------------------- ----------- -
1997 1996 1997
------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 481,754 $ 193,429 $ 51,548
Net realized gain (loss) ............................. 687,695 154,966 45,528
Change in unrealized appreciation / (depreciation)
of investments .................................... 478,094 (12,221) 73,582
----------- ----------- -----------
Net increase (decrease) in net assets from operations 1,647,543 336,174 170,658
------------ ----------- -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 10,862,780 3,977,495 4,294,496
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 3,151,066 2,837,790 1,721,220
------------ ----------- -----------
Total .......................................... 14,013,846 6,815,285 6,015,716
------------ ----------- -----------
Benefit & other policy transaction ................ 567,547 60,271 17,533
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 138,461 100,314 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 1,428,179 814,338 120,099
------------ ----------- -----------
Total .......................................... 2,134,187 974,923 152,925
------------ ----------- -----------
Net increase in net assets from Contract Owner
transactions ...................................... 11,879,659 5,840,362 5,862,791
------------ ----------- -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (57,026) (12,633) (483)
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 13,470,176 6,163,903 6,032,966
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 7,858,282 1,694,379 --
------------ ----------- -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 21,328,458 $ 7,858,282 $ 6,032,966
============ =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------
ALLIANCE MERRILL LYNCH
GROWTH WORLD STRATEGY
INVESTORS FUND FUND(A)
---------------------------- --------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 736,541 $ 218,025 $ 2,974
Net realized gain (loss) ............................. 3,620,598 1,601,901 24,219
Change in unrealized appreciation / (depreciation)
of investments .................................... 1,844,488 (197,988) (129,123)
------------ ------------ -----------
Net increase (decrease) in net assets from operations 6,201,627 1,621,938 (101,930)
------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 32,084,069 11,004,121 2,043,811
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 7,981,423 9,331,901 561,601
------------ ------------ -----------
Total .......................................... 40,065,492 20,336,022 2,605,412
------------ ------------ -----------
Benefit & other policy transaction ................ 1,014,211 206,468 3,514
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 421,582 228,021 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 2,744,848 1,177,040 84,455
------------ ------------ -----------
Total .......................................... 4,180,641 1,611,529 90,566
------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ...................................... 35,884,851 18,724,493 2,514,846
------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (111,839) (32,214) (121)
------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 41,974,639 20,314,217 2,412,795
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 24,008,395 3,694,178 --
------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 65,983,034 $ 24,008,395 $ 2,412,795
============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
1940 Act"). The Account consists of 22 investment funds (Funds): Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund,
Alliance High Yield Fund, T. Rowe Price Equity Income Fund, EQ/Putnam
Growth & Income Value Fund, Alliance Growth & Income Fund, Alliance Equity
Index Fund, Merrill Lynch Basic Value Equity Fund, Alliance Common Stock
Fund, MFS Research Fund, Alliance Global Fund, Alliance International
Fund, T. Rowe Price International Stock Fund, Morgan Stanley Emerging
Markets Equity Fund, Alliance Aggressive Stock Fund, Warburg Pincus Small
Company Value Fund, Alliance Small Cap Growth Fund, MFS Emerging Growth
Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam Balanced
Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund. The assets in each Fund are invested in shares of a corresponding
portfolio (Portfolio) of a mutual fund, Class IA and IB shares of The
Hudson River Trust (HRT) or Class IB shares of EQ Advisors Trust (EQAT)
(collectively known as the Trusts). Class IB shares are offered by the
Funds at net asset value and are subject to distribution fees imposed
under a distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act. Class IA shares of HRT continue to be purchased by contracts in-force
prior to May 1, 1997. The Trusts are open-end, diversified management
investment companies that sell its shares to 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 is also available
for purchase by certain types of qualified plans. 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 less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth 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.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 charges for mortality and expense
risks at an annual rate of 0.90% of daily net assets. In addition, asset
based administrative charges are also charged to the account at an annual
rate of 0.25% of daily net assets. The charges may be retained in the
Account by Equitable Life and participate in the net investment results of
the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.15% of daily net assets. Trust shares are
valued at their net asset value with investment advisory or management
fees, the 12b-1 fee, and other expenses of the Trust, in effect, passed on
to the Account and reflected in the accumulation unit values of the
Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
------------------------------------------
<S> <C> <C>
Class A Net Issued........................................... -- 1,128
Net Redeemed......................................... (374) --
Class B Net Issued........................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
------------------------------------------------
Class A Net Issued........................................... 161 92
Class B Net Issued........................................... 345 --
ALLIANCE HIGH YIELD FUND
------------------------------------
Class A Net Issued........................................... 98 --
Class B Net Issued........................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,565 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
----------------------------------------------
Class A Net Issued........................................... 2,377 905
Class B Net Issued........................................... 1,829 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-----------------------------------------
ALLIANCE EQUITY INDEX FUND (A) (IN THOUSANDS)
<S> <C> <C>
Class B Net Issued............................................ 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
-----------------------------------------
Class B Net Issued............................................ 849 --
ALLIANCE COMMON STOCK FUND
--------------------------
Class A Net Issued............................................ 620 439
Class B Net Issued............................................ 519 --
MFS RESEARCH FUND (A)
---------------------
Class B Net Issued............................................ 1,039 --
ALLIANCE GLOBAL FUND
---------------------
Class A Net Issued............................................ 444 561
Class B Net Issued............................................ 308 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Class A Net Issued............................................ 438 643
Class B Net Issued............................................ 285 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (A)
------------------------------------------
Class B Net Issued............................................ 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
-----------------------------------------------
Class B Net Issued............................................ 282 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Concluded):
Accumulation units issued and redeemed during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- ----------------
ALLIANCE AGGRESSIVE STOCK FUND (IN THOUSANDS)
------------------------------
<S> <C> <C>
Class A Net Issued....................................... 641 562
Class B Net Issued....................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
-------------------------------------------
Class B Net Issued....................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND
------------------------------
Class A Net Issued....................................... 208 --
Class B Net Issued....................................... 1,084 --
MFS EMERGING GROWTH COMPANIES FUND (A)
--------------------------------------
Class B Net Issued....................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
------------------------------------
Class A Net Issued....................................... 356 354
Class B Net Issued....................................... 295 --
EQ/PUTNAM BALANCED FUND (A)
---------------------------
Class B Net Issued....................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Class A Net Issued....................................... 681 758
Class B Net Issued....................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
------------------------------------
Class B Net Issued....................................... 232 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. 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 contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
INVESTMENT FUND 1997 1996
------------------------------ ----------------------------
<S> <C> <C>
Alliance Money Market Fund..................................... $(240,000) $(125,000)
Alliance Intermediate Government Securities Fund............... (60,000) (25,000)
Alliance High Yield Fund(1).................................... 10,000 --
T. Rowe Price Equity Income Fund(1)............................ -- --
EQ/Putnam Growth & Income Value Fund(1)........................ -- --
Alliance Growth & Income Fund.................................. (250,000) (60,000)
Alliance Equity Index Fund..................................... 5,000 --
Merrill Lynch Basic Value Equity Fund(1)....................... -- --
Alliance Common Stock Fund..................................... (840,000) (223,000)
MFS Research Fund(1)........................................... -- --
Alliance Global Fund........................................... (185,000) (52,000)
Alliance International Fund.................................... (120,000) (35,000)
T. Rowe Price International Stock Fund(1)...................... -- --
Morgan Stanley Emerging Markets Equity Fund(2)................. -- --
Alliance Aggressive Stock Fund................................. (435,000) (110,000)
Warburg Pincus Small Company Value Fund(1)..................... -- --
Alliance Small Cap Growth Fund(1).............................. 10,000 --
MFS Emerging Growth Companies Fund(1).......................... -- --
Alliance Conservative Investors Fund........................... (87,000) (45,000)
EQ/Putnam Balanced Fund(1)..................................... -- --
Alliance Growth Investors Fund................................. (185,000) (105,000)
Merrill Lynch World Strategy Fund(1)........................... -- --
</TABLE>
----------------------
(1) Commenced operations on May 1, 1997.
(2) Commenced operations on November 20, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
ALLIANCE MONEY MARKET FUND ----------------------------- --------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period....................... $24.81 $23.83
Class A Unit value, end of period............................. $25.85 $24.81
Class B Unit value, beginning of period (c)................... $25.17 --
Class B Unit value, end of period (c)......................... $25.85 --
Number of units outstanding, end of period (000's):
Class A.................................................... 928 1,302
Class B.................................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A Unit value, beginning of period....................... $13.77 $13.42
Class A Unit value, end of period............................. $14.60 $13.77
Class B Unit value, beginning of period (c)................... $13.88 --
Class B Unit value, end of period (c)......................... $14.58 --
Number of units outstanding, end of period (000's):
Class A.................................................... 413 252
Class B.................................................... 345 --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A Unit value, beginning of period....................... $26.95 --
Class A Unit value, end of period............................. $30.73 --
Class B Unit value, beginning of period....................... $26.91 --
Class B Unit value, end of period............................. $30.63 --
Number of units outstanding, end of period (000's):
Class A.................................................... 98 --
Class B.................................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
- ------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.12 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,565 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A) ------------------------------ ---------------------------
- --------------------------------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.53 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A Unit value, beginning of period....................... $14.23 $11.99
Class A Unit value, end of period............................. $17.83 $14.23
Class B Unit value, beginning of period (c)................... $14.67 --
Class B Unit value, end of period (c)......................... $17.80 --
Number of units outstanding, end of period (000's):
Class A.................................................... 3,433 1,056
Class B.................................................... 1,829 --
ALLIANCE EQUITY INDEX FUND (A)
- ------------------------------
Class A Unit value, beginning of period....................... $17.62 --
Class A Unit value, end of period............................. $21.41 --
Class B Unit value, beginning of period....................... $17.62 --
Class B Unit value, end of period............................. $21.38 --
Number of units outstanding, end of period (000's):
Class A.................................................... -- --
Class B.................................................... 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
- -----------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.61 --
Number of units outstanding, end of period (000's):
Class B.................................................... 849 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
ALLIANCE COMMON STOCK FUND ------------------------- ------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period........................... $152.96 $124.52
Class A Unit value, end of period................................. $195.37 $152.96
Class B Unit value, beginning of period (c)....................... $153.35 --
Class B Unit value, end of period (c)............................. $194.74 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,114 494
Class B........................................................ 519 --
MFS RESEARCH FUND (A)
- ---------------------
Class B Unit value, beginning of period........................... $10.00 --
Class B Unit value, end of period................................. $11.52 --
Number of units outstanding, end of period (000's):
Class B........................................................ 1,039 --
ALLIANCE GLOBAL FUND
- --------------------
Class A Unit value, beginning of period........................... $25.25 $22.29
Class A Unit value, end of period................................. $27.85 $25.25
Class B Unit value, beginning of period (c)....................... $24.87 --
Class B Unit value, end of period (c)............................. $27.76 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,074 609
Class B........................................................ 308 --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A Unit value, beginning of period........................... $11.98 $11.03
Class A Unit value, end of period................................. $11.48 $11.98
Class B Unit value, beginning of period (c)....................... $11.86 --
Class B Unit value, end of period (c)............................. $11.46 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,151 717
Class B........................................................ 285 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
T. ROWE PRICE INTERNATIONAL STOCK FUND (A) --------------------------- ------------------------
- -----------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 9.77 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
- -----------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 7.95 --
Number of units outstanding, end of period (000's):
Class B.................................................... 282 --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A Unit value, beginning of period....................... $65.94 $54.59
Class A Unit value, end of period............................. $72.23 $65.94
Class B Unit value, beginning of period (c)................... $62.84 --
Class B Unit value, end of period (c)......................... $72.00 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,261 620
Class B.................................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
- -------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.82 --
Number of units outstanding, end of period (000's):
Class B.................................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND (A)
- ----------------------------------
Class A Unit value, beginning of period....................... $10.00 --
Class A Unit value, end of period............................. $12.57 --
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.55 --
Number of units outstanding, end of period (000's):
Class A.................................................... 208 --
Class B.................................................... 1,084 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
MFS EMERGING GROWTH FUND (A) --------------------------- ------------------------
- ----------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.15 --
Number of units outstanding, end of period (000's):
Class B.................................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A Unit value, beginning of period....................... $17.21 $16.55
Class A Unit value, end of period............................. $19.26 $17.21
Class B Unit value, beginning of period (c)................... $17.33 --
Class B Unit value, end of period (c)......................... $19.23 --
Number of units outstanding, end of period (000's):
Class A.................................................... 813 457
Class B.................................................... 295 --
EQ/PUTMAN BALANCED FUND (A)
- ---------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.36 --
Number of units outstanding, end of period (000's):
Class B.................................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A Unit value, beginning of period....................... $26.26 $23.59
Class A Unit value, end of period............................. $30.31 $26.26
Class B Unit value, beginning of period (c)................... $26.23 --
Class B Unit value, end of period (c)......................... $30.22 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,596 914
Class B.................................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
- -------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $10.39 --
Number of units outstanding, end of period (000's):
Class B.................................................... 232 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-23
<PAGE>
February 10, 1998
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 and for loan impairments in 1995.
/s/ Price Waterhouse, LLP
- ---------------------------
Price Waterhouse LLP
New York, New York
February 10, 1998
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 19,630.9 $ 18,077.0
Mortgage loans on real estate............................................. 2,611.4 3,133.0
Equity real estate........................................................ 2,749.2 3,297.5
Policy loans.............................................................. 2,422.9 2,196.1
Other equity investments.................................................. 951.5 860.6
Investment in and loans to affiliates..................................... 731.1 685.0
Other invested assets..................................................... 624.7 25.4
----------------- -----------------
Total investments..................................................... 29,721.7 28,274.6
Cash and cash equivalents................................................... 300.5 538.8
Deferred policy acquisition costs........................................... 3,236.6 3,104.9
Amounts due from discontinued operations.................................... 572.8 996.2
Other assets................................................................ 2,685.2 2,552.2
Closed Block assets......................................................... 8,566.6 8,495.0
Separate Accounts assets.................................................... 36,538.7 29,646.1
----------------- -----------------
Total Assets................................................................ $ 81,622.1 $ 73,607.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,579.5 $ 21,865.6
Future policy benefits and other policyholder's liabilities................. 4,553.8 4,416.6
Short-term and long-term debt............................................... 1,991.2 1,766.9
Other liabilities........................................................... 3,257.1 2,785.1
Closed Block liabilities.................................................... 9,073.7 9,091.3
Separate Accounts liabilities............................................... 36,306.3 29,598.3
----------------- -----------------
Total liabilities..................................................... 76,761.6 69,523.8
----------------- -----------------
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........................................................... 1,235.9 798.7
Net unrealized investment gains............................................. 533.6 189.9
Minimum pension liability................................................... (17.3) (12.9)
----------------- -----------------
Total shareholder's equity............................................ 4,860.5 4,084.0
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 81,622.1 $ 73,607.8
================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 950.6 $ 874.0 $ 788.2
Premiums...................................................... 601.5 597.6 606.8
Net investment income......................................... 2,282.8 2,203.6 2,088.2
Investment (losses) gains, net................................ (45.2) (9.8) 5.3
Commissions, fees and other income............................ 1,227.2 1,081.8 897.1
Contribution from the Closed Block............................ 102.5 125.0 143.2
----------------- ----------------- -----------------
Total revenues.......................................... 5,119.4 4,872.2 4,528.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,266.2 1,270.2 1,248.3
Policyholders' benefits....................................... 978.6 1,317.7 1,008.6
Other operating costs and expenses............................ 2,203.9 2,075.7 1,775.8
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,448.7 4,663.6 4,032.7
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 670.7 208.6 496.1
Federal income taxes.......................................... 91.5 9.7 120.5
Minority interest in net income of consolidated subsidiaries.. 54.8 81.7 62.8
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 524.4 117.2 312.8
Discontinued operations, net of Federal income taxes.......... (87.2) (83.8) -
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (23.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 437.2 $ 10.3 $ 312.8
================= ================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(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 and end of year..... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 798.7 788.4 475.6
Net earnings.................................................. 437.2 10.3 312.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,235.9 798.7 788.4
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year... 189.9 396.5 (220.5)
Change in unrealized investment gains (losses)................ 343.7 (206.6) 617.0
----------------- ----------------- -----------------
Net unrealized investment gains, end of year.................. 533.6 189.9 396.5
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (12.9) (35.1) (2.7)
Change in minimum pension liability........................... (4.4) 22.2 (32.4)
-----------------
----------------- -----------------
Minimum pension liability, end of year........................ (17.3) (12.9) (35.1)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 437.2 $ 10.3 $ 312.8
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Interest credited to policyholders' account balances........ 1,266.2 1,270.2 1,248.3
Universal life and investment-type product
policy fee income......................................... (950.6) (874.0) (788.2)
Investment losses (gains)................................... 45.2 9.8 (5.3)
Change in Federal income tax payable........................ (74.4) (197.1) 221.6
Other, net.................................................. 169.4 330.2 80.5
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 893.0 549.4 1,069.7
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,702.9 2,275.1 1,897.4
Sales....................................................... 10,385.9 8,964.3 8,867.1
Purchases................................................... (13,205.4) (12,559.6) (11,675.5)
(Increase) decrease in short-term investments............... (555.0) 450.3 (99.3)
Decrease in loans to discontinued operations................ 420.1 1,017.0 1,226.9
Sale of subsidiaries........................................ 261.0 - -
Other, net.................................................. (612.6) (281.0) (413.4)
----------------- ----------------- -----------------
Net cash used by investing activities......................... (603.1) (133.9) (196.8)
----------------- ----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................. 1,281.7 1,925.4 2,586.5
Withdrawals............................................... (1,886.8) (2,385.2) (2,657.1)
Net increase (decrease) in short-term financings............ 419.9 (.3) (16.4)
Additions to long-term debt................................. 32.0 - 599.7
Repayments of long-term debt................................ (196.4) (124.8) (40.7)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (83.9) - (1,215.4)
Other, net.................................................. (94.7) (66.5) (48.4)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (528.2) (651.4) (791.8)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (238.3) (235.9) 81.1
Cash and cash equivalents, beginning of year.................. 538.8 774.7 693.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 300.5 $ 538.8 $ 774.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 217.1 $ 109.9 $ 89.6
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 170.0 $ (10.0) $ (82.7)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and, prior to
December 31, 1996, its wholly owned life insurance subsidiary, Equitable
Variable Life Insurance Company ("EVLICO"). Effective January 1, 1997,
EVLICO was merged into Equitable Life, which continues to conduct the
Company's insurance business. Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance") 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 58.7% at December 31, 1997 (54.3% 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") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and, through
June 10, 1997, Equitable Real Estate Investment Management, Inc.
("EREIM"), a real estate investment management subsidiary which was sold
(see Note 5); 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.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued operations (see Note
7).
The years "1997," "1996" and "1995" refer to the years ended December
31, 1997, 1996 and 1995, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1997 presentation.
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.
F-6
<PAGE>
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. No reallocation, transfer, borrowing
or lending of assets can be made between the Closed Block and other
portions of Equitable Life's General Account, any of its Separate
Accounts or any affiliate of Equitable Life without the approval of the
New York Superintendent of Insurance (the "Superintendent"). Closed
Block assets and liabilities are carried on the same basis as similar
assets and liabilities held in the General Account. The excess of Closed
Block liabilities over Closed Block assets represents the expected
future post-tax contribution from the Closed Block which would be
recognized in income over the period the policies and contracts in the
Closed Block remain in force.
Discontinued Operations
Discontinued operations consist of the business of the former Guaranteed
Interest Contract ("GIC") segment which includes the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and the GIC
lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and, during the 1997 and 1996 fourth quarter
reviews, the allowance for future losses was increased. Management
believes the allowance for future losses at December 31, 1997 is
adequate to provide for all future losses; however, the determination of
the allowance continues to involve numerous estimates and subjective
judgments regarding the expected performance of Discontinued Operations
Investment Assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of the discontinued operations
differ from management's current best estimates and assumptions
underlying the allowance for future losses, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management's previous
assumptions, periodic adjustments to the allowance are likely to result
(see Note 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 SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". (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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to The Equitable'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 for production of income. Real estate
which management has committed to disposing of by sale or abandonment is
classified as real estate held for sale. Valuation allowances on real
estate held for sale continue to be computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
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 vacated in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impaired loans
within SFAS No. 114's scope are to be 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 adoption of
this statement did not have a material effect on the level of the
allowances for possible losses or on the Company's consolidated
statements of earnings and shareholder's equity.
F-7
<PAGE>
New Accounting Pronouncements
In January 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits," which revises current note disclosure
requirements for employers' pension and other retiree benefits. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt the provisions of SFAS No. 132 in the 1998
consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP
97-3 provides guidance for assessments related to insurance activities
and requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual and interim financial statements
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment
performance and for deciding how to allocate resources to segments. This
statement is effective for fiscal years beginning after December 15,
1997 and need not be applied to interim reporting in the initial year of
adoption. Restatement of comparative information for earlier periods is
required. Management is currently reviewing its definition of business
segments in light of the requirements of SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires an enterprise to classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt
the provisions of SFAS No. 130 in its 1998 consolidated financial
statements.
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.
Implementation of SFAS No. 125 did not have nor is SFAS No. 127 expected
to have a material impact on the Company's consolidated financial
statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
F-8
<PAGE>
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains 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 discontinued operations,
participating group annuity contracts and deferred policy acquisition
costs ("DAC") related to universal life and investment-type products and
participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
F-9
<PAGE>
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, 1997, the expected investment yield, excluding
policy loans, generally ranged from 7.53% grading to 7.92% over a 20
year period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its 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.
F-11
<PAGE>
Claim reserves and associated liabilities for individual DI and major
medical policies were $886.7 million and $869.4 million at December 31,
1997 and 1996, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 190.2 $ 189.0 $ 176.0
Incurred benefits related to prior years........... 2.1 69.1 67.8
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 192.3 $ 258.1 $ 243.8
================= ================ =================
Benefits paid related to current year.............. $ 28.8 $ 32.6 $ 37.0
Benefits paid related to prior years............... 146.2 153.3 137.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 175.0 $ 185.9 $ 174.8
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1997, participating policies, including those in the
Closed Block, represent approximately 21.2% ($50.2 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1997, 1996 and 1995, investment results of
such Separate Accounts were $3,411.1 million, $2,970.6 million and
$1,963.2 million, respectively.
F-12
<PAGE>
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the opinion, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the
exercise price. See Note 21 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,230.3 $ 785.0 $ 74.5 $ 14,940.8
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 673.0 6.8 .1 679.7
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
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......................... $ 362.0 $ 49.3 $ 17.7 $ 393.6
================= ================= ================ =================
</TABLE>
F-13
<PAGE>
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 on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1997 and 1996, securities
without a readily ascertainable market value having an amortized cost of
$3,759.2 million and $3,915.7 million, respectively, had estimated fair
values of $3,903.9 million and $4,024.6 million, respectively.
The contractual maturity of bonds at December 31, 1997 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 149.9 $ 151.3
Due in years two through five.......................................... 2,962.8 3,025.2
Due in years six through ten........................................... 6,863.9 7,093.0
Due after ten years.................................................... 6,952.3 7,502.7
Mortgage-backed securities............................................. 1,702.8 1,725.0
---------------- -----------------
Total.................................................................. $ 18,631.7 $ 19,497.2
================ =================
</TABLE>
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,
1997, approximately 17.85% of the $18,610.6 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.
Fixed maturity investments with restructured or modified terms are not
material.
F-14
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 137.1 $ 325.3 $ 284.9
SFAS No. 121 release............................... - (152.4) -
Additions charged to income........................ 334.6 125.0 136.0
Deductions for writedowns and
asset dispositions............................... (87.2) (160.8) (95.6)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 55.8 $ 50.4 $ 65.5
Equity real estate............................... 328.7 86.7 259.8
----------------- ---------------- -----------------
Total.............................................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
</TABLE>
At December 31, 1997, 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 $12.6 million
of fixed maturities and $.9 million of mortgage loans on real estate.
At December 31, 1997 and 1996, 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 $23.4 million (0.9% of total
mortgage loans on real estate) and $12.4 million (0.4% 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 $183.4
million and $388.3 million at December 31, 1997 and 1996, 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 $17.2 million, $35.5 million and $52.1 million in
1997, 1996 and 1995, respectively. Gross interest income on these loans
included in net investment income aggregated $12.7 million, $28.2
million and $37.4 million in 1997, 1996 and 1995, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 196.7 $ 340.0
Impaired mortgage loans without provision for losses............... 3.6 122.3
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 200.3 462.3
Provision for losses............................................... (51.8) (46.4)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 148.5 $ 415.9
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
F-15
<PAGE>
During 1997, 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $246.9 million, $552.1 million
and $429.0 million. Interest income recognized on these impaired
mortgage loans totaled $15.2 million, $38.8 million and $27.9 million
($2.3 million, $17.9 million and $13.4 million recognized on a cash
basis) for 1997, 1996 and 1995, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1997 and 1996, the carrying value of equity real estate
held for sale amounted to $1,023.5 million and $345.6 million,
respectively. For 1997, 1996 and 1995, respectively, real estate of
$152.0 million, $58.7 million and $35.3 million was acquired in
satisfaction of debt. At December 31, 1997 and 1996, the Company owned
$693.3 million and $771.7 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 $541.1
million and $587.5 million at December 31, 1997 and 1996, respectively.
Depreciation expense on real estate totaled $74.9 million, $91.8 million
and $121.7 million for 1997, 1996 and 1995, respectively.
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(29 and 34 individual ventures as of December 31, 1997 and 1996,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 1,700.9 $ 1,883.7
Investments in securities, generally at estimated fair value........... 1,374.8 2,430.6
Cash and cash equivalents.............................................. 105.4 98.0
Other assets........................................................... 584.9 427.0
---------------- -----------------
Total Assets........................................................... $ 3,766.0 $ 4,839.3
================ =================
Borrowed funds - third party........................................... $ 493.4 $ 1,574.3
Borrowed funds - the Company........................................... 31.2 137.9
Other liabilities...................................................... 284.0 415.8
---------------- -----------------
Total liabilities...................................................... 808.6 2,128.0
---------------- -----------------
Partners' capital...................................................... 2,957.4 2,711.3
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 3,766.0 $ 4,839.3
================ =================
Equity in partners' capital included above............................. $ 568.5 $ 806.8
Equity in limited partnership interests not included above............. 331.8 201.8
Other.................................................................. 4.3 9.8
---------------- -----------------
Carrying Value......................................................... $ 904.6 $ 1,018.4
================ =================
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 310.5 $ 348.9 $ 463.5
Revenues of other limited partnership interests.... 506.3 386.1 242.3
Interest expense - third party..................... (91.8) (111.0) (135.3)
Interest expense - the Company..................... (7.2) (30.0) (41.0)
Other expenses..................................... (263.6) (282.5) (397.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.2 $ 311.5 $ 131.8
================= ================ =================
Equity in net earnings included above.............. $ 76.7 $ 73.9 $ 49.1
Equity in net earnings of limited partnerships
interests not included above..................... 69.5 35.8 44.8
Other.............................................. (.9) .9 1.0
-----------------
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 145.3 $ 110.6 $ 94.9
================= ================ =================
</TABLE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,459.4 $ 1,307.4 $ 1,151.1
Mortgage loans on real estate...................... 260.8 303.0 329.0
Equity real estate................................. 390.4 442.4 560.4
Other equity investments........................... 156.9 122.0 76.9
Policy loans....................................... 177.0 160.3 144.4
Other investment income............................ 181.7 217.4 273.0
----------------- ---------------- -----------------
Gross investment income.......................... 2,626.2 2,552.5 2,534.8
----------------- ---------------- -----------------
Investment expenses.............................. 343.4 348.9 446.6
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,282.8 $ 2,203.6 $ 2,088.2
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 88.1 $ 60.5 $ 119.9
Mortgage loans on real estate...................... (11.2) (27.3) (40.2)
Equity real estate................................. (391.3) (79.7) (86.6)
Other equity investments........................... 14.1 18.9 12.8
Sale of subsidiaries............................... 252.1 - -
Issuance and sales of Alliance Units............... - 20.6 -
Other.............................................. 3.0 (2.8) (.6)
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (45.2) $ (9.8) $ 5.3
================= ================ =================
</TABLE>
F-17
<PAGE>
Writedowns of fixed maturities amounted to $11.7 million, $29.9 million
and $46.7 million for 1997, 1996 and 1995, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million and $23.7 million for 1997 and 1996,
respectively. In the fourth quarter of 1997, the Company reclassified
$1,095.4 million depreciated cost of equity real estate from real estate
held for the production of income to real estate held for sale.
Additions to valuation allowances of $227.6 million were recorded upon
these transfers. Additionally in the fourth quarter, $132.3 million of
writedowns on real estate held for production of income were recorded.
For 1997, 1996 and 1995, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $9,789.7
million, $8,353.5 million and $8,206.0 million. Gross gains of $166.0
million, $154.2 million and $211.4 million and gross losses of $108.8
million, $92.7 million and $64.2 million, respectively, were realized on
these sales. The change in unrealized investment gains (losses) related
to fixed maturities classified as available for sale for 1997, 1996 and
1995 amounted to $513.4 million, $(258.0) million and $1,077.2 million,
respectively.
For 1997, 1996 and 1995, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $137.5 million, $136.7
million and $131.2 million, respectively.
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note maturing in eight years and bearing interest at the rate of
7.4%, subject to certain adjustments. Equitable Life recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE will continue to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively, the businesses sold reported combined revenues of $91.6
million, $226.1 million and $245.6 million and combined net earnings of
$10.7 million, $30.7 million and $27.9 million. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 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 to 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. The Company recognized an investment gain
of $20.6 million as a result of the issuance of Alliance Units in this
transaction. On June 30, 1997, Alliance reduced the recorded value of
goodwill and contracts associated with Alliance's acquisition of
Cursitor by $120.9 million. This charge reflected Alliance's view that
Cursitor's continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1997, the Company's ownership of Alliance Units was approximately 56.9%.
F-18
<PAGE>
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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 189.9 $ 396.5 $ (220.5)
Changes in unrealized investment gains (losses).... 543.3 (297.6) 1,198.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 53.2 - (78.1)
DAC............................................ (89.0) 42.3 (216.8)
Deferred Federal income taxes.................. (163.8) 48.7 (287.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 533.6 $ 189.9 $ 396.5
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 871.2 $ 357.8 $ 615.9
Other equity investments....................... 33.7 31.6 31.1
Other, principally Closed Block................ 80.9 53.1 93.1
----------------- ---------------- -----------------
Total........................................ 985.8 442.5 740.1
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (19.0) (72.2) (72.2)
DAC.......................................... (141.0) (52.0) (94.3)
Deferred Federal income taxes................ (292.2) (128.4) (177.1)
----------------- ---------------- -----------------
Total.............................................. $ 533.6 $ 189.9 $ 396.5
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,059.4 and $3,820.7)........................................... $ 4,231.0 $ 3,889.5
Mortgage loans on real estate........................................ 1,341.6 1,380.7
Policy loans......................................................... 1,700.2 1,765.9
Cash and other invested assets....................................... 282.7 336.1
DAC.................................................................. 775.2 876.5
Other assets......................................................... 235.9 246.3
----------------- -----------------
Total Assets......................................................... $ 8,566.6 $ 8,495.0
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 8,993.2 $ 8,999.7
Other liabilities.................................................... 80.5 91.6
----------------- -----------------
Total Liabilities.................................................... $ 9,073.7 $ 9,091.3
================= =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 687.1 $ 724.8 $ 753.4
Investment income (net of investment
expenses of $27.0, $27.3 and $26.7).............. 574.9 546.6 538.9
Investment losses, net............................. (42.4) (5.5) (20.2)
----------------- ---------------- -----------------
Total revenues............................... 1,219.6 1,265.9 1,272.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,066.7 1,106.3 1,077.6
Other operating costs and expenses................. 50.4 34.6 51.3
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,117.1 1,140.9 1,128.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 102.5 $ 125.0 $ 143.2
================= ================ =================
</TABLE>
At December 31, 1997 and 1996, problem mortgage loans on real estate had
an amortized cost of $8.1 million and $4.3 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $70.5 million and $114.2 million,
respectively. At December 31, 1996, the restructured mortgage loans on
real estate amount included $.7 million 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 109.1 $ 128.1
Impaired mortgage loans without provision for losses................... .6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 109.7 128.7
Provision for losses................................................... (17.4) (12.9)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 92.3 $ 115.8
================ =================
</TABLE>
During 1997, 1996 and 1995, the Closed Block's average recorded
investment in impaired mortgage loans was $110.2 million, $153.8 million
and $146.9 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $9.4 million, $10.9 million and $5.9
million ($4.1 million, $4.7 million and $1.3 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $18.5 million and $13.8 million on
mortgage loans on real estate and $16.8 million and $3.7 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million, $12.8 million and $16.8 million for 1997, 1996 and 1995,
respectively and writedowns of equity real estate subsequent to the
adoption of SFAS No. 121 amounted to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in the fourth
quarter, $28.8 million of writedowns on real estate held for production
of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-20
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 655.5 $ 1,111.1
Equity real estate................................................... 655.6 925.6
Other equity investments............................................. 209.3 300.5
Short-term investments............................................... 102.0 63.2
Other invested assets................................................ 41.9 50.9
----------------- -----------------
Total investments.................................................. 1,664.3 2,451.3
Cash and cash equivalents............................................ 106.8 42.6
Other assets......................................................... 253.9 242.9
----------------- -----------------
Total Assets......................................................... $ 2,025.0 $ 2,736.8
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,048.3 $ 1,335.9
Allowance for future losses.......................................... 259.2 262.0
Amounts due to continuing operations................................. 572.8 996.2
Other liabilities.................................................... 144.7 142.7
----------------- -----------------
Total Liabilities.................................................... $ 2,025.0 $ 2,736.8
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $97.3, $127.5 and $153.1)............ $ 188.6 $ 245.4 $ 323.6
Investment losses, net............................. (173.7) (18.9) (22.9)
Policy fees, premiums and other income............. .2 .2 .7
----------------- ---------------- -----------------
Total revenues..................................... 15.1 226.7 301.4
Benefits and other deductions...................... 169.5 250.4 326.5
Losses charged to allowance for future losses...... (154.4) (23.7) (25.1)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (134.1) (129.0) -
Federal income tax benefit......................... 46.9 45.2 -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (87.2) $ (83.8) $ -
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses, and
adjusts the allowance, if appropriate. Additionally, as part of the
Company's annual planning process which takes place in the fourth
quarter of each year, investment and benefit cash flow projections are
prepared. These updated assumptions and estimates resulted in the need
to strengthen the allowance in 1997 and 1996, respectively.
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in the fourth quarter, $92.5 million of writedown on real
estate held for production of income were recognized.
Benefits and other deductions includes $53.3 million, $114.3 million and
$154.6 million of interest expense related to amounts borrowed from
continuing operations in 1997, 1996 and 1995, respectively.
F-21
<PAGE>
Valuation allowances amounted to $28.4 million and $9.0 million on
mortgage loans on real estate and $88.4 million and $20.4 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1997 and 1996, problem mortgage loans on real estate had
amortized costs of $11.0 million and $7.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $109.4 million and $208.1 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 101.8 $ 83.5
Impaired mortgage loans without provision for losses................... .2 15.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 102.0 98.5
Provision for losses................................................... (27.3) (8.8)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 74.7 $ 89.7
================ =================
</TABLE>
During 1997, 1996 and 1995, the discontinued operations' average
recorded investment in impaired mortgage loans was $89.2 million, $134.8
million and $177.4 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $6.6 million, $10.1 million and
$4.5 million ($5.3 million, $7.5 million and $.4 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, discontinued operations had carrying
values of $156.2 million and $263.0 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,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 422.2 $ 174.1
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.6
Other.............................................................. .3 .5
----------------- -----------------
Total Equitable Life........................................... 599.4 599.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.87% - 12.00% due through 2006.................... 951.1 968.6
----------------- -----------------
Alliance:
Other.............................................................. 18.5 24.7
----------------- -----------------
Total long-term debt................................................. 1,569.0 1,592.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,991.2 $ 1,766.9
================= =================
</TABLE>
F-22
<PAGE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in June 2000.
The interest rates are based on external indices dependent on the type
of borrowing and at December 31, 1997 range from 5.88% to 8.50%. There
were no borrowings outstanding under this bank credit facility at
December 31, 1997.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1997, $50.0 million was outstanding under this program.
During 1996, Alliance entered into a $250.0 million five-year revolving
credit facility with a group of banks. Under the facility, the interest
rate, at the option of Alliance, is a floating rate generally based upon
a defined prime rate, a rate related to the London Interbank Offered
Rate ("LIBOR") or the Federal funds rate. A facility fee is payable on
the total facility. The revolving credit facility will be used to
provide back-up liquidity for Alliance's $250.0 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. At December 31, 1997,
Alliance had $72.0 million in commercial paper outstanding and there
were no borrowings under the revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
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. 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 $1,164.0 million and $1,406.4 million at December 31, 1997
and 1996, respectively, as collateral for certain long-term debt.
At December 31, 1997, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1998 and the succeeding
four years are $565.8 million, $201.4 million, $8.6 million, $1.7
million and $1.8 million, respectively, and $790.6 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 186.5 $ 97.9 $ (11.7)
Deferred......................................... (95.0) (88.2) 132.2
----------------- ---------------- -----------------
Total.............................................. $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
F-23
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 234.7 $ 73.0 $ 173.7
Non-taxable minority interest...................... (38.0) (28.6) (22.0)
Adjustment of tax audit reserves................... (81.7) 6.9 4.1
Equity in unconsolidated subsidiaries.............. (45.1) (32.3) (19.4)
Other.............................................. 21.6 (9.3) (15.9)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 257.9 $ - $ 259.2 $ -
Other.................................. 30.7 - - 1.8
DAC, reserves and reinsurance.......... - 222.8 - 166.0
Investments............................ - 405.7 - 328.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 288.6 $ 628.5 $ 259.2 $ 496.4
=============== ================ =============== ===============
</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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 46.2 $ (156.2) $ 63.3
Investments........................................ (113.8) 78.6 13.0
Compensation and related benefits.................. 3.7 22.3 30.8
Other.............................................. (31.1) (32.9) 25.1
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................................ $ (95.0) $ (88.2) $ 132.2
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the 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.
F-24
<PAGE>
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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 448.6 $ 461.4 $ 474.2
Reinsurance assumed................................ 198.3 177.5 171.3
Reinsurance ceded.................................. (45.4) (41.3) (38.7)
----------------- ---------------- -----------------
Premiums........................................... $ 601.5 $ 597.6 $ 606.8
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 61.0 $ 48.2 $ 44.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 70.6 $ 54.1 $ 48.9
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 36.4 $ 32.3 $ 28.5
================= ================ =================
</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 $1.6 million,
$2.4 million and $260.6 million for 1997, 1996 and 1995, respectively.
Ceded death and disability benefits totaled $4.3 million, $21.2 million
and $188.1 million for 1997, 1996 and 1995, respectively. Insurance
liabilities ceded totaled $593.8 million and $652.4 million at December
31, 1997 and 1996, 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 benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 32.5 $ 33.8 $ 30.0
Interest cost on projected benefit obligations..... 128.2 120.8 122.0
Actual return on assets............................ (307.6) (181.4) (309.2)
Net amortization and deferrals..................... 166.6 43.4 155.6
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 19.7 $ 16.6 $ (1.6)
================= ================ =================
</TABLE>
F-25
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,702.6 $ 1,672.2
Non-vested........................................................... 3.9 10.1
---------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,706.5 $ 1,682.3
================ =================
Plan assets at fair value.............................................. $ 1,867.4 $ 1,626.0
Projected benefit obligations.......................................... 1,801.3 1,765.5
---------------- -----------------
Projected benefit obligations (in excess of) or less than plan assets.. 66.1 (139.5)
Unrecognized prior service cost........................................ (9.9) (17.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 95.0 280.0
Unrecognized net asset at transition................................... 3.1 4.7
Additional minimum liability........................................... - (19.3)
---------------- -----------------
Prepaid Pension Cost.................................................. $ 154.3 $ 108.0
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.07%, respectively, at December 31, 1997 and
7.5% and 4.25%, respectively, at December 31, 1996. As of January 1,
1997 and 1996, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
The Company recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $17.3 million and $12.9 million,
net of Federal income taxes, at December 31, 1997 and 1996,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $33.2 million,
$34.7 million and $36.4 million for 1997, 1996 and 1995, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1997, 1996 and 1995, the Company made
estimated postretirement benefits payments of $18.7 million, $18.9
million and $31.1 million, respectively.
F-26
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.5 $ 5.3 $ 4.0
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 34.6 34.7
Net amortization and deferrals..................... 1.9 2.4 (2.3)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 41.1 $ 42.3 $ 36.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 388.5 $ 381.8
Fully eligible active plan participants.............................. 45.7 50.7
Other active plan participants....................................... 56.6 60.7
---------------- -----------------
490.8 493.2
Unrecognized prior service cost........................................ 40.3 50.5
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (140.6) (150.5)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 390.5 $ 393.2
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and costs to the Company of providing these
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 8.75% in 1997,
gradually declining to 2.75% in the year 2009 and in 1996 was 9.5%,
gradually declining to 3.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.50% at December 31, 1997 and 1996, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1997
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, 1997 and 1996, respectively, was $1,353.4 million and
$649.9 million. The average unexpired terms at December 31, 1997 ranged
from 1.5 to 3.8 years. At December 31, 1997, the cost of terminating
outstanding matched swaps in a loss position was $10.9 million and the
unrealized gain on outstanding matched swaps in a gain position was
$38.9 million. The Company has no intention of terminating these
contracts prior to maturity. During 1996 and 1995, net gains of $.2
million and $1.4 million, respectively, were recorded in connection with
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
F-27
<PAGE>
December 31, 1997 of contracts purchased and sold were $7,250.0 million
and $875.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $48.5 million and is being amortized ratably over
the contract periods ranging from 1 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1997 and 1996.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
F-28
<PAGE>
Fair values 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,611.4 $ 2,822.8 $ 3,133.0 $ 3,394.6
Other limited partnership interests.... 509.4 509.4 467.0 467.0
Policy loans........................... 2,422.9 2,493.9 2,196.1 2,221.6
Policyholders' account balances -
investment contracts................. 12,611.0 12,714.0 12,908.7 12,992.2
Long-term debt......................... 1,569.0 1,531.5 1,592.8 1,557.7
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,341.6 1,420.7 1,380.7 1,425.6
Other equity investments............... 86.3 86.3 105.0 105.0
Policy loans........................... 1,700.2 1,784.2 1,765.9 1,798.0
SCNILC liability....................... 27.6 30.3 30.6 34.9
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 655.5 779.9 1,111.1 1,220.3
Fixed maturities....................... 38.7 38.7 42.5 42.5
Other equity investments............... 209.3 209.3 300.5 300.5
Guaranteed interest contracts.......... 37.0 34.0 290.7 300.5
Long-term debt......................... 102.0 102.1 102.1 102.2
</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 $202.6 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $362.1 million at December 31, 1997, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $47.4 million of letters of credit outstanding
at December 31, 1997.
F-29
<PAGE>
14) LITIGATION
Equitable Life recently agreed to settle, subject to court approval,
previously disclosed cases brought by persons insured under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life (the "Policies") in New York (Golomb et al. v. The
Equitable Life Assurance Society of the United States), Pennsylvania
(Malvin et al. v. The Equitable Life Assurance Society of the United
States), Texas (Bowler et al. v. The Equitable Life Assurance Society of
the United States), Florida (Bachman v. The Equitable Life Assurance
Society of the United States) and California (Fletcher v. The Equitable
Life Assurance Society of the United States). Plaintiffs in these cases
claimed that Equitable Life's method for determining premium increases
breached the terms of certain forms of the Policies and was
misrepresented. Plaintiffs in Bowler and Fletcher also claimed that
Equitable Life misrepresented to policyholders in Texas and California,
respectively, that premium increases had been approved by insurance
departments in those states and determined annual rate increases in a
manner that discriminated against policyholders in those states in
violation of the terms of the Policies, representations to policyholders
and/or state law. The New York trial court dismissed the Golomb action
with prejudice and plaintiffs appealed. In Bowler and Fletcher,
Equitable Life denied the material allegations of the complaints and
filed motions for summary judgment which have been fully briefed. The
Malvin action was stayed indefinitely pending the outcome of proceedings
in Golomb and in Fletcher the magistrate concluded that the case should
be remanded to California state court and Equitable Life appealed that
determination to the district judge. On December 23, 1997, Equitable
Life entered into a settlement agreement, subject to court approval,
which would result in the dismissal with prejudice of each of the five
pending actions and the resolution of all similar claims on a nationwide
basis.
The settlement agreement provides for the creation of a nationwide class
consisting of all persons holding, and paying premiums on, the Policies
at any time since January 1, 1988. An amended complaint will be filed in
the federal district court in Tampa, Florida (where the Florida action
is pending), that would assert claims of the kind previously made in the
cases described above on a nationwide basis, on behalf of policyholders
in the nationwide class, which consists of approximately 127,000 former
and current policyholders. If the settlement is approved, Equitable Life
would pay $14,166,000 in exchange for release of all claims for past
damages on claims of the type described in the five pending actions and
the amended complaint. Costs of administering the settlement and any
attorneys' fees awarded by the court to plaintiffs' counsel would be
deducted from this fund before distribution of the balance to the class.
In addition to this payment, Equitable Life will provide future relief
to current holders of certain forms of the Policies in the form of an
agreement to be embodied in the court's judgment, restricting the
premium increases Equitable Life can seek on these Policies in the
future. The parties estimate the present value of these restrictions at
$23,333,000, before deduction of any attorneys' fees that may be awarded
by the court. The estimate is based on assumptions about future events
that cannot be predicted with certainty and accordingly the actual value
of the future relief may differ. The parties to the settlement shortly
will be asking the court to approve preliminarily the settlement and
settlement class and to permit distribution of notice of the settlement
to policyholders, establish procedures for objections, an opportunity to
opt out of the settlements as it affects past damages, and a court
hearing on whether the settlement should be finally approved. Equitable
Life cannot predict whether the settlement will be approved or, if it is
not approved, the outcome of the pending litigations. As noted,
proceedings in Malvin were stayed indefinitely; proceedings in the other
actions have been stayed or deferred to accommodate the settlement
approval process.
A number of lawsuits have 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,
alleged 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, Equitable
Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues
for certain limited purposes, including the defense of litigation) and
The Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. Among
litigations pending against Equitable Life, EVLICO and EOC of the type
referred to in this paragraph are the litigations described in the
following seven paragraphs.
F-30
<PAGE>
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. 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 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. In June 1996, the Court
issued a decision and order dismissing with prejudice plaintiffs' causes
of action for fraud, constructive fraud, breach of fiduciary duty,
negligence, and unjust enrichment, and dismissing without prejudice
plaintiffs' 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. In April 1997, plaintiffs noticed an
appeal from the court's June 1996 order. Subsequently, Equitable Life
and EOC noticed a cross-appeal from so much of the June 1996 order that
denied their motion to dismiss. Briefing on the appeals is scheduled to
begin on February 23, 1998. In June 1997, plaintiffs filed their
memorandum of law and affidavits in support of their motion for class
certification. That memorandum states that plaintiffs seek to certify a
class solely on their breach of contract claims, and not on their
negligent misrepresentation claim. Plaintiffs' class certification
motion has been fully briefed by the parties and is sub judice. In
August 1997, Equitable Life and EOC moved for summary judgment
dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation. Defendants' summary judgment motion has
been fully briefed by the parties. On January 5, 1998, plaintiffs filed
a note of issue (placing the case on the trial calendar).
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 originally was brought by an
individual who purchased a whole life policy from Equitable Life in
1989. In September 1997, with leave of the court, plaintiff filed a
second amended petition naming six additional policyholder plaintiffs
and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the
second amended petition. Plaintiffs purport to represent a class
consisting of all persons who purchased whole life or universal life
insurance policies from Equitable Life from January 1, 1981 through July
22, 1992. Plaintiffs allege improper sales practices based on
allegations of misrepresentations concerning one or more of the
following: the number of years that premiums would need to be paid; a
policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages,
including punitive damages, in an unspecified amount. In October 1997,
Equitable Life filed (i) exceptions to the second amended petition,
asserting deficiencies in pleading of venue and vagueness; and (ii) a
motion to strike certain allegations. On January 23, 1998, the court
heard argument on Equitable Life's exceptions and motion to strike.
Those motions are sub judice. Motion practice regarding discovery
continues.
On July 26, 1996, an action entitled Michael Bradley v. Equitable
Variable Life Insurance Company was commenced in New York state court,
Kings County. 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. EVLICO answered the complaint,
denying the material allegations. In September 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 in Cole in
January 1997. Plaintiff then moved for certification of a nationwide
class consisting of all persons or entities who, since January 1, 1980,
were sold one or more life insurance products based on
misrepresentations as to the number of years that the annual premium
would need to be paid, and/or who were allegedly induced to purchase
additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. Discovery and
briefing regarding plaintiff's motion for class certification are
ongoing.
F-31
<PAGE>
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 in 1988. The complaint puts
in 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 alleges 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. In May
1997, plaintiff served a motion for class certification. In July 1997,
the parties submitted to the Court a joint scheduling report, joint
scheduling order and a confidentiality stipulation and order. The Court
signed the latter stipulation, and the others remain sub judice. Further
briefing on plaintiff's class certification motion will await entry of a
scheduling order and further class certification discovery, which has
commenced and is on-going. In January 1998, the judge assigned to the
case recused himself, and the case was reassigned. Defendants are to
serve their answer in February 1998.
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 amended complaint alleges that Equitable Life's and EVLICO's
agents were trained not to 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. Equitable Life and EVLICO have
answered the amended complaint, denying the material allegations and
asserting certain affirmative defenses. Motion practice regarding
discovery continues.
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. Plaintiff
filed an amended complaint in April 1997. In July 1997, Equitable Life
served a motion to dismiss the amended complaint or, in the alternative,
for summary judgment. On September 12, 1997, plaintiff moved for class
certification. This motion is scheduled for hearing on February 18,
1998.
On September 11, 1997, an action entitled Pamela L. and James A. Luther,
individually and as representatives of all people similarly situated v.
The Equitable Life Assurance Society of the United States, The Equitable
Companies Incorporated, and Casey Cammack, individually and as agent for
The Equitable Life Assurance Society of the United States and The
Equitable Companies Incorporated, was filed in Texas state court. The
action was brought by holders of a whole life policy and the beneficiary
under that policy. Plaintiffs purport to represent a nationwide class of
persons having an ownership or beneficial interest in whole and
universal life policies issued by Equitable Life from January 1, 1982
through December 31, 1996. Also included in the purported class are
persons having an ownership interest in variable annuities purchased
from Equitable Life from January 1, 1992 to the present. The complaint
puts in issue the allegations that uniform sales presentations,
illustrations, and materials that Equitable Life agents used
misrepresented the stated number of years that premiums would need to be
paid and misrepresented the extent to which the policies at issue were
F-32
<PAGE>
proper replacement policies. Plaintiffs seek compensatory damages,
attorneys' fees and expenses. In October 1997, Equitable Life served a
general denial of the allegations against it. The same day, the Holding
Company entered a special appearance contesting the court's jurisdiction
over it. In November 1997, Equitable Life filed a plea in abatement,
which, under Texas law, stayed further proceedings in the case because
plaintiffs had not served a demand letter. Plaintiffs served a demand
letter upon Equitable Life and the Holding Company, the response to
which is due 60 days thereafter. 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, Dillon, Franze, Chaviano and
Luther litigations should not have a material adverse effect on the
financial position of the Company. The Company's management cannot make
an estimate of loss, if any, or predict whether or not any such
litigation will have a material adverse effect on the Company's results
of operations in any particular period.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of The Equitable from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States, alleges, among other things, that Equitable Life
discriminated on the basis of race against African-American applicants
and potential applicants in hiring individuals as sales agents.
Plaintiffs seek a declaratory judgment and affirmative and negative
injunctive relief, including the payment of back-pay, pension and other
compensation. Although the outcome of any litigation cannot be predicted
with certainty, the Company's management believes that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position of the Company. The Company's management cannot
make an estimate of loss, if any, or predict whether or not such matter
will have a material adverse effect on the Company's results of
operations in any particular period.
The U.S. Department of Labor ("DOL") is conducting an investigation of
Equitable Life's management of 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 retains EREIM as advisor. Equitable Life agreed to indemnify the
purchaser of EREIM (which Equitable Life sold in June 1997) with respect
to any fines, penalties and rebates to clients in connection with this
investigation. In early 1995, the DOL commenced a national investigation
of commingled real estate funds with pension investors, including PPF.
The investigation 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, the Company's management believes
that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of the Company. The Company's
management cannot make an estimate of loss, if any, or predict whether
or not this investigation will have a material adverse effect on the
Company's results of operations in any particular period.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which sought 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, sought an
unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that 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 alleged 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
F-33
<PAGE>
New York granted the defendants' motion to dismiss all counts of the
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996,
the court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for
the Second Circuit issued an order granting defendants' motion to strike
and dismissing plaintiffs' appeal of the First Decision. 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 (i)
the Fund failed to hedge against the risks of investing in foreign
securities despite representations that it would do so, (ii) the Fund
did not properly disclose that it planned to invest in mortgage-backed
derivative securities and (iii) two advertisements used by the Fund
misrepresented the risks of investing in the Fund. On July 15, 1997, the
District Court denied plaintiffs' motion for leave to file an amended
complaint and ordered that the case be dismissed ("Second Decision").
The plaintiffs have appealed the Second Decision to the United States
Court of Appeals for the Second Circuit. 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 U. S. 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 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 that 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 U.S. 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. On October 10, 1997, DLJSC and
F-34
<PAGE>
others were named as defendants in a new adversary proceeding in the
Bankruptcy Court brought by the NGC Settlement Trust, an entity created
by the NGC plan of reorganization to deal with asbestos-related claims.
The Trust's allegations are substantially similar to the claims in the
State Court action. In court papers dated October 16, 1997, the State
Court plaintiff indicated that he would intervene in the Trust's
adversary proceeding. On January 21, 1998, the Bankruptcy Court ruled
that the State Court plaintiff's claims were not barred by the NGC plan
of reorganization insofar as they alleged nondisclosure of certain cost
reductions announced by NGC in October 1993. The Texas State Court
action, which 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 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 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. On
February 26, 1997, the parties agreed to a settlement of these actions,
subject to the District Court's approval, which was granted on July 31,
1997. The settlement is also subject to approval by the U.S. Bankruptcy
Court for the Eastern District of Louisiana of proposed modifications to
a confirmed plan of reorganization for Harrah's Jazz Company and
Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan.
There can be no assurance of the Bankruptcy Court's approval of the
modifications to the plan of reorganization, or that the conditions to
the effectiveness of the plan will be satisfied or waived. In the
opinion of DLJ's management, the settlement, if approved, will not have
a material adverse effect on DLJ's results of operations or on its
consolidated financial condition.
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 1998 and the succeeding four years are $93.5 million, $84.4
million, $70.2 million, $56.4 million, $47.0 million and $489.3 million
thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1998 and the succeeding four years are $7.3
million, $5.9 million, $3.8 million, $2.4 million, $.8 million and $2.9
million thereafter.
At December 31, 1997, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $247.0 million, $238.1 million, $218.7
million, $197.9 million, $169.1 million and $813.0 million thereafter.
F-35
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 721.5 $ 704.8 $ 628.4
Commissions........................................ 409.6 329.5 314.3
Short-term debt interest expense................... 31.7 8.0 11.4
Long-term debt interest expense.................... 121.2 137.3 108.1
Amortization of policy acquisition costs........... 287.3 405.2 317.8
Capitalization of policy acquisition costs......... (508.0) (391.9) (391.0)
Rent expense, net of sub-lease income.............. 101.8 113.7 109.3
Cursitor intangible assets writedown............... 120.9 - -
Other.............................................. 917.9 769.1 677.5
----------------- ---------------- -----------------
Total.............................................. $ 2,203.9 $ 2,075.7 $ 1,775.8
================= ================ =================
</TABLE>
During 1997, 1996 and 1995, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $42.4 million, $24.4 million and $32.0 million,
respectively. The amounts paid during 1997, associated with cost
reduction programs, totaled $22.8 million. At December 31, 1997, the
liabilities associated with cost reduction programs amounted to $62.0
million. The 1997 cost reduction program include costs related to
employee termination and exit costs. The 1996 cost reduction program
included restructuring costs related to the consolidation of insurance
operations' service centers. The 1995 cost reduction program included
relocation expenses, including the accelerated amortization of building
improvements associated with the relocation of the home office.
Amortization of DAC in 1996 included a $145.0 million writeoff of DAC
related to DI contracts.
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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1997, 1996 and 1995, statutory net
loss totaled $351.7 million, $351.1 million and $352.4 million,
respectively. No amounts are expected to be available for dividends from
Equitable Life to the Holding Company in 1998.
At December 31, 1997, the Insurance Group, in accordance with various
government and state regulations, had $19.7 million of securities
deposited with such government or state agencies.
F-36
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 203.6 $ 56.0 $ 78.1
Change in asset valuation reserves................. 147.1 (48.4) 365.7
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 350.7 7.6 443.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (31.1) (298.5) (66.0)
DAC.............................................. 220.7 (13.3) 73.2
Deferred Federal income taxes.................... 103.1 108.0 (158.1)
Valuation of investments......................... 46.8 289.8 189.1
Valuation of investment subsidiary............... (555.8) (117.7) (188.6)
Limited risk reinsurance......................... 82.3 92.5 416.9
Issuance of surplus notes........................ - - (538.9)
Postretirement benefits.......................... (3.1) 28.9 (26.7)
Other, net....................................... 30.3 12.4 115.1
GAAP adjustments of Closed Block................. 3.6 (9.8) 15.7
GAAP adjustments of discontinued operations...... 189.7 (89.6) 37.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 437.2 $ 10.3 $ 312.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,462.5 $ 2,258.9 $ 2,202.9
Asset valuation reserves........................... 1,444.6 1,297.5 1,345.9
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,907.1 3,556.4 3,548.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,336.1) (1,305.0) (1,006.5)
DAC.............................................. 3,236.6 3,104.9 3,075.8
Deferred Federal income taxes.................... (370.8) (306.1) (452.0)
Valuation of investments......................... 783.5 286.8 417.7
Valuation of investment subsidiary............... (1,338.6) (782.8) (665.1)
Limited risk reinsurance......................... (254.2) (336.5) (429.0)
Issuance of surplus notes........................ (539.0) (539.0) (538.9)
Postretirement benefits.......................... (317.5) (314.4) (343.3)
Other, net....................................... 203.7 126.3 4.4
GAAP adjustments of Closed Block................. 814.3 783.7 830.8
GAAP adjustments of discontinued operations...... 71.5 (190.3) (184.6)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================ =================
</TABLE>
F-37
<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.
Insurance Operations 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.
Investment Services 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 $81.9
million, $127.5 million and $124.1 million for 1997, 1996 and 1995,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the GIC Segment of
$5.1 million, $15.7 million and $14.7 million for 1997, 1996 and 1995,
respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,684.2 $ 3,770.6 $ 3,614.6
Investment services................................ 1,455.1 1,126.1 949.1
Consolidation/elimination.......................... (19.9) (24.5) (34.9)
----------------- ---------------- -----------------
Total.............................................. $ 5,119.4 $ 4,872.2 $ 4,528.8
================= ================ =================
Earnings (loss) from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change
Insurance operations............................... $ 250.3 $ (36.6) $ 303.1
Investment services................................ 485.7 311.9 224.0
Consolidation/elimination.......................... - .2 (3.1)
----------------- ---------------- -----------------
Subtotal..................................... 736.0 275.5 524.0
Corporate interest expense......................... (65.3) (66.9) (27.9)
----------------- ---------------- -----------------
Total.............................................. $ 670.7 $ 208.6 $ 496.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................................................... $ 68,305.9 $ 60,464.9
Investment services.................................................... 13,719.8 13,542.5
Consolidation/elimination.............................................. (403.6) (399.6)
---------------- -----------------
Total.................................................................. $ 81,622.1 $ 73,607.8
================ =================
</TABLE>
F-38
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1997 and 1996, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
1996
Total Revenues................ $ 1,176.5 $ 1,199.4 $ 1,198.4 $ 1,297.9
================= ================= ================== ==================
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)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million. 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 and
reserve strengthenings on DI business of $113.7 million, Pension Par of
$47.5 million and Discontinued Operations of $83.8 million.
20) INVESTMENT IN DLJ
At December 31, 1997, the Company's ownership of DLJ interest was
approximately 34.4%. 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-39
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 16,535.7 $ 15,728.1
Securities purchased under resale agreements........................... 22,628.8 20,598.7
Broker-dealer related receivables...................................... 28,159.3 16,858.8
Other assets........................................................... 3,182.0 2,318.1
---------------- -----------------
Total Assets........................................................... $ 70,505.8 $ 55,503.7
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 36,006.7 $ 29,378.3
Broker-dealer related payables......................................... 25,706.1 19,409.7
Short-term and long-term debt.......................................... 3,670.6 2,704.5
Other liabilities...................................................... 2,860.9 2,164.0
---------------- -----------------
Total liabilities...................................................... 68,244.3 53,656.5
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,061.5 1,647.2
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 70,505.8 $ 55,503.7
================ =================
DLJ's equity as reported............................................... $ 2,061.5 $ 1,647.2
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.5 23.9
The Holding Company's equity ownership in DLJ.......................... (740.2) (590.2)
Minority interest in DLJ............................................... (729.3) (588.6)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 615.5 $ 492.3
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 2,356.8 $ 1,818.2
Net investment income.................................................. 1,652.1 1,074.2
Dealer, trading and investment gains, net.............................. 631.6 598.4
---------------- -----------------
Total revenues......................................................... 4,640.5 3,490.8
Total expenses including income taxes.................................. 4,232.3 3,199.5
---------------- -----------------
Net earnings........................................................... 408.2 291.3
Dividends on preferred stock........................................... 12.1 18.7
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 396.1 $ 272.6
================ =================
DLJ's earnings applicable to common shares as reported................. $ 396.1 $ 272.6
Amortization of cost in excess of net assets acquired in 1985.......... (1.3) (3.1)
The Holding Company's equity in DLJ's earnings......................... (156.8) (107.8)
Minority interest in DLJ............................................... (109.1) (73.4)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 128.9 $ 88.3
================ =================
</TABLE>
F-40
<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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1997, 1996 and 1995 would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As Reported............................................. $ 437.2 $ 10.3 $ 312.8
Pro Forma............................................... $ 426.3 $ 3.3 $ 311.3
</TABLE>
The fair value of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, was estimated as of the date
of grants using the Black-Scholes option pricing model. The option
pricing assumptions for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------------------- --------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield.... 0.48% 0.80% 0.96% 0.86% 1.54% 1.85% 8.00% 8.00% 8.00%
Expected volatility 20.00% 20.00% 20.00% 33.00% 25.00% 25.00% 26.00% 23.00% 23.00%
Risk-free interest
rate............ 5.99% 5.92% 6.83% 5.96% 6.07% 5.86% 5.70% 5.80% 6.00%
Expected life..... 5 years 5 years 5 years 5 years 5 years 5 years 7.6 years 7.43 years 7.43 years
Weighted average
grant-date fair
value per option $12.25 $6.94 $5.90 $22.45 $9.35 $7.36 $4.36 $2.69 $2.24
</TABLE>
F-41
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is 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, 1995........ 6.8 $20.31 - 3.8 $15.46
Granted................ .4 $20.27 9.2 $27.00 1.8 $20.54
Exercised.............. (.1) $20.00 - (.5) $11.20
Expired................ (.1) $20.00 - -
Forfeited.............. (.3) $22.24 - (.3) $16.64
--------------- ------------- ---------------
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................ - - -
Forfeited.............. (.6) $20.21 (.2) $27.00 (.1) $19.32
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
Granted................ 3.2 $41.85 3.2 $61.07 1.1 $36.56
Exercised.............. (1.6) $20.26 (.1) $32.03 (.6) $16.11
Forfeited.............. (.4) $23.43 (.1) $27.51 (.2) $21.28
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 14.1 $35.56 5.3 $22.82
=============== ============= ===============
</TABLE>
F-42
<PAGE>
Information about options outstanding and exercisable at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- ----------------- --------------- ------------------- ----------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 4.8 5.84 $20.94 3.0 $20.41
$28.50 -$45.25 3.1 9.57 $41.84 - -
----------------- -------------------
$18.125 -$45.25 7.9 7.29 $29.05 3.0 $20.41
================= ================= =============== =================== ================
DLJ
----------------------
$27.00 -$35.99 10.9 8.0 $28.05 4.9 $27.58
$36.00 -$50.99 .8 9.3 $40.04 - -
$51.00 -$76.00 2.4 9.8 $67.77 - -
----------------- -------------------
$27.00 -$76.00 14.1 8.4 $35.56 4.9 $27.58
================= ================= ================ =================== =================
Alliance
----------------------
$ 6.0625 -$17.75 1.1 3.86 $13.20 1.0 $13.04
$19.375 -$19.75 .8 7.34 $19.39 .3 $19.39
$19.875 -$21.375 1.1 8.28 $20.13 .6 $20.19
$22.25 -$27.50 1.3 9.81 $23.81 .4 $23.29
$36.9375 -$37.5625 1.0 9.95 $36.95 - -
----------------- -------------------
$ 6.0625 -$37.5625 5.3 7.58 $22.82 2.3 $17.43
================= ================== ============== ====================== =============
</TABLE>
F-43
<PAGE>
INCOME MANAGER(R) ACCUMULATOR(SM)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
---------------
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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
MFS Research Equity Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity T. Rowe Price International Stock
T. Rowe Price Equity Income
- ------------------------------------------------------------------------------------------------------------------
</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
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
- ------------------------------------------------------------------------------------------------------------------
</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 October 17, 1996, and prospectus supplements dated May 1,
1998, December 31, and May 1, 1997. Definitions of special terms used in the SAI
are found in the prospectus.
Copies of the prospectus and supplements are available free of charge by writing
the Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your agent.
- --------------------------------------------------------------------------------
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, Alliance Intermediate
Government Securities Fund and Alliance High
Yield Fund Yield Information 3
- --------------------------------------------------------------------------------
Part 5 Long-Term Market Trends 4
- --------------------------------------------------------------------------------
Part 6 Financial Statements 6
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of the United States, New
York, New York 10104. All rights reserved. Income Manager is a registered
service mark and Accumulator is a service mark of The Equitable Life
Assurance Society of the United States.
(IM-98-ACC1096)
<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/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 HRT or
EQAT, 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 for each Investment Fund was fixed at $1.00 on each
Fund's respective effective date (as shown in the prospectus) 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 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
2
<PAGE>
- --------------------------------------------------------------------------------
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 financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 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, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND AND ALLIANCE HIGH YIELD 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 GMD/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)[superscript: 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 and Alliance High Yield Fund
The Alliance Intermediate Government Securities and Alliance High Yield Funds
calculate 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
3
<PAGE>
- --------------------------------------------------------------------------------
Securities or Alliance High Yield 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 or Alliance High Yield Fund will
vary for each Certificate depending upon the percentage of the Annuity Account
Value allocated to the Alliance Intermediate Government Securities or Alliance
High Yield 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 or Alliance High Yield 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 or
Alliance High Yield 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)
[superscript: 365/30] - 1. The yields for the Alliance Intermediate Government
Securities and Alliance High Yield Funds 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 and Alliance High Yield Funds will fluctuate
and not remain constant.
Alliance Money Market Fund, Alliance Intermediate Government Securities Fund and
Alliance High Yield Fund Yield Information
The yields for the Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund and Alliance High Yield Fund 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. The yields for the Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund and Alliance
High Yield Fund 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 yields be compared to the yields 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 5.35% for the
period ended December 31, 1997. The effective yield for that period was 5.49%.
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 8.07% for the period ended December 31, 1997. The effective yield for
that period was 8.38%.
The 30-day current yield for the Alliance High Yield Fund was 16.14% for the
period ended December 31, 1997. The effective yield for that period was 17.39%.
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, Alliance Intermediate Government
Securities and Alliance High Yield Portfolios which reflect only the deduction
of HRT-level expenses.
- --------------------------------------------------------------------------------
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.
4
<PAGE>
- --------------------------------------------------------------------------------
Growth of $1 Invested on January 1, 1957
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE TYPESET DOCUMENT:]
Common Stock Inflation
1957 0.89 1.03
1958 1.28 1.05
1959 1.43 1.06
1960 1.44 1.08
1961 1.83 1.09
1962 1.67 1.10
1963 2.05 1.12
1964 2.38 1.13
1965 2.68 1.15
1966 2.41 1.19
1967 2.99 1.23
1968 3.32 1.29
1969 3.04 1.36
1970 3.16 1.44
1971 3.61 1.49
1972 4.30 1.54
1973 3.67 1.67
1974 2.70 1.88
1975 3.70 2.01
1976 4.58 2.11
1977 4.25 2.25
1978 4.53 2.45
1979 5.37 2.78
1980 7.11 3.12
1981 6.76 3.40
1982 8.20 3.54
1983 10.05 3.67
1984 10.68 3.81
1985 14.11 3.96
1986 16.72 4.00
1987 17.60 4.18
1988 20.55 4.36
1989 27.03 4.57
1990 26.17 4.85
1991 34.16 4.99
1992 36.78 5.14
1993 40.46 5.28
1994 40.99 5.42
1995 56.33 5.56
1996 69.33 5.74
1997 92.44 5.85
[WHITE AREA = COMMON STOCK]
[BLACK AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
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 1997.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK & WHITE LINE GRAPH
IN THE TYPESET DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[BLACK DOTS = INTERMEDIATE-TERM GOVT. BONDS]
[WHITE DOTS = COMMON STOCKS]
[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, 1997 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.
5
<PAGE>
- --------------------------------------------------------------------------------
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM TREASURY CONSUMER
ENDING 12/31/97: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 33.36% 15.85% 12.95% 8.38% 5.26% 1.92%
3 Years 31.15% 14.76% 13.36% 8.93% 5.35% 2.59%
5 Years 20.24% 10.51% 9.22% 6.40% 4.57% 2.64%
10 Years 18.05% 11.32% 10.85% 8.33% 5.44% 3.43%
20 Years 16.65% 10.39% 10.29% 9.51% 7.29% 4.90%
30 Years 12.12% 8.63% 8.86% 8.52% 6.77% 5.34%
40 Years 12.30% 6.71% 7.09% 7.10% 5.85% 4.44%
50 Years 13.12% 5.70% 6.07% 6.04% 4.99% 3.94%
60 Years 12.53% 5.31% 5.54% 5.44% 4.18% 4.11%
Since 12/31/26 10.99% 5.19% 5.71% 5.25% 3.77% 3.17%
Inflation adjusted since 1926 7.58% 1.96% 2.46% 2.02% 0.58% --
- ------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969-1997, 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 1969-1997; 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 -- FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the Certificates.
6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO.45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1997........................................... FS-3
Statements of Operations for the Year Ended December 31, 1997..................................... FS-6
Statements of Changes in Net Assets for the Years Ended December 31, 1997 and 1996................ FS-9
Notes to Financial Statements..................................................................... FS-14
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996.............................................. F-2
Consolidated Statements of Earnings, Years Ended December 31, 1997, 1996 and 1995.................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1997,
1996 and 1995...................................................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1997, 1996 and 1995.................. F-5
Notes to Consolidated Financial Statements........................................................... F-6
</TABLE>
FS-1
<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 Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund, T.
Rowe Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, Alliance Equity Index Fund, Merrill Lynch Basic Value
Equity Fund, Alliance Common Stock Fund, MFS Research Fund, Alliance Global
Fund, Alliance International Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock Fund,
Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth Fund, MFS
Emerging Growth Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam
Balanced Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund, separate investment funds of The Equitable Life Assurance Society of the
United States ("Equitable Life") Separate Account No. 45 at December 31, 1997
and 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 owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1997 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
----------- ------------- ---------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $82,037,124.......... $81,571,923
11,097,635.......... $11,119,574
19,330,287.......... $18,544,101
Receivable (payable) for policy-related
transactions................................... 2,903,327 50,563 662,782
----------- ----------- ------------
Total Assets...................................... 84,475,250 11,170,137 19,206,883
----------- ----------- ------------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 2,910,079 52,140 665,890
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 206,810 55,747 59,654
----------- ----------- ------------
Total Liabilities................................. 3,116,889 107,887 725,544
----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $81,358,361 $11,062,250 $18,481,339
=========== =========== ============
<CAPTION>
EQUITY SERIES
--------------------------------------------------------------------------
MERRILL
T. ROWE PRICE EQ/PUTNAM ALLIANCE LYNCH
EQUITY GROWTH & ALLIANCE EQUITY BASIC VALUE
EQUITY INCOME VALUE GROWTH & INDEX EQUITY
INCOME FUND FUND INCOME FUND FUND FUND
------------- -------------- ----------- ----------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 18,007,458.......... $18,987,864
14,008,930.......... $14,200,058
88,651,911.......... $94,268,289
99,286.......... $104,008
9,928,247.......... $9,863,914
Receivable (payable) for policy-related
transactions................................... 105,202 186,146 809,151 (8) 34,834
----------- ----------- ----------- --------- ----------
Total Assets...................................... 19,093,066 14,386,204 95,077,440 104,000 9,898,748
----------- ----------- ----------- --------- ----------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 109,104 189,102 829,693 -- 36,845
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 15,447 11,682 366,973 6,482 7,463
----------- ----------- ----------- --------- ----------
Total Liabilities................................. 124,551 200,784 1,196,666 6,482 44,308
----------- ----------- ----------- --------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $18,968,515 $14,185,420 $93,880,774 $ 97,518 $9,854,440
=========== =========== =========== ========= ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
------------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $297,090,529................... $320,541,976
11,939,823................... $11,977,333
38,334,848................... $38,090,450
18,748,095................... $16,610,244
Receivable (payable) for policy-related transactions....... 1,219,096 44,794 646,213 31,494
------------ ----------- ----------- -----------
Total Assets............................................... 321,761,072 12,022,127 38,736,663 16,641,738
------------ ----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ 1,275,113 47,322 83,460 68,383
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 1,176,309 10,019 143,534 90,013
------------ ----------- ----------- -----------
Total Liabilities.......................................... 2,451,422 57,341 226,994 158,396
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $319,309,650 $11,964,786 $38,509,669 $16,483,342
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
T. ROWE MORGAN
PRICE STANLEY ALLIANCE
INTERNATIONAL EMERGING AGGRESSIVE
STOCK MARKETS STOCK
FUND EQUITY FUND FUND
------------- ----------- ------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 13,205,929................... $12,628,951
2,479,420................... $2,241,138
122,157,062................... $118,305,660
Receivable (payable) for policy-related transactions....... (241,260) 14,961 55,012
----------- ---------- ------------
Total Assets............................................... 12,387,691 2,256,099 118,360,672
----------- ---------- ------------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ (238,550) 15,412 76,530
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 9,534 1,594 456,464
----------- ---------- ------------
Total Liabilities.......................................... (229,016) 17,006 532,994
----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $12,616,707 $2,239,093 $117,827,678
=========== ========== ============
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP GROWTH
COMPANY GROWTH COMPANIES
VALUE FUND FUND FUND
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $25,096,987.................. $24,796,551
16,633,779.................. $16,289,343
12,205,272.................. $11,946,078
Receivable (payable) for policy-related transactions...... 208,290 107,600 73,764
----------- ----------- -----------
Total Assets.............................................. 25,004,841 16,396,943 12,019,842
----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 213,483 114,679 76,254
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 19,432 54,205 9,228
----------- ----------- -----------
Total Liabilities......................................... 232,915 168,884 85,482
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $24,771,926 $16,228,059 $11,934,360
=========== =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
------------ ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 20,991,531.................. $21,474,276
5,965,298.................. $6,038,880
64,675,197.................. $66,360,908
2,544,176.................. $2,415,053
Receivable (payable) for policy-related transactions...... 146,316 76,680 120,470 9,748
----------- ---------- ----------- ----------
Total Assets.............................................. 21,620,592 6,115,560 66,481,378 2,424,801
----------- ---------- ----------- ----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 149,280 77,927 132,026 10,238
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 142,854 4,667 366,318 1,768
----------- ---------- ----------- ----------
Total Liabilities......................................... 292,134 82,594 498,344 12,006
----------- ---------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $21,328,458 $6,032,966 $65,983,034 $2,412,795
=========== ========== =========== ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND(A)
----------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 2,767,636 $ 373,989 $ 654,819
Expenses (Note 3):
Asset based charges ....................................... 445,521 70,280 53,671
----------- --------- -----------
NET INVESTMENT INCOME (LOSS) .............................. 2,322,115 303,709 601,148
----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 59,011 12,754 76,963
Realized gain distribution from the Trusts ................ 5,264 -- 706,360
----------- --------- -----------
Net Realized Gain (Loss) ............................... 64,275 12,754 783,323
----------- --------- -----------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... (197,899) (36,715) --
End of period ............................................. (465,201) 21,939 (786,186)
----------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ......................................... (267,302) 58,654 (786,186)
----------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ (203,027) 71,408 (2,863)
----------- --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $ 2,119,088 $ 375,117 $ 598,285
=========== ========= ===========
<CAPTION>
EQUITY SERIES
---------------------------------------------------------------
T. ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & EQUITY BASIC VALUE
INCOME INCOME INCOME INDEX EQUITY
FUND(A) FUND(A) VALUE FUND FUND(A) FUND(A)
----------- -------- ---------- -------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 141,756 $ 65,607 $ 522,395 $ 596 $ 49,960
Expenses (Note 3):
Asset based charges ....................................... 62,938 44,334 617,639 409 29,450
---------- ----------- ------------ -------- --------
NET INVESTMENT INCOME (LOSS) .............................. 78,818 21,273 (95,244) 187 20,510
---------- ----------- ------------ -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 2,121 963 707,686 1,022 711
Realized gain distribution from the Trusts ................ 52,414 53,683 5,306,878 370 47,068
---------- ----------- ------------ -------- --------
Net Realized Gain (Loss) ............................... 54,535 54,646 6,014,564 1,392 47,779
---------- ----------- ------------ -------- --------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... -- -- 764,236 -- --
End of period ............................................. 980,406 191,128 5,616,378 4,722 (64,333)
---------- ----------- ------------ -------- --------
Change in unrealized appreciation (depreciation)
during the period ......................................... 980,406 191,128 4,852,142 4,722 (64,333)
---------- ----------- ------------ -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ 1,034,941 245,774 10,866,706 6,114 (16,554)
---------- ----------- ------------ -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $1,113,759 $ 267,047 $ 10,771,462 $ 6,301 $ 3,956
========== =========== ============ ======== ========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
---------------------------------------------------------
ALLIANCE ALLIANCE
COMMON MFS ALLIANCE INTER-
STOCK RESEARCH GLOBAL NATIONAL
FUND FUND(A) FUND FUND
------------ ---------- ------------ -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,007,250 $ 25,364 $ 662,565 $ 454,446
Expenses (Note 3):
Asset based charges .................................. 2,216,874 40,703 334,193 165,980
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (1,209,624) (15,339) 328,372 288,466
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 3,442,671 1,227 423,327 259,996
Realized gain distribution from the Trusts ........... 23,990,653 100,696 2,414,538 833,830
----------- -------- ---------- -----------
Net Realized Gain (Loss) .......................... 27,433,324 101,923 2,837,865 1,093,826
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 1,356,454 -- 199,484 31,388
End of period ........................................ 23,451,447 37,510 (244,398) (2,137,851)
----------- -------- ---------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. 22,094,993 37,510 (443,882) (2,169,239)
----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 49,528,317 139,433 2,393,983 (1,075,413)
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $48,318,693 $124,094 $2,722,355 $ (786,947)
=========== ======== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING ALLIANCE
NATIONAL MARKETS AGGRESSIVE
STOCK EQUITY STOCK
FUND(A) FUND(B) FUND
---------- --------- ------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,646 $ 6,387 $ 105,375
Expenses (Note 3):
Asset based charges .................................. 47,444 5,153 985,564
--------- --------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (45,798) 1,234 (880,189)
--------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. (53,503) (26,406) 61,253
Realized gain distribution from the Trusts ........... -- -- 9,818,273
--------- --------- -----------
Net Realized Gain (Loss) .......................... (53,503) (26,406) 9,879,526
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- (2,165,186)
End of period ........................................ (576,978) (238,282) (3,851,402)
--------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. (576,978) (238,282) (1,686,216)
--------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... (630,481) (264,688) 8,193,310
--------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $(676,279) $(263,454) $ 7,313,121
========= ========= ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
--------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 21,393 $ 773 $ 22,515
Expenses (Note 3):
Asset based charges .................................. 85,830 50,629 38,336
--------- --------- ---------
NET INVESTMENT INCOME (LOSS) ......................... (64,437) (49,856) (15,821)
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 228,992 62,796 52,672
Realized gain distribution from the Trusts ........... 109,076 377,750 274,537
--------- --------- ---------
Net Realized Gain (Loss) .......................... 338,068 440,546 327,209
--------- ---------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- --
End of period ........................................ (300,436) (344,436) (259,194)
--------- --------- ---------
Change in unrealized appreciation (depreciation)
during the period ................................. (300,436) (344,436) (259,194)
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 37,632 96,110 68,015
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $ (26,805) $ 46,254 $ 52,194
========= ========= =========
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND(A) FUND FUND(A)
---------- ---------- ----------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 647,522 $ 69,781 $ 1,260,100 $ 10,682
Expenses (Note 3):
Asset based charges .................................. 165,768 18,233 523,559 7,708
---------- --------- ----------- --------
NET INVESTMENT INCOME (LOSS) ......................... 481,754 51,548 736,541 2,974
---------- --------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 49,147 (1,203) 187,731 (109)
Realized gain distribution from the Trusts ........... 638,548 46,731 3,432,867 24,328
---------- --------- ----------- --------
Net Realized Gain (Loss) .......................... 687,695 45,528 3,620,598 24,219
---------- --------- ----------- --------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 4,651 -- (158,777) --
End of period ........................................ 482,745 73,582 1,685,711 (129,123)
---------- --------- ----------- --------
Change in unrealized appreciation (depreciation)
during the period ................................. 478,094 73,582 1,844,488 (129,123)
---------- --------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 1,165,789 119,110 5,465,086 (104,904)
---------- --------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $1,647,543 $ 170,658 $ 6,201,627 $(101,930)
========== ========= =========== =========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------
ALLIANCE
MONEY MARKET FUND
------------------------------
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................... $ 2,322,115 $ 791,163
Net realized gain (loss) ................................ 64,275 19,803
Change in unrealized appreciation /(depreciation)
of investments ....................................... (267,302) (165,897)
------------- -------------
Net increase in net assets from operations .............. 2,119,088 645,069
------------- -------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 137,532,670 95,681,367
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 55,819,439 19,687,669
------------- -------------
Total ............................................. 193,352,109 115,369,036
------------- -------------
Benefit & other policy transaction ................... 1,577,365 198,356
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 618,083 514,843
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 144,167,408 87,121,388
------------- -------------
Total ............................................. 146,362,856 87,834,587
------------- -------------
Net increase in net assets from Contract Owner
transactions ........................................ 46,989,253 27,534,449
------------- -------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT 45 (NOTE 5) ......................... (46,770) (17,582)
------------- -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 49,061,571 28,161,936
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 32,296,790 4,134,854
------------- -------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 81,358,361 $ 32,296,790
============= =============
<CAPTION>
FIXED INCOME SERIES:
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE HIGH YIELD
GOVERNMENT SECURITIES FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................... $ 303,709 $ 138,808 $ 601,148
Net realized gain (loss) ................................ 12,754 (21,067) 783,323
Change in unrealized appreciation /(depreciation)
of investments ....................................... 58,654 (41,524) (786,186)
------------ ------------ ------------
Net increase in net assets from operations .............. 375,117 76,217 598,285
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 5,416,131 1,798,660 13,779,925
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 3,270,944 8,533,013 22,095,921
------------ ------------ ------------
Total ............................................. 8,687,075 10,331,673 35,875,846
------------ ------------ ------------
Benefit & other policy transaction ................... 189,517 15,968 161,257
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 128,377 77,637 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 1,145,902 8,982,626 17,780,088
------------ ------------ ------------
Total ............................................. 1,463,796 9,076,231 17,986,890
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ........................................ 7,223,279 1,255,442 17,888,956
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ..................... (12,130) (6,709) (5,902)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 7,586,266 1,324,950 18,481,339
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 3,475,984 2,151,034 --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 11,062,250 $ 3,475,984 $ 18,481,339
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
------------------------------
T. ROWE EQ/PUTNAM
PRICE EQUITY GROWTH &
INCOME INCOME VALUE
FUND(A) FUND(A)
-------------- --------------
1997 1997
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss) ............................... $ 78,818 $ 21,273
Net realized gain (loss) ................................... 54,535 54,646
Change in unrealized appreciation / (depreciation)
of investments .......................................... 980,406 191,128
------------ ------------
Net increase in net assets from operations ................. 1,113,759 267,047
------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 13,813,772 10,975,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 4,356,204 3,217,543
------------ ------------
Total ................................................ 18,169,976 14,192,742
------------ ------------
Benefit & other policy transaction ...................... 86,052 58,925
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 40,797 32,578
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 183,349 180,506
------------ ------------
Total ................................................ 310,198 272,009
------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 17,859,778 13,920,733
------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (5,022) (2,360)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 18,968,515 14,185,420
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- --
------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 18,968,515 $ 14,185,420
============ ============
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------
ALLIANCE
ALLIANCE EQUITY MERRILL LYNCH
GROWTH & INCOME INDEX BASIC VALUE
FUND FUND(A) EQUITY FUND(A)
--------------------------- ---------- ---------------
1997 1996 1997 1997
------------ ------------ ---------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ (95,244) $ 64,283 $ 187 $ 20,510
Net realized gain (loss) ................................... 6,014,564 693,777 1,392 47,779
Change in unrealized appreciation / (depreciation)
of investments .......................................... 4,852,142 698,407 4,722 (64,333)
------------ ------------ -------- ------------
Net increase in net assets from operations ................. 10,771,462 1,456,467 6,301 3,956
------------ ------------ -------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 58,696,016 6,251,620 77,031 8,075,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 16,269,895 6,040,990 15,328 1,941,071
------------ ------------ -------- ------------
Total ................................................ 74,965,911 12,292,610 92,359 10,016,270
------------ ------------ -------- ------------
Benefit & other policy transaction ...................... 1,455,357 130,199 -- 9,691
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 425,279 31,991 -- 17,792
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 4,907,606 342,494 -- 137,464
------------ ------------ -------- ------------
Total ................................................ 6,788,242 504,684 -- 164,947
------------ ------------ -------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 68,177,669 11,787,926 92,359 9,851,323
------------ ------------ -------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (94,285) (27,565) (1,142 (839)
------------ ------------ -------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 78,854,846 13,216,828 97,518 9,854,440
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,025,928 1,809,100 -- --
------------ ------------ -------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 93,880,774 $ 15,025,928 $ 97,518 $ 9,854,440
============ ============ ======== ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
MFS
ALLIANCE RESEARCH
COMMON STOCK FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) ............................... $ (1,209,624) $ (42,865) $ (15,339)
Net realized gain (loss) ................................... 27,433,324 6,011,054 101,923
Change in unrealized appreciation / (depreciation)
of investments .......................................... 22,094,993 1,504,011 37,510
------------- ------------ ------------
Net increase (decrease) in net assets from operations ...... 48,318,693 7,472,200 124,094
------------- ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 175,880,351 36,558,323 9,502,168
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 61,077,537 34,378,499 2,602,553
------------- ------------ ------------
Total ................................................ 236,957,888 70,936,822 12,104,721
------------- ------------ ------------
Benefit & other policy transaction ...................... 4,271,079 427,323 28,630
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 1,459,175 290,642 23,738
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 35,438,036 8,933,676 209,610
------------- ------------ ------------
Total ................................................ 41,168,290 9,651,641 261,978
------------- ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 195,789,598 61,285,181 11,842,743
------------- ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (305,436) (85,006) (2,051)
------------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 243,802,855 68,672,375 11,964,786
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 75,506,795 6,834,420 --
------------- ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 319,309,650 $ 75,506,795 $ 11,964,786
============= ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------------
ALLIANCE ALLIANCE
GLOBAL FUND INTERNATIONAL FUND
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ 328,372 $ 88,313 $ 288,466 $ 53,333
Net realized gain (loss) ................................... 2,837,865 543,216 1,093,826 234,294
Change in unrealized appreciation / (depreciation)
of investments .......................................... (443,882) 184,372 (2,169,239) 16,354
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from operations ...... 2,722,355 815,901 (786,947) 303,981
------------ ------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 20,384,580 9,199,245 9,574,522 3,782,377
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 7,792,945 6,255,073 18,180,472 5,791,839
------------ ------------ ------------ -----------
Total ................................................ 28,177,525 15,454,318 27,754,994 9,574,216
------------ ------------ ------------ -----------
Benefit & other policy transaction ...................... 621,118 70,774 341,327 38,451
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 155,169 36,757 97,083 75,353
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 6,961,429 1,836,433 18,593,662 1,979,003
------------ ------------ ------------ -----------
Total ................................................ 7,737,716 1,943,964 19,032,072 2,092,807
------------ ------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ............................................ 20,439,809 13,510,354 8,722,922 7,481,409
------------ ------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (28,799) (18,054) (36,637) (11,874)
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 23,133,365 14,308,201 7,899,338 7,773,516
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,376,304 1,068,103 8,584,004 810,488
------------ ------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 38,509,669 $ 15,376,304 $ 16,483,342 $ 8,584,004
============ ============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING
NATIONAL MARKETS ALLIANCE
STOCK EQUITY AGGRESSIVE STOCK
FUND(A) FUND(B) FUND
------------- ----------- --------------------------------
1997 1997 1997 1996
------------- ----------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ...................................... $ (45,798) $ 1,234 $ (880,189) $ (121,400)
Net realized gain (loss) ................................... (53,503) (26,406) 9,879,526 4,080,335
Change in unrealized appreciation / (depreciation)
of investments .......................................... (576,978) (238,282) (1,686,216) (1,995,216)
------------ ----------- ------------- ------------
Net increase (decrease) in net assets from operations ...... (676,279) (263,454) 7,313,121 1,963,719
------------ ----------- ------------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 9,658,570 1,617,148 66,019,813 22,776,845
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 5,113,170 889,247 17,726,363 20,452,746
------------ ----------- ------------- ------------
Total ................................................ 14,771,740 2,506,395 83,746,176 43,229,591
------------ ----------- ------------- ------------
Benefit & other policy transaction ...................... 37,224 -- 1,854,804 245,070
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 22,024 394 482,491 90,356
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 1,416,476 2,488 11,669,668 7,099,325
------------ ----------- ------------- ------------
Total ................................................ 1,475,724 2,882 14,006,963 7,434,751
------------ ----------- ------------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 13,296,016 2,503,513 69,739,213 35,794,840
------------ ----------- ------------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (3,030) (966) (111,908) (33,503)
------------ ----------- ------------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 12,616,707 2,239,093 76,940,426 37,725,056
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- 40,887,252 3,162,196
------------ ----------- ------------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 12,616,707 $ 2,239,093 $ 117,827,678 $ 40,887,252
============ =========== ============= ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
WARBURG MFS
PINCUS SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
------------ ------------- ----------------
1997 1997 1997
------------ ------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ...................................... $ (64,437) $ (49,856) $ (15,821)
Net realized gain (loss) ................................... 338,068 440,546 327,209
Change in unrealized appreciation / (depreciation)
of investments .......................................... (300,436) (344,436) (259,194)
------------ ------------ ------------
Net increase (decrease) in net assets from operations ...... (26,805) 46,254 52,194
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 17,791,841 12,116,331 9,607,211
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 11,695,862 5,602,864 3,864,604
------------ ------------ ------------
Total ................................................ 29,487,703 17,719,195 13,471,815
------------ ------------ ------------
Benefit & other policy transaction ...................... 134,692 20,842 45,537
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 23,284 8,570 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 4,520,417 1,504,600 1,527,808
------------ ------------ ------------
Total ................................................ 4,678,393 1,534,012 1,587,690
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 24,809,310 16,185,183 11,884,125
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (10,579) (3,378) (1,959)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 24,771,926 16,228,059 11,934,360
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 24,771,926 $ 16,228,059 $ 11,934,360
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------
ALLIANCE EQ/PUTNAM
CONSERVATIVE BALANCED
INVESTORS FUND FUND(A)
--------------------------- ----------- -
1997 1996 1997
------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 481,754 $ 193,429 $ 51,548
Net realized gain (loss) ............................. 687,695 154,966 45,528
Change in unrealized appreciation / (depreciation)
of investments .................................... 478,094 (12,221) 73,582
----------- ----------- -----------
Net increase (decrease) in net assets from operations 1,647,543 336,174 170,658
------------ ----------- -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 10,862,780 3,977,495 4,294,496
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 3,151,066 2,837,790 1,721,220
------------ ----------- -----------
Total .......................................... 14,013,846 6,815,285 6,015,716
------------ ----------- -----------
Benefit & other policy transaction ................ 567,547 60,271 17,533
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 138,461 100,314 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 1,428,179 814,338 120,099
------------ ----------- -----------
Total .......................................... 2,134,187 974,923 152,925
------------ ----------- -----------
Net increase in net assets from Contract Owner
transactions ...................................... 11,879,659 5,840,362 5,862,791
------------ ----------- -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (57,026) (12,633) (483)
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 13,470,176 6,163,903 6,032,966
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 7,858,282 1,694,379 --
------------ ----------- -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 21,328,458 $ 7,858,282 $ 6,032,966
============ =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------
ALLIANCE MERRILL LYNCH
GROWTH WORLD STRATEGY
INVESTORS FUND FUND(A)
---------------------------- --------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 736,541 $ 218,025 $ 2,974
Net realized gain (loss) ............................. 3,620,598 1,601,901 24,219
Change in unrealized appreciation / (depreciation)
of investments .................................... 1,844,488 (197,988) (129,123)
------------ ------------ -----------
Net increase (decrease) in net assets from operations 6,201,627 1,621,938 (101,930)
------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 32,084,069 11,004,121 2,043,811
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 7,981,423 9,331,901 561,601
------------ ------------ -----------
Total .......................................... 40,065,492 20,336,022 2,605,412
------------ ------------ -----------
Benefit & other policy transaction ................ 1,014,211 206,468 3,514
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 421,582 228,021 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 2,744,848 1,177,040 84,455
------------ ------------ -----------
Total .......................................... 4,180,641 1,611,529 90,566
------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ...................................... 35,884,851 18,724,493 2,514,846
------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (111,839) (32,214) (121)
------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 41,974,639 20,314,217 2,412,795
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 24,008,395 3,694,178 --
------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 65,983,034 $ 24,008,395 $ 2,412,795
============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
1940 Act"). The Account consists of 22 investment funds (Funds): Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund,
Alliance High Yield Fund, T. Rowe Price Equity Income Fund, EQ/Putnam
Growth & Income Value Fund, Alliance Growth & Income Fund, Alliance Equity
Index Fund, Merrill Lynch Basic Value Equity Fund, Alliance Common Stock
Fund, MFS Research Fund, Alliance Global Fund, Alliance International
Fund, T. Rowe Price International Stock Fund, Morgan Stanley Emerging
Markets Equity Fund, Alliance Aggressive Stock Fund, Warburg Pincus Small
Company Value Fund, Alliance Small Cap Growth Fund, MFS Emerging Growth
Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam Balanced
Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund. The assets in each Fund are invested in shares of a corresponding
portfolio (Portfolio) of a mutual fund, Class IA and IB shares of The
Hudson River Trust (HRT) or Class IB shares of EQ Advisors Trust (EQAT)
(collectively known as the Trusts). Class IB shares are offered by the
Funds at net asset value and are subject to distribution fees imposed
under a distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act. Class IA shares of HRT continue to be purchased by contracts in-force
prior to May 1, 1997. The Trusts are open-end, diversified management
investment companies that sell its shares to 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 is also available
for purchase by certain types of qualified plans. 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 less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth 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.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 charges for mortality and expense
risks at an annual rate of 0.90% of daily net assets. In addition, asset
based administrative charges are also charged to the account at an annual
rate of 0.25% of daily net assets. The charges may be retained in the
Account by Equitable Life and participate in the net investment results of
the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.15% of daily net assets. Trust shares are
valued at their net asset value with investment advisory or management
fees, the 12b-1 fee, and other expenses of the Trust, in effect, passed on
to the Account and reflected in the accumulation unit values of the
Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
------------------------------------------
<S> <C> <C>
Class A Net Issued........................................... -- 1,128
Net Redeemed......................................... (374) --
Class B Net Issued........................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
------------------------------------------------
Class A Net Issued........................................... 161 92
Class B Net Issued........................................... 345 --
ALLIANCE HIGH YIELD FUND
------------------------------------
Class A Net Issued........................................... 98 --
Class B Net Issued........................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,565 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
----------------------------------------------
Class A Net Issued........................................... 2,377 905
Class B Net Issued........................................... 1,829 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-----------------------------------------
ALLIANCE EQUITY INDEX FUND (A) (IN THOUSANDS)
<S> <C> <C>
Class B Net Issued............................................ 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
-----------------------------------------
Class B Net Issued............................................ 849 --
ALLIANCE COMMON STOCK FUND
--------------------------
Class A Net Issued............................................ 620 439
Class B Net Issued............................................ 519 --
MFS RESEARCH FUND (A)
---------------------
Class B Net Issued............................................ 1,039 --
ALLIANCE GLOBAL FUND
---------------------
Class A Net Issued............................................ 444 561
Class B Net Issued............................................ 308 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Class A Net Issued............................................ 438 643
Class B Net Issued............................................ 285 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (A)
------------------------------------------
Class B Net Issued............................................ 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
-----------------------------------------------
Class B Net Issued............................................ 282 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Concluded):
Accumulation units issued and redeemed during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- ----------------
ALLIANCE AGGRESSIVE STOCK FUND (IN THOUSANDS)
------------------------------
<S> <C> <C>
Class A Net Issued....................................... 641 562
Class B Net Issued....................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
-------------------------------------------
Class B Net Issued....................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND
------------------------------
Class A Net Issued....................................... 208 --
Class B Net Issued....................................... 1,084 --
MFS EMERGING GROWTH COMPANIES FUND (A)
--------------------------------------
Class B Net Issued....................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
------------------------------------
Class A Net Issued....................................... 356 354
Class B Net Issued....................................... 295 --
EQ/PUTNAM BALANCED FUND (A)
---------------------------
Class B Net Issued....................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Class A Net Issued....................................... 681 758
Class B Net Issued....................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
------------------------------------
Class B Net Issued....................................... 232 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. 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 contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
INVESTMENT FUND 1997 1996
------------------------------ ----------------------------
<S> <C> <C>
Alliance Money Market Fund..................................... $(240,000) $(125,000)
Alliance Intermediate Government Securities Fund............... (60,000) (25,000)
Alliance High Yield Fund(1).................................... 10,000 --
T. Rowe Price Equity Income Fund(1)............................ -- --
EQ/Putnam Growth & Income Value Fund(1)........................ -- --
Alliance Growth & Income Fund.................................. (250,000) (60,000)
Alliance Equity Index Fund..................................... 5,000 --
Merrill Lynch Basic Value Equity Fund(1)....................... -- --
Alliance Common Stock Fund..................................... (840,000) (223,000)
MFS Research Fund(1)........................................... -- --
Alliance Global Fund........................................... (185,000) (52,000)
Alliance International Fund.................................... (120,000) (35,000)
T. Rowe Price International Stock Fund(1)...................... -- --
Morgan Stanley Emerging Markets Equity Fund(2)................. -- --
Alliance Aggressive Stock Fund................................. (435,000) (110,000)
Warburg Pincus Small Company Value Fund(1)..................... -- --
Alliance Small Cap Growth Fund(1).............................. 10,000 --
MFS Emerging Growth Companies Fund(1).......................... -- --
Alliance Conservative Investors Fund........................... (87,000) (45,000)
EQ/Putnam Balanced Fund(1)..................................... -- --
Alliance Growth Investors Fund................................. (185,000) (105,000)
Merrill Lynch World Strategy Fund(1)........................... -- --
</TABLE>
----------------------
(1) Commenced operations on May 1, 1997.
(2) Commenced operations on November 20, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
ALLIANCE MONEY MARKET FUND ----------------------------- --------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period....................... $24.81 $23.83
Class A Unit value, end of period............................. $25.85 $24.81
Class B Unit value, beginning of period (c)................... $25.17 --
Class B Unit value, end of period (c)......................... $25.85 --
Number of units outstanding, end of period (000's):
Class A.................................................... 928 1,302
Class B.................................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A Unit value, beginning of period....................... $13.77 $13.42
Class A Unit value, end of period............................. $14.60 $13.77
Class B Unit value, beginning of period (c)................... $13.88 --
Class B Unit value, end of period (c)......................... $14.58 --
Number of units outstanding, end of period (000's):
Class A.................................................... 413 252
Class B.................................................... 345 --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A Unit value, beginning of period....................... $26.95 --
Class A Unit value, end of period............................. $30.73 --
Class B Unit value, beginning of period....................... $26.91 --
Class B Unit value, end of period............................. $30.63 --
Number of units outstanding, end of period (000's):
Class A.................................................... 98 --
Class B.................................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
- ------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.12 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,565 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A) ------------------------------ ---------------------------
- --------------------------------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.53 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A Unit value, beginning of period....................... $14.23 $11.99
Class A Unit value, end of period............................. $17.83 $14.23
Class B Unit value, beginning of period (c)................... $14.67 --
Class B Unit value, end of period (c)......................... $17.80 --
Number of units outstanding, end of period (000's):
Class A.................................................... 3,433 1,056
Class B.................................................... 1,829 --
ALLIANCE EQUITY INDEX FUND (A)
- ------------------------------
Class A Unit value, beginning of period....................... $17.62 --
Class A Unit value, end of period............................. $21.41 --
Class B Unit value, beginning of period....................... $17.62 --
Class B Unit value, end of period............................. $21.38 --
Number of units outstanding, end of period (000's):
Class A.................................................... -- --
Class B.................................................... 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
- -----------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.61 --
Number of units outstanding, end of period (000's):
Class B.................................................... 849 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
ALLIANCE COMMON STOCK FUND ------------------------- ------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period........................... $152.96 $124.52
Class A Unit value, end of period................................. $195.37 $152.96
Class B Unit value, beginning of period (c)....................... $153.35 --
Class B Unit value, end of period (c)............................. $194.74 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,114 494
Class B........................................................ 519 --
MFS RESEARCH FUND (A)
- ---------------------
Class B Unit value, beginning of period........................... $10.00 --
Class B Unit value, end of period................................. $11.52 --
Number of units outstanding, end of period (000's):
Class B........................................................ 1,039 --
ALLIANCE GLOBAL FUND
- --------------------
Class A Unit value, beginning of period........................... $25.25 $22.29
Class A Unit value, end of period................................. $27.85 $25.25
Class B Unit value, beginning of period (c)....................... $24.87 --
Class B Unit value, end of period (c)............................. $27.76 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,074 609
Class B........................................................ 308 --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A Unit value, beginning of period........................... $11.98 $11.03
Class A Unit value, end of period................................. $11.48 $11.98
Class B Unit value, beginning of period (c)....................... $11.86 --
Class B Unit value, end of period (c)............................. $11.46 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,151 717
Class B........................................................ 285 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
T. ROWE PRICE INTERNATIONAL STOCK FUND (A) --------------------------- ------------------------
- -----------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 9.77 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
- -----------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 7.95 --
Number of units outstanding, end of period (000's):
Class B.................................................... 282 --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A Unit value, beginning of period....................... $65.94 $54.59
Class A Unit value, end of period............................. $72.23 $65.94
Class B Unit value, beginning of period (c)................... $62.84 --
Class B Unit value, end of period (c)......................... $72.00 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,261 620
Class B.................................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
- -------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.82 --
Number of units outstanding, end of period (000's):
Class B.................................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND (A)
- ----------------------------------
Class A Unit value, beginning of period....................... $10.00 --
Class A Unit value, end of period............................. $12.57 --
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.55 --
Number of units outstanding, end of period (000's):
Class A.................................................... 208 --
Class B.................................................... 1,084 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
MFS EMERGING GROWTH FUND (A) --------------------------- ------------------------
- ----------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.15 --
Number of units outstanding, end of period (000's):
Class B.................................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A Unit value, beginning of period....................... $17.21 $16.55
Class A Unit value, end of period............................. $19.26 $17.21
Class B Unit value, beginning of period (c)................... $17.33 --
Class B Unit value, end of period (c)......................... $19.23 --
Number of units outstanding, end of period (000's):
Class A.................................................... 813 457
Class B.................................................... 295 --
EQ/PUTMAN BALANCED FUND (A)
- ---------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.36 --
Number of units outstanding, end of period (000's):
Class B.................................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A Unit value, beginning of period....................... $26.26 $23.59
Class A Unit value, end of period............................. $30.31 $26.26
Class B Unit value, beginning of period (c)................... $26.23 --
Class B Unit value, end of period (c)......................... $30.22 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,596 914
Class B.................................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
- -------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $10.39 --
Number of units outstanding, end of period (000's):
Class B.................................................... 232 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-23
<PAGE>
February 10, 1998
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 and for loan impairments in 1995.
/s/ Price Waterhouse, LLP
- ---------------------------
Price Waterhouse LLP
New York, New York
February 10, 1998
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 19,630.9 $ 18,077.0
Mortgage loans on real estate............................................. 2,611.4 3,133.0
Equity real estate........................................................ 2,749.2 3,297.5
Policy loans.............................................................. 2,422.9 2,196.1
Other equity investments.................................................. 951.5 860.6
Investment in and loans to affiliates..................................... 731.1 685.0
Other invested assets..................................................... 624.7 25.4
----------------- -----------------
Total investments..................................................... 29,721.7 28,274.6
Cash and cash equivalents................................................... 300.5 538.8
Deferred policy acquisition costs........................................... 3,236.6 3,104.9
Amounts due from discontinued operations.................................... 572.8 996.2
Other assets................................................................ 2,685.2 2,552.2
Closed Block assets......................................................... 8,566.6 8,495.0
Separate Accounts assets.................................................... 36,538.7 29,646.1
----------------- -----------------
Total Assets................................................................ $ 81,622.1 $ 73,607.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,579.5 $ 21,865.6
Future policy benefits and other policyholder's liabilities................. 4,553.8 4,416.6
Short-term and long-term debt............................................... 1,991.2 1,766.9
Other liabilities........................................................... 3,257.1 2,785.1
Closed Block liabilities.................................................... 9,073.7 9,091.3
Separate Accounts liabilities............................................... 36,306.3 29,598.3
----------------- -----------------
Total liabilities..................................................... 76,761.6 69,523.8
----------------- -----------------
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........................................................... 1,235.9 798.7
Net unrealized investment gains............................................. 533.6 189.9
Minimum pension liability................................................... (17.3) (12.9)
----------------- -----------------
Total shareholder's equity............................................ 4,860.5 4,084.0
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 81,622.1 $ 73,607.8
================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 950.6 $ 874.0 $ 788.2
Premiums...................................................... 601.5 597.6 606.8
Net investment income......................................... 2,282.8 2,203.6 2,088.2
Investment (losses) gains, net................................ (45.2) (9.8) 5.3
Commissions, fees and other income............................ 1,227.2 1,081.8 897.1
Contribution from the Closed Block............................ 102.5 125.0 143.2
----------------- ----------------- -----------------
Total revenues.......................................... 5,119.4 4,872.2 4,528.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,266.2 1,270.2 1,248.3
Policyholders' benefits....................................... 978.6 1,317.7 1,008.6
Other operating costs and expenses............................ 2,203.9 2,075.7 1,775.8
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,448.7 4,663.6 4,032.7
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 670.7 208.6 496.1
Federal income taxes.......................................... 91.5 9.7 120.5
Minority interest in net income of consolidated subsidiaries.. 54.8 81.7 62.8
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 524.4 117.2 312.8
Discontinued operations, net of Federal income taxes.......... (87.2) (83.8) -
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (23.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 437.2 $ 10.3 $ 312.8
================= ================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(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 and end of year..... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 798.7 788.4 475.6
Net earnings.................................................. 437.2 10.3 312.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,235.9 798.7 788.4
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year... 189.9 396.5 (220.5)
Change in unrealized investment gains (losses)................ 343.7 (206.6) 617.0
----------------- ----------------- -----------------
Net unrealized investment gains, end of year.................. 533.6 189.9 396.5
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (12.9) (35.1) (2.7)
Change in minimum pension liability........................... (4.4) 22.2 (32.4)
-----------------
----------------- -----------------
Minimum pension liability, end of year........................ (17.3) (12.9) (35.1)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 437.2 $ 10.3 $ 312.8
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Interest credited to policyholders' account balances........ 1,266.2 1,270.2 1,248.3
Universal life and investment-type product
policy fee income......................................... (950.6) (874.0) (788.2)
Investment losses (gains)................................... 45.2 9.8 (5.3)
Change in Federal income tax payable........................ (74.4) (197.1) 221.6
Other, net.................................................. 169.4 330.2 80.5
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 893.0 549.4 1,069.7
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,702.9 2,275.1 1,897.4
Sales....................................................... 10,385.9 8,964.3 8,867.1
Purchases................................................... (13,205.4) (12,559.6) (11,675.5)
(Increase) decrease in short-term investments............... (555.0) 450.3 (99.3)
Decrease in loans to discontinued operations................ 420.1 1,017.0 1,226.9
Sale of subsidiaries........................................ 261.0 - -
Other, net.................................................. (612.6) (281.0) (413.4)
----------------- ----------------- -----------------
Net cash used by investing activities......................... (603.1) (133.9) (196.8)
----------------- ----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................. 1,281.7 1,925.4 2,586.5
Withdrawals............................................... (1,886.8) (2,385.2) (2,657.1)
Net increase (decrease) in short-term financings............ 419.9 (.3) (16.4)
Additions to long-term debt................................. 32.0 - 599.7
Repayments of long-term debt................................ (196.4) (124.8) (40.7)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (83.9) - (1,215.4)
Other, net.................................................. (94.7) (66.5) (48.4)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (528.2) (651.4) (791.8)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (238.3) (235.9) 81.1
Cash and cash equivalents, beginning of year.................. 538.8 774.7 693.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 300.5 $ 538.8 $ 774.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 217.1 $ 109.9 $ 89.6
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 170.0 $ (10.0) $ (82.7)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and, prior to
December 31, 1996, its wholly owned life insurance subsidiary, Equitable
Variable Life Insurance Company ("EVLICO"). Effective January 1, 1997,
EVLICO was merged into Equitable Life, which continues to conduct the
Company's insurance business. Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance") 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 58.7% at December 31, 1997 (54.3% 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") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and, through
June 10, 1997, Equitable Real Estate Investment Management, Inc.
("EREIM"), a real estate investment management subsidiary which was sold
(see Note 5); 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.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued operations (see Note
7).
The years "1997," "1996" and "1995" refer to the years ended December
31, 1997, 1996 and 1995, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1997 presentation.
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.
F-6
<PAGE>
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. No reallocation, transfer, borrowing
or lending of assets can be made between the Closed Block and other
portions of Equitable Life's General Account, any of its Separate
Accounts or any affiliate of Equitable Life without the approval of the
New York Superintendent of Insurance (the "Superintendent"). Closed
Block assets and liabilities are carried on the same basis as similar
assets and liabilities held in the General Account. The excess of Closed
Block liabilities over Closed Block assets represents the expected
future post-tax contribution from the Closed Block which would be
recognized in income over the period the policies and contracts in the
Closed Block remain in force.
Discontinued Operations
Discontinued operations consist of the business of the former Guaranteed
Interest Contract ("GIC") segment which includes the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and the GIC
lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and, during the 1997 and 1996 fourth quarter
reviews, the allowance for future losses was increased. Management
believes the allowance for future losses at December 31, 1997 is
adequate to provide for all future losses; however, the determination of
the allowance continues to involve numerous estimates and subjective
judgments regarding the expected performance of Discontinued Operations
Investment Assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of the discontinued operations
differ from management's current best estimates and assumptions
underlying the allowance for future losses, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management's previous
assumptions, periodic adjustments to the allowance are likely to result
(see Note 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 SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". (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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to The Equitable'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 for production of income. Real estate
which management has committed to disposing of by sale or abandonment is
classified as real estate held for sale. Valuation allowances on real
estate held for sale continue to be computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
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 vacated in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impaired loans
within SFAS No. 114's scope are to be 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 adoption of
this statement did not have a material effect on the level of the
allowances for possible losses or on the Company's consolidated
statements of earnings and shareholder's equity.
F-7
<PAGE>
New Accounting Pronouncements
In January 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits," which revises current note disclosure
requirements for employers' pension and other retiree benefits. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt the provisions of SFAS No. 132 in the 1998
consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP
97-3 provides guidance for assessments related to insurance activities
and requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual and interim financial statements
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment
performance and for deciding how to allocate resources to segments. This
statement is effective for fiscal years beginning after December 15,
1997 and need not be applied to interim reporting in the initial year of
adoption. Restatement of comparative information for earlier periods is
required. Management is currently reviewing its definition of business
segments in light of the requirements of SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires an enterprise to classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt
the provisions of SFAS No. 130 in its 1998 consolidated financial
statements.
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.
Implementation of SFAS No. 125 did not have nor is SFAS No. 127 expected
to have a material impact on the Company's consolidated financial
statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
F-8
<PAGE>
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains 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 discontinued operations,
participating group annuity contracts and deferred policy acquisition
costs ("DAC") related to universal life and investment-type products and
participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
F-9
<PAGE>
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, 1997, the expected investment yield, excluding
policy loans, generally ranged from 7.53% grading to 7.92% over a 20
year period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its 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.
F-11
<PAGE>
Claim reserves and associated liabilities for individual DI and major
medical policies were $886.7 million and $869.4 million at December 31,
1997 and 1996, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 190.2 $ 189.0 $ 176.0
Incurred benefits related to prior years........... 2.1 69.1 67.8
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 192.3 $ 258.1 $ 243.8
================= ================ =================
Benefits paid related to current year.............. $ 28.8 $ 32.6 $ 37.0
Benefits paid related to prior years............... 146.2 153.3 137.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 175.0 $ 185.9 $ 174.8
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1997, participating policies, including those in the
Closed Block, represent approximately 21.2% ($50.2 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1997, 1996 and 1995, investment results of
such Separate Accounts were $3,411.1 million, $2,970.6 million and
$1,963.2 million, respectively.
F-12
<PAGE>
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the opinion, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the
exercise price. See Note 21 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,230.3 $ 785.0 $ 74.5 $ 14,940.8
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 673.0 6.8 .1 679.7
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
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......................... $ 362.0 $ 49.3 $ 17.7 $ 393.6
================= ================= ================ =================
</TABLE>
F-13
<PAGE>
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 on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1997 and 1996, securities
without a readily ascertainable market value having an amortized cost of
$3,759.2 million and $3,915.7 million, respectively, had estimated fair
values of $3,903.9 million and $4,024.6 million, respectively.
The contractual maturity of bonds at December 31, 1997 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 149.9 $ 151.3
Due in years two through five.......................................... 2,962.8 3,025.2
Due in years six through ten........................................... 6,863.9 7,093.0
Due after ten years.................................................... 6,952.3 7,502.7
Mortgage-backed securities............................................. 1,702.8 1,725.0
---------------- -----------------
Total.................................................................. $ 18,631.7 $ 19,497.2
================ =================
</TABLE>
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,
1997, approximately 17.85% of the $18,610.6 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.
Fixed maturity investments with restructured or modified terms are not
material.
F-14
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 137.1 $ 325.3 $ 284.9
SFAS No. 121 release............................... - (152.4) -
Additions charged to income........................ 334.6 125.0 136.0
Deductions for writedowns and
asset dispositions............................... (87.2) (160.8) (95.6)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 55.8 $ 50.4 $ 65.5
Equity real estate............................... 328.7 86.7 259.8
----------------- ---------------- -----------------
Total.............................................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
</TABLE>
At December 31, 1997, 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 $12.6 million
of fixed maturities and $.9 million of mortgage loans on real estate.
At December 31, 1997 and 1996, 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 $23.4 million (0.9% of total
mortgage loans on real estate) and $12.4 million (0.4% 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 $183.4
million and $388.3 million at December 31, 1997 and 1996, 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 $17.2 million, $35.5 million and $52.1 million in
1997, 1996 and 1995, respectively. Gross interest income on these loans
included in net investment income aggregated $12.7 million, $28.2
million and $37.4 million in 1997, 1996 and 1995, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 196.7 $ 340.0
Impaired mortgage loans without provision for losses............... 3.6 122.3
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 200.3 462.3
Provision for losses............................................... (51.8) (46.4)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 148.5 $ 415.9
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
F-15
<PAGE>
During 1997, 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $246.9 million, $552.1 million
and $429.0 million. Interest income recognized on these impaired
mortgage loans totaled $15.2 million, $38.8 million and $27.9 million
($2.3 million, $17.9 million and $13.4 million recognized on a cash
basis) for 1997, 1996 and 1995, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1997 and 1996, the carrying value of equity real estate
held for sale amounted to $1,023.5 million and $345.6 million,
respectively. For 1997, 1996 and 1995, respectively, real estate of
$152.0 million, $58.7 million and $35.3 million was acquired in
satisfaction of debt. At December 31, 1997 and 1996, the Company owned
$693.3 million and $771.7 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 $541.1
million and $587.5 million at December 31, 1997 and 1996, respectively.
Depreciation expense on real estate totaled $74.9 million, $91.8 million
and $121.7 million for 1997, 1996 and 1995, respectively.
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(29 and 34 individual ventures as of December 31, 1997 and 1996,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 1,700.9 $ 1,883.7
Investments in securities, generally at estimated fair value........... 1,374.8 2,430.6
Cash and cash equivalents.............................................. 105.4 98.0
Other assets........................................................... 584.9 427.0
---------------- -----------------
Total Assets........................................................... $ 3,766.0 $ 4,839.3
================ =================
Borrowed funds - third party........................................... $ 493.4 $ 1,574.3
Borrowed funds - the Company........................................... 31.2 137.9
Other liabilities...................................................... 284.0 415.8
---------------- -----------------
Total liabilities...................................................... 808.6 2,128.0
---------------- -----------------
Partners' capital...................................................... 2,957.4 2,711.3
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 3,766.0 $ 4,839.3
================ =================
Equity in partners' capital included above............................. $ 568.5 $ 806.8
Equity in limited partnership interests not included above............. 331.8 201.8
Other.................................................................. 4.3 9.8
---------------- -----------------
Carrying Value......................................................... $ 904.6 $ 1,018.4
================ =================
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 310.5 $ 348.9 $ 463.5
Revenues of other limited partnership interests.... 506.3 386.1 242.3
Interest expense - third party..................... (91.8) (111.0) (135.3)
Interest expense - the Company..................... (7.2) (30.0) (41.0)
Other expenses..................................... (263.6) (282.5) (397.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.2 $ 311.5 $ 131.8
================= ================ =================
Equity in net earnings included above.............. $ 76.7 $ 73.9 $ 49.1
Equity in net earnings of limited partnerships
interests not included above..................... 69.5 35.8 44.8
Other.............................................. (.9) .9 1.0
-----------------
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 145.3 $ 110.6 $ 94.9
================= ================ =================
</TABLE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,459.4 $ 1,307.4 $ 1,151.1
Mortgage loans on real estate...................... 260.8 303.0 329.0
Equity real estate................................. 390.4 442.4 560.4
Other equity investments........................... 156.9 122.0 76.9
Policy loans....................................... 177.0 160.3 144.4
Other investment income............................ 181.7 217.4 273.0
----------------- ---------------- -----------------
Gross investment income.......................... 2,626.2 2,552.5 2,534.8
----------------- ---------------- -----------------
Investment expenses.............................. 343.4 348.9 446.6
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,282.8 $ 2,203.6 $ 2,088.2
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 88.1 $ 60.5 $ 119.9
Mortgage loans on real estate...................... (11.2) (27.3) (40.2)
Equity real estate................................. (391.3) (79.7) (86.6)
Other equity investments........................... 14.1 18.9 12.8
Sale of subsidiaries............................... 252.1 - -
Issuance and sales of Alliance Units............... - 20.6 -
Other.............................................. 3.0 (2.8) (.6)
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (45.2) $ (9.8) $ 5.3
================= ================ =================
</TABLE>
F-17
<PAGE>
Writedowns of fixed maturities amounted to $11.7 million, $29.9 million
and $46.7 million for 1997, 1996 and 1995, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million and $23.7 million for 1997 and 1996,
respectively. In the fourth quarter of 1997, the Company reclassified
$1,095.4 million depreciated cost of equity real estate from real estate
held for the production of income to real estate held for sale.
Additions to valuation allowances of $227.6 million were recorded upon
these transfers. Additionally in the fourth quarter, $132.3 million of
writedowns on real estate held for production of income were recorded.
For 1997, 1996 and 1995, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $9,789.7
million, $8,353.5 million and $8,206.0 million. Gross gains of $166.0
million, $154.2 million and $211.4 million and gross losses of $108.8
million, $92.7 million and $64.2 million, respectively, were realized on
these sales. The change in unrealized investment gains (losses) related
to fixed maturities classified as available for sale for 1997, 1996 and
1995 amounted to $513.4 million, $(258.0) million and $1,077.2 million,
respectively.
For 1997, 1996 and 1995, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $137.5 million, $136.7
million and $131.2 million, respectively.
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note maturing in eight years and bearing interest at the rate of
7.4%, subject to certain adjustments. Equitable Life recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE will continue to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively, the businesses sold reported combined revenues of $91.6
million, $226.1 million and $245.6 million and combined net earnings of
$10.7 million, $30.7 million and $27.9 million. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 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 to 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. The Company recognized an investment gain
of $20.6 million as a result of the issuance of Alliance Units in this
transaction. On June 30, 1997, Alliance reduced the recorded value of
goodwill and contracts associated with Alliance's acquisition of
Cursitor by $120.9 million. This charge reflected Alliance's view that
Cursitor's continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1997, the Company's ownership of Alliance Units was approximately 56.9%.
F-18
<PAGE>
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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 189.9 $ 396.5 $ (220.5)
Changes in unrealized investment gains (losses).... 543.3 (297.6) 1,198.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 53.2 - (78.1)
DAC............................................ (89.0) 42.3 (216.8)
Deferred Federal income taxes.................. (163.8) 48.7 (287.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 533.6 $ 189.9 $ 396.5
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 871.2 $ 357.8 $ 615.9
Other equity investments....................... 33.7 31.6 31.1
Other, principally Closed Block................ 80.9 53.1 93.1
----------------- ---------------- -----------------
Total........................................ 985.8 442.5 740.1
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (19.0) (72.2) (72.2)
DAC.......................................... (141.0) (52.0) (94.3)
Deferred Federal income taxes................ (292.2) (128.4) (177.1)
----------------- ---------------- -----------------
Total.............................................. $ 533.6 $ 189.9 $ 396.5
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,059.4 and $3,820.7)........................................... $ 4,231.0 $ 3,889.5
Mortgage loans on real estate........................................ 1,341.6 1,380.7
Policy loans......................................................... 1,700.2 1,765.9
Cash and other invested assets....................................... 282.7 336.1
DAC.................................................................. 775.2 876.5
Other assets......................................................... 235.9 246.3
----------------- -----------------
Total Assets......................................................... $ 8,566.6 $ 8,495.0
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 8,993.2 $ 8,999.7
Other liabilities.................................................... 80.5 91.6
----------------- -----------------
Total Liabilities.................................................... $ 9,073.7 $ 9,091.3
================= =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 687.1 $ 724.8 $ 753.4
Investment income (net of investment
expenses of $27.0, $27.3 and $26.7).............. 574.9 546.6 538.9
Investment losses, net............................. (42.4) (5.5) (20.2)
----------------- ---------------- -----------------
Total revenues............................... 1,219.6 1,265.9 1,272.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,066.7 1,106.3 1,077.6
Other operating costs and expenses................. 50.4 34.6 51.3
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,117.1 1,140.9 1,128.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 102.5 $ 125.0 $ 143.2
================= ================ =================
</TABLE>
At December 31, 1997 and 1996, problem mortgage loans on real estate had
an amortized cost of $8.1 million and $4.3 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $70.5 million and $114.2 million,
respectively. At December 31, 1996, the restructured mortgage loans on
real estate amount included $.7 million 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 109.1 $ 128.1
Impaired mortgage loans without provision for losses................... .6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 109.7 128.7
Provision for losses................................................... (17.4) (12.9)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 92.3 $ 115.8
================ =================
</TABLE>
During 1997, 1996 and 1995, the Closed Block's average recorded
investment in impaired mortgage loans was $110.2 million, $153.8 million
and $146.9 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $9.4 million, $10.9 million and $5.9
million ($4.1 million, $4.7 million and $1.3 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $18.5 million and $13.8 million on
mortgage loans on real estate and $16.8 million and $3.7 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million, $12.8 million and $16.8 million for 1997, 1996 and 1995,
respectively and writedowns of equity real estate subsequent to the
adoption of SFAS No. 121 amounted to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in the fourth
quarter, $28.8 million of writedowns on real estate held for production
of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-20
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 655.5 $ 1,111.1
Equity real estate................................................... 655.6 925.6
Other equity investments............................................. 209.3 300.5
Short-term investments............................................... 102.0 63.2
Other invested assets................................................ 41.9 50.9
----------------- -----------------
Total investments.................................................. 1,664.3 2,451.3
Cash and cash equivalents............................................ 106.8 42.6
Other assets......................................................... 253.9 242.9
----------------- -----------------
Total Assets......................................................... $ 2,025.0 $ 2,736.8
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,048.3 $ 1,335.9
Allowance for future losses.......................................... 259.2 262.0
Amounts due to continuing operations................................. 572.8 996.2
Other liabilities.................................................... 144.7 142.7
----------------- -----------------
Total Liabilities.................................................... $ 2,025.0 $ 2,736.8
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $97.3, $127.5 and $153.1)............ $ 188.6 $ 245.4 $ 323.6
Investment losses, net............................. (173.7) (18.9) (22.9)
Policy fees, premiums and other income............. .2 .2 .7
----------------- ---------------- -----------------
Total revenues..................................... 15.1 226.7 301.4
Benefits and other deductions...................... 169.5 250.4 326.5
Losses charged to allowance for future losses...... (154.4) (23.7) (25.1)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (134.1) (129.0) -
Federal income tax benefit......................... 46.9 45.2 -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (87.2) $ (83.8) $ -
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses, and
adjusts the allowance, if appropriate. Additionally, as part of the
Company's annual planning process which takes place in the fourth
quarter of each year, investment and benefit cash flow projections are
prepared. These updated assumptions and estimates resulted in the need
to strengthen the allowance in 1997 and 1996, respectively.
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in the fourth quarter, $92.5 million of writedown on real
estate held for production of income were recognized.
Benefits and other deductions includes $53.3 million, $114.3 million and
$154.6 million of interest expense related to amounts borrowed from
continuing operations in 1997, 1996 and 1995, respectively.
F-21
<PAGE>
Valuation allowances amounted to $28.4 million and $9.0 million on
mortgage loans on real estate and $88.4 million and $20.4 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1997 and 1996, problem mortgage loans on real estate had
amortized costs of $11.0 million and $7.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $109.4 million and $208.1 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 101.8 $ 83.5
Impaired mortgage loans without provision for losses................... .2 15.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 102.0 98.5
Provision for losses................................................... (27.3) (8.8)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 74.7 $ 89.7
================ =================
</TABLE>
During 1997, 1996 and 1995, the discontinued operations' average
recorded investment in impaired mortgage loans was $89.2 million, $134.8
million and $177.4 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $6.6 million, $10.1 million and
$4.5 million ($5.3 million, $7.5 million and $.4 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, discontinued operations had carrying
values of $156.2 million and $263.0 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,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 422.2 $ 174.1
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.6
Other.............................................................. .3 .5
----------------- -----------------
Total Equitable Life........................................... 599.4 599.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.87% - 12.00% due through 2006.................... 951.1 968.6
----------------- -----------------
Alliance:
Other.............................................................. 18.5 24.7
----------------- -----------------
Total long-term debt................................................. 1,569.0 1,592.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,991.2 $ 1,766.9
================= =================
</TABLE>
F-22
<PAGE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in June 2000.
The interest rates are based on external indices dependent on the type
of borrowing and at December 31, 1997 range from 5.88% to 8.50%. There
were no borrowings outstanding under this bank credit facility at
December 31, 1997.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1997, $50.0 million was outstanding under this program.
During 1996, Alliance entered into a $250.0 million five-year revolving
credit facility with a group of banks. Under the facility, the interest
rate, at the option of Alliance, is a floating rate generally based upon
a defined prime rate, a rate related to the London Interbank Offered
Rate ("LIBOR") or the Federal funds rate. A facility fee is payable on
the total facility. The revolving credit facility will be used to
provide back-up liquidity for Alliance's $250.0 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. At December 31, 1997,
Alliance had $72.0 million in commercial paper outstanding and there
were no borrowings under the revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
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. 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 $1,164.0 million and $1,406.4 million at December 31, 1997
and 1996, respectively, as collateral for certain long-term debt.
At December 31, 1997, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1998 and the succeeding
four years are $565.8 million, $201.4 million, $8.6 million, $1.7
million and $1.8 million, respectively, and $790.6 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 186.5 $ 97.9 $ (11.7)
Deferred......................................... (95.0) (88.2) 132.2
----------------- ---------------- -----------------
Total.............................................. $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
F-23
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 234.7 $ 73.0 $ 173.7
Non-taxable minority interest...................... (38.0) (28.6) (22.0)
Adjustment of tax audit reserves................... (81.7) 6.9 4.1
Equity in unconsolidated subsidiaries.............. (45.1) (32.3) (19.4)
Other.............................................. 21.6 (9.3) (15.9)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 257.9 $ - $ 259.2 $ -
Other.................................. 30.7 - - 1.8
DAC, reserves and reinsurance.......... - 222.8 - 166.0
Investments............................ - 405.7 - 328.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 288.6 $ 628.5 $ 259.2 $ 496.4
=============== ================ =============== ===============
</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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 46.2 $ (156.2) $ 63.3
Investments........................................ (113.8) 78.6 13.0
Compensation and related benefits.................. 3.7 22.3 30.8
Other.............................................. (31.1) (32.9) 25.1
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................................ $ (95.0) $ (88.2) $ 132.2
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the 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.
F-24
<PAGE>
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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 448.6 $ 461.4 $ 474.2
Reinsurance assumed................................ 198.3 177.5 171.3
Reinsurance ceded.................................. (45.4) (41.3) (38.7)
----------------- ---------------- -----------------
Premiums........................................... $ 601.5 $ 597.6 $ 606.8
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 61.0 $ 48.2 $ 44.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 70.6 $ 54.1 $ 48.9
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 36.4 $ 32.3 $ 28.5
================= ================ =================
</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 $1.6 million,
$2.4 million and $260.6 million for 1997, 1996 and 1995, respectively.
Ceded death and disability benefits totaled $4.3 million, $21.2 million
and $188.1 million for 1997, 1996 and 1995, respectively. Insurance
liabilities ceded totaled $593.8 million and $652.4 million at December
31, 1997 and 1996, 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 benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 32.5 $ 33.8 $ 30.0
Interest cost on projected benefit obligations..... 128.2 120.8 122.0
Actual return on assets............................ (307.6) (181.4) (309.2)
Net amortization and deferrals..................... 166.6 43.4 155.6
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 19.7 $ 16.6 $ (1.6)
================= ================ =================
</TABLE>
F-25
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,702.6 $ 1,672.2
Non-vested........................................................... 3.9 10.1
---------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,706.5 $ 1,682.3
================ =================
Plan assets at fair value.............................................. $ 1,867.4 $ 1,626.0
Projected benefit obligations.......................................... 1,801.3 1,765.5
---------------- -----------------
Projected benefit obligations (in excess of) or less than plan assets.. 66.1 (139.5)
Unrecognized prior service cost........................................ (9.9) (17.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 95.0 280.0
Unrecognized net asset at transition................................... 3.1 4.7
Additional minimum liability........................................... - (19.3)
---------------- -----------------
Prepaid Pension Cost.................................................. $ 154.3 $ 108.0
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.07%, respectively, at December 31, 1997 and
7.5% and 4.25%, respectively, at December 31, 1996. As of January 1,
1997 and 1996, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
The Company recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $17.3 million and $12.9 million,
net of Federal income taxes, at December 31, 1997 and 1996,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $33.2 million,
$34.7 million and $36.4 million for 1997, 1996 and 1995, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1997, 1996 and 1995, the Company made
estimated postretirement benefits payments of $18.7 million, $18.9
million and $31.1 million, respectively.
F-26
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.5 $ 5.3 $ 4.0
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 34.6 34.7
Net amortization and deferrals..................... 1.9 2.4 (2.3)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 41.1 $ 42.3 $ 36.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 388.5 $ 381.8
Fully eligible active plan participants.............................. 45.7 50.7
Other active plan participants....................................... 56.6 60.7
---------------- -----------------
490.8 493.2
Unrecognized prior service cost........................................ 40.3 50.5
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (140.6) (150.5)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 390.5 $ 393.2
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and costs to the Company of providing these
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 8.75% in 1997,
gradually declining to 2.75% in the year 2009 and in 1996 was 9.5%,
gradually declining to 3.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.50% at December 31, 1997 and 1996, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1997
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, 1997 and 1996, respectively, was $1,353.4 million and
$649.9 million. The average unexpired terms at December 31, 1997 ranged
from 1.5 to 3.8 years. At December 31, 1997, the cost of terminating
outstanding matched swaps in a loss position was $10.9 million and the
unrealized gain on outstanding matched swaps in a gain position was
$38.9 million. The Company has no intention of terminating these
contracts prior to maturity. During 1996 and 1995, net gains of $.2
million and $1.4 million, respectively, were recorded in connection with
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
F-27
<PAGE>
December 31, 1997 of contracts purchased and sold were $7,250.0 million
and $875.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $48.5 million and is being amortized ratably over
the contract periods ranging from 1 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1997 and 1996.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
F-28
<PAGE>
Fair values 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,611.4 $ 2,822.8 $ 3,133.0 $ 3,394.6
Other limited partnership interests.... 509.4 509.4 467.0 467.0
Policy loans........................... 2,422.9 2,493.9 2,196.1 2,221.6
Policyholders' account balances -
investment contracts................. 12,611.0 12,714.0 12,908.7 12,992.2
Long-term debt......................... 1,569.0 1,531.5 1,592.8 1,557.7
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,341.6 1,420.7 1,380.7 1,425.6
Other equity investments............... 86.3 86.3 105.0 105.0
Policy loans........................... 1,700.2 1,784.2 1,765.9 1,798.0
SCNILC liability....................... 27.6 30.3 30.6 34.9
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 655.5 779.9 1,111.1 1,220.3
Fixed maturities....................... 38.7 38.7 42.5 42.5
Other equity investments............... 209.3 209.3 300.5 300.5
Guaranteed interest contracts.......... 37.0 34.0 290.7 300.5
Long-term debt......................... 102.0 102.1 102.1 102.2
</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 $202.6 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $362.1 million at December 31, 1997, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $47.4 million of letters of credit outstanding
at December 31, 1997.
F-29
<PAGE>
14) LITIGATION
Equitable Life recently agreed to settle, subject to court approval,
previously disclosed cases brought by persons insured under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life (the "Policies") in New York (Golomb et al. v. The
Equitable Life Assurance Society of the United States), Pennsylvania
(Malvin et al. v. The Equitable Life Assurance Society of the United
States), Texas (Bowler et al. v. The Equitable Life Assurance Society of
the United States), Florida (Bachman v. The Equitable Life Assurance
Society of the United States) and California (Fletcher v. The Equitable
Life Assurance Society of the United States). Plaintiffs in these cases
claimed that Equitable Life's method for determining premium increases
breached the terms of certain forms of the Policies and was
misrepresented. Plaintiffs in Bowler and Fletcher also claimed that
Equitable Life misrepresented to policyholders in Texas and California,
respectively, that premium increases had been approved by insurance
departments in those states and determined annual rate increases in a
manner that discriminated against policyholders in those states in
violation of the terms of the Policies, representations to policyholders
and/or state law. The New York trial court dismissed the Golomb action
with prejudice and plaintiffs appealed. In Bowler and Fletcher,
Equitable Life denied the material allegations of the complaints and
filed motions for summary judgment which have been fully briefed. The
Malvin action was stayed indefinitely pending the outcome of proceedings
in Golomb and in Fletcher the magistrate concluded that the case should
be remanded to California state court and Equitable Life appealed that
determination to the district judge. On December 23, 1997, Equitable
Life entered into a settlement agreement, subject to court approval,
which would result in the dismissal with prejudice of each of the five
pending actions and the resolution of all similar claims on a nationwide
basis.
The settlement agreement provides for the creation of a nationwide class
consisting of all persons holding, and paying premiums on, the Policies
at any time since January 1, 1988. An amended complaint will be filed in
the federal district court in Tampa, Florida (where the Florida action
is pending), that would assert claims of the kind previously made in the
cases described above on a nationwide basis, on behalf of policyholders
in the nationwide class, which consists of approximately 127,000 former
and current policyholders. If the settlement is approved, Equitable Life
would pay $14,166,000 in exchange for release of all claims for past
damages on claims of the type described in the five pending actions and
the amended complaint. Costs of administering the settlement and any
attorneys' fees awarded by the court to plaintiffs' counsel would be
deducted from this fund before distribution of the balance to the class.
In addition to this payment, Equitable Life will provide future relief
to current holders of certain forms of the Policies in the form of an
agreement to be embodied in the court's judgment, restricting the
premium increases Equitable Life can seek on these Policies in the
future. The parties estimate the present value of these restrictions at
$23,333,000, before deduction of any attorneys' fees that may be awarded
by the court. The estimate is based on assumptions about future events
that cannot be predicted with certainty and accordingly the actual value
of the future relief may differ. The parties to the settlement shortly
will be asking the court to approve preliminarily the settlement and
settlement class and to permit distribution of notice of the settlement
to policyholders, establish procedures for objections, an opportunity to
opt out of the settlements as it affects past damages, and a court
hearing on whether the settlement should be finally approved. Equitable
Life cannot predict whether the settlement will be approved or, if it is
not approved, the outcome of the pending litigations. As noted,
proceedings in Malvin were stayed indefinitely; proceedings in the other
actions have been stayed or deferred to accommodate the settlement
approval process.
A number of lawsuits have 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,
alleged 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, Equitable
Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues
for certain limited purposes, including the defense of litigation) and
The Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. Among
litigations pending against Equitable Life, EVLICO and EOC of the type
referred to in this paragraph are the litigations described in the
following seven paragraphs.
F-30
<PAGE>
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. 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 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. In June 1996, the Court
issued a decision and order dismissing with prejudice plaintiffs' causes
of action for fraud, constructive fraud, breach of fiduciary duty,
negligence, and unjust enrichment, and dismissing without prejudice
plaintiffs' 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. In April 1997, plaintiffs noticed an
appeal from the court's June 1996 order. Subsequently, Equitable Life
and EOC noticed a cross-appeal from so much of the June 1996 order that
denied their motion to dismiss. Briefing on the appeals is scheduled to
begin on February 23, 1998. In June 1997, plaintiffs filed their
memorandum of law and affidavits in support of their motion for class
certification. That memorandum states that plaintiffs seek to certify a
class solely on their breach of contract claims, and not on their
negligent misrepresentation claim. Plaintiffs' class certification
motion has been fully briefed by the parties and is sub judice. In
August 1997, Equitable Life and EOC moved for summary judgment
dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation. Defendants' summary judgment motion has
been fully briefed by the parties. On January 5, 1998, plaintiffs filed
a note of issue (placing the case on the trial calendar).
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 originally was brought by an
individual who purchased a whole life policy from Equitable Life in
1989. In September 1997, with leave of the court, plaintiff filed a
second amended petition naming six additional policyholder plaintiffs
and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the
second amended petition. Plaintiffs purport to represent a class
consisting of all persons who purchased whole life or universal life
insurance policies from Equitable Life from January 1, 1981 through July
22, 1992. Plaintiffs allege improper sales practices based on
allegations of misrepresentations concerning one or more of the
following: the number of years that premiums would need to be paid; a
policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages,
including punitive damages, in an unspecified amount. In October 1997,
Equitable Life filed (i) exceptions to the second amended petition,
asserting deficiencies in pleading of venue and vagueness; and (ii) a
motion to strike certain allegations. On January 23, 1998, the court
heard argument on Equitable Life's exceptions and motion to strike.
Those motions are sub judice. Motion practice regarding discovery
continues.
On July 26, 1996, an action entitled Michael Bradley v. Equitable
Variable Life Insurance Company was commenced in New York state court,
Kings County. 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. EVLICO answered the complaint,
denying the material allegations. In September 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 in Cole in
January 1997. Plaintiff then moved for certification of a nationwide
class consisting of all persons or entities who, since January 1, 1980,
were sold one or more life insurance products based on
misrepresentations as to the number of years that the annual premium
would need to be paid, and/or who were allegedly induced to purchase
additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. Discovery and
briefing regarding plaintiff's motion for class certification are
ongoing.
F-31
<PAGE>
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 in 1988. The complaint puts
in 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 alleges 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. In May
1997, plaintiff served a motion for class certification. In July 1997,
the parties submitted to the Court a joint scheduling report, joint
scheduling order and a confidentiality stipulation and order. The Court
signed the latter stipulation, and the others remain sub judice. Further
briefing on plaintiff's class certification motion will await entry of a
scheduling order and further class certification discovery, which has
commenced and is on-going. In January 1998, the judge assigned to the
case recused himself, and the case was reassigned. Defendants are to
serve their answer in February 1998.
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 amended complaint alleges that Equitable Life's and EVLICO's
agents were trained not to 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. Equitable Life and EVLICO have
answered the amended complaint, denying the material allegations and
asserting certain affirmative defenses. Motion practice regarding
discovery continues.
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. Plaintiff
filed an amended complaint in April 1997. In July 1997, Equitable Life
served a motion to dismiss the amended complaint or, in the alternative,
for summary judgment. On September 12, 1997, plaintiff moved for class
certification. This motion is scheduled for hearing on February 18,
1998.
On September 11, 1997, an action entitled Pamela L. and James A. Luther,
individually and as representatives of all people similarly situated v.
The Equitable Life Assurance Society of the United States, The Equitable
Companies Incorporated, and Casey Cammack, individually and as agent for
The Equitable Life Assurance Society of the United States and The
Equitable Companies Incorporated, was filed in Texas state court. The
action was brought by holders of a whole life policy and the beneficiary
under that policy. Plaintiffs purport to represent a nationwide class of
persons having an ownership or beneficial interest in whole and
universal life policies issued by Equitable Life from January 1, 1982
through December 31, 1996. Also included in the purported class are
persons having an ownership interest in variable annuities purchased
from Equitable Life from January 1, 1992 to the present. The complaint
puts in issue the allegations that uniform sales presentations,
illustrations, and materials that Equitable Life agents used
misrepresented the stated number of years that premiums would need to be
paid and misrepresented the extent to which the policies at issue were
F-32
<PAGE>
proper replacement policies. Plaintiffs seek compensatory damages,
attorneys' fees and expenses. In October 1997, Equitable Life served a
general denial of the allegations against it. The same day, the Holding
Company entered a special appearance contesting the court's jurisdiction
over it. In November 1997, Equitable Life filed a plea in abatement,
which, under Texas law, stayed further proceedings in the case because
plaintiffs had not served a demand letter. Plaintiffs served a demand
letter upon Equitable Life and the Holding Company, the response to
which is due 60 days thereafter. 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, Dillon, Franze, Chaviano and
Luther litigations should not have a material adverse effect on the
financial position of the Company. The Company's management cannot make
an estimate of loss, if any, or predict whether or not any such
litigation will have a material adverse effect on the Company's results
of operations in any particular period.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of The Equitable from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States, alleges, among other things, that Equitable Life
discriminated on the basis of race against African-American applicants
and potential applicants in hiring individuals as sales agents.
Plaintiffs seek a declaratory judgment and affirmative and negative
injunctive relief, including the payment of back-pay, pension and other
compensation. Although the outcome of any litigation cannot be predicted
with certainty, the Company's management believes that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position of the Company. The Company's management cannot
make an estimate of loss, if any, or predict whether or not such matter
will have a material adverse effect on the Company's results of
operations in any particular period.
The U.S. Department of Labor ("DOL") is conducting an investigation of
Equitable Life's management of 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 retains EREIM as advisor. Equitable Life agreed to indemnify the
purchaser of EREIM (which Equitable Life sold in June 1997) with respect
to any fines, penalties and rebates to clients in connection with this
investigation. In early 1995, the DOL commenced a national investigation
of commingled real estate funds with pension investors, including PPF.
The investigation 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, the Company's management believes
that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of the Company. The Company's
management cannot make an estimate of loss, if any, or predict whether
or not this investigation will have a material adverse effect on the
Company's results of operations in any particular period.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which sought 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, sought an
unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that 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 alleged 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
F-33
<PAGE>
New York granted the defendants' motion to dismiss all counts of the
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996,
the court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for
the Second Circuit issued an order granting defendants' motion to strike
and dismissing plaintiffs' appeal of the First Decision. 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 (i)
the Fund failed to hedge against the risks of investing in foreign
securities despite representations that it would do so, (ii) the Fund
did not properly disclose that it planned to invest in mortgage-backed
derivative securities and (iii) two advertisements used by the Fund
misrepresented the risks of investing in the Fund. On July 15, 1997, the
District Court denied plaintiffs' motion for leave to file an amended
complaint and ordered that the case be dismissed ("Second Decision").
The plaintiffs have appealed the Second Decision to the United States
Court of Appeals for the Second Circuit. 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 U. S. 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 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 that 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 U.S. 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. On October 10, 1997, DLJSC and
F-34
<PAGE>
others were named as defendants in a new adversary proceeding in the
Bankruptcy Court brought by the NGC Settlement Trust, an entity created
by the NGC plan of reorganization to deal with asbestos-related claims.
The Trust's allegations are substantially similar to the claims in the
State Court action. In court papers dated October 16, 1997, the State
Court plaintiff indicated that he would intervene in the Trust's
adversary proceeding. On January 21, 1998, the Bankruptcy Court ruled
that the State Court plaintiff's claims were not barred by the NGC plan
of reorganization insofar as they alleged nondisclosure of certain cost
reductions announced by NGC in October 1993. The Texas State Court
action, which 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 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 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. On
February 26, 1997, the parties agreed to a settlement of these actions,
subject to the District Court's approval, which was granted on July 31,
1997. The settlement is also subject to approval by the U.S. Bankruptcy
Court for the Eastern District of Louisiana of proposed modifications to
a confirmed plan of reorganization for Harrah's Jazz Company and
Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan.
There can be no assurance of the Bankruptcy Court's approval of the
modifications to the plan of reorganization, or that the conditions to
the effectiveness of the plan will be satisfied or waived. In the
opinion of DLJ's management, the settlement, if approved, will not have
a material adverse effect on DLJ's results of operations or on its
consolidated financial condition.
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 1998 and the succeeding four years are $93.5 million, $84.4
million, $70.2 million, $56.4 million, $47.0 million and $489.3 million
thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1998 and the succeeding four years are $7.3
million, $5.9 million, $3.8 million, $2.4 million, $.8 million and $2.9
million thereafter.
At December 31, 1997, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $247.0 million, $238.1 million, $218.7
million, $197.9 million, $169.1 million and $813.0 million thereafter.
F-35
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 721.5 $ 704.8 $ 628.4
Commissions........................................ 409.6 329.5 314.3
Short-term debt interest expense................... 31.7 8.0 11.4
Long-term debt interest expense.................... 121.2 137.3 108.1
Amortization of policy acquisition costs........... 287.3 405.2 317.8
Capitalization of policy acquisition costs......... (508.0) (391.9) (391.0)
Rent expense, net of sub-lease income.............. 101.8 113.7 109.3
Cursitor intangible assets writedown............... 120.9 - -
Other.............................................. 917.9 769.1 677.5
----------------- ---------------- -----------------
Total.............................................. $ 2,203.9 $ 2,075.7 $ 1,775.8
================= ================ =================
</TABLE>
During 1997, 1996 and 1995, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $42.4 million, $24.4 million and $32.0 million,
respectively. The amounts paid during 1997, associated with cost
reduction programs, totaled $22.8 million. At December 31, 1997, the
liabilities associated with cost reduction programs amounted to $62.0
million. The 1997 cost reduction program include costs related to
employee termination and exit costs. The 1996 cost reduction program
included restructuring costs related to the consolidation of insurance
operations' service centers. The 1995 cost reduction program included
relocation expenses, including the accelerated amortization of building
improvements associated with the relocation of the home office.
Amortization of DAC in 1996 included a $145.0 million writeoff of DAC
related to DI contracts.
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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1997, 1996 and 1995, statutory net
loss totaled $351.7 million, $351.1 million and $352.4 million,
respectively. No amounts are expected to be available for dividends from
Equitable Life to the Holding Company in 1998.
At December 31, 1997, the Insurance Group, in accordance with various
government and state regulations, had $19.7 million of securities
deposited with such government or state agencies.
F-36
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 203.6 $ 56.0 $ 78.1
Change in asset valuation reserves................. 147.1 (48.4) 365.7
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 350.7 7.6 443.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (31.1) (298.5) (66.0)
DAC.............................................. 220.7 (13.3) 73.2
Deferred Federal income taxes.................... 103.1 108.0 (158.1)
Valuation of investments......................... 46.8 289.8 189.1
Valuation of investment subsidiary............... (555.8) (117.7) (188.6)
Limited risk reinsurance......................... 82.3 92.5 416.9
Issuance of surplus notes........................ - - (538.9)
Postretirement benefits.......................... (3.1) 28.9 (26.7)
Other, net....................................... 30.3 12.4 115.1
GAAP adjustments of Closed Block................. 3.6 (9.8) 15.7
GAAP adjustments of discontinued operations...... 189.7 (89.6) 37.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 437.2 $ 10.3 $ 312.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,462.5 $ 2,258.9 $ 2,202.9
Asset valuation reserves........................... 1,444.6 1,297.5 1,345.9
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,907.1 3,556.4 3,548.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,336.1) (1,305.0) (1,006.5)
DAC.............................................. 3,236.6 3,104.9 3,075.8
Deferred Federal income taxes.................... (370.8) (306.1) (452.0)
Valuation of investments......................... 783.5 286.8 417.7
Valuation of investment subsidiary............... (1,338.6) (782.8) (665.1)
Limited risk reinsurance......................... (254.2) (336.5) (429.0)
Issuance of surplus notes........................ (539.0) (539.0) (538.9)
Postretirement benefits.......................... (317.5) (314.4) (343.3)
Other, net....................................... 203.7 126.3 4.4
GAAP adjustments of Closed Block................. 814.3 783.7 830.8
GAAP adjustments of discontinued operations...... 71.5 (190.3) (184.6)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================ =================
</TABLE>
F-37
<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.
Insurance Operations 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.
Investment Services 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 $81.9
million, $127.5 million and $124.1 million for 1997, 1996 and 1995,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the GIC Segment of
$5.1 million, $15.7 million and $14.7 million for 1997, 1996 and 1995,
respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,684.2 $ 3,770.6 $ 3,614.6
Investment services................................ 1,455.1 1,126.1 949.1
Consolidation/elimination.......................... (19.9) (24.5) (34.9)
----------------- ---------------- -----------------
Total.............................................. $ 5,119.4 $ 4,872.2 $ 4,528.8
================= ================ =================
Earnings (loss) from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change
Insurance operations............................... $ 250.3 $ (36.6) $ 303.1
Investment services................................ 485.7 311.9 224.0
Consolidation/elimination.......................... - .2 (3.1)
----------------- ---------------- -----------------
Subtotal..................................... 736.0 275.5 524.0
Corporate interest expense......................... (65.3) (66.9) (27.9)
----------------- ---------------- -----------------
Total.............................................. $ 670.7 $ 208.6 $ 496.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................................................... $ 68,305.9 $ 60,464.9
Investment services.................................................... 13,719.8 13,542.5
Consolidation/elimination.............................................. (403.6) (399.6)
---------------- -----------------
Total.................................................................. $ 81,622.1 $ 73,607.8
================ =================
</TABLE>
F-38
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1997 and 1996, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
1996
Total Revenues................ $ 1,176.5 $ 1,199.4 $ 1,198.4 $ 1,297.9
================= ================= ================== ==================
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)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million. 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 and
reserve strengthenings on DI business of $113.7 million, Pension Par of
$47.5 million and Discontinued Operations of $83.8 million.
20) INVESTMENT IN DLJ
At December 31, 1997, the Company's ownership of DLJ interest was
approximately 34.4%. 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-39
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 16,535.7 $ 15,728.1
Securities purchased under resale agreements........................... 22,628.8 20,598.7
Broker-dealer related receivables...................................... 28,159.3 16,858.8
Other assets........................................................... 3,182.0 2,318.1
---------------- -----------------
Total Assets........................................................... $ 70,505.8 $ 55,503.7
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 36,006.7 $ 29,378.3
Broker-dealer related payables......................................... 25,706.1 19,409.7
Short-term and long-term debt.......................................... 3,670.6 2,704.5
Other liabilities...................................................... 2,860.9 2,164.0
---------------- -----------------
Total liabilities...................................................... 68,244.3 53,656.5
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,061.5 1,647.2
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 70,505.8 $ 55,503.7
================ =================
DLJ's equity as reported............................................... $ 2,061.5 $ 1,647.2
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.5 23.9
The Holding Company's equity ownership in DLJ.......................... (740.2) (590.2)
Minority interest in DLJ............................................... (729.3) (588.6)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 615.5 $ 492.3
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 2,356.8 $ 1,818.2
Net investment income.................................................. 1,652.1 1,074.2
Dealer, trading and investment gains, net.............................. 631.6 598.4
---------------- -----------------
Total revenues......................................................... 4,640.5 3,490.8
Total expenses including income taxes.................................. 4,232.3 3,199.5
---------------- -----------------
Net earnings........................................................... 408.2 291.3
Dividends on preferred stock........................................... 12.1 18.7
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 396.1 $ 272.6
================ =================
DLJ's earnings applicable to common shares as reported................. $ 396.1 $ 272.6
Amortization of cost in excess of net assets acquired in 1985.......... (1.3) (3.1)
The Holding Company's equity in DLJ's earnings......................... (156.8) (107.8)
Minority interest in DLJ............................................... (109.1) (73.4)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 128.9 $ 88.3
================ =================
</TABLE>
F-40
<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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1997, 1996 and 1995 would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As Reported............................................. $ 437.2 $ 10.3 $ 312.8
Pro Forma............................................... $ 426.3 $ 3.3 $ 311.3
</TABLE>
The fair value of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, was estimated as of the date
of grants using the Black-Scholes option pricing model. The option
pricing assumptions for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------------------- --------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield.... 0.48% 0.80% 0.96% 0.86% 1.54% 1.85% 8.00% 8.00% 8.00%
Expected volatility 20.00% 20.00% 20.00% 33.00% 25.00% 25.00% 26.00% 23.00% 23.00%
Risk-free interest
rate............ 5.99% 5.92% 6.83% 5.96% 6.07% 5.86% 5.70% 5.80% 6.00%
Expected life..... 5 years 5 years 5 years 5 years 5 years 5 years 7.6 years 7.43 years 7.43 years
Weighted average
grant-date fair
value per option $12.25 $6.94 $5.90 $22.45 $9.35 $7.36 $4.36 $2.69 $2.24
</TABLE>
F-41
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is 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, 1995........ 6.8 $20.31 - 3.8 $15.46
Granted................ .4 $20.27 9.2 $27.00 1.8 $20.54
Exercised.............. (.1) $20.00 - (.5) $11.20
Expired................ (.1) $20.00 - -
Forfeited.............. (.3) $22.24 - (.3) $16.64
--------------- ------------- ---------------
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................ - - -
Forfeited.............. (.6) $20.21 (.2) $27.00 (.1) $19.32
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
Granted................ 3.2 $41.85 3.2 $61.07 1.1 $36.56
Exercised.............. (1.6) $20.26 (.1) $32.03 (.6) $16.11
Forfeited.............. (.4) $23.43 (.1) $27.51 (.2) $21.28
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 14.1 $35.56 5.3 $22.82
=============== ============= ===============
</TABLE>
F-42
<PAGE>
Information about options outstanding and exercisable at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- ----------------- --------------- ------------------- ----------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 4.8 5.84 $20.94 3.0 $20.41
$28.50 -$45.25 3.1 9.57 $41.84 - -
----------------- -------------------
$18.125 -$45.25 7.9 7.29 $29.05 3.0 $20.41
================= ================= =============== =================== ================
DLJ
----------------------
$27.00 -$35.99 10.9 8.0 $28.05 4.9 $27.58
$36.00 -$50.99 .8 9.3 $40.04 - -
$51.00 -$76.00 2.4 9.8 $67.77 - -
----------------- -------------------
$27.00 -$76.00 14.1 8.4 $35.56 4.9 $27.58
================= ================= ================ =================== =================
Alliance
----------------------
$ 6.0625 -$17.75 1.1 3.86 $13.20 1.0 $13.04
$19.375 -$19.75 .8 7.34 $19.39 .3 $19.39
$19.875 -$21.375 1.1 8.28 $20.13 .6 $20.19
$22.25 -$27.50 1.3 9.81 $23.81 .4 $23.29
$36.9375 -$37.5625 1.0 9.95 $36.95 - -
----------------- -------------------
$ 6.0625 -$37.5625 5.3 7.58 $22.82 2.3 $17.43
================= ================== ============== ====================== =============
</TABLE>
F-43
<PAGE>
INCOME MANAGER(R) ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
-----------------
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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
MFS Research Equity Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity T. Rowe Price International Stock
T. Rowe Price Equity Income
- -------------------------------------------------------------------------------------------------------------------------------
</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
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ISSUED BY:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
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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, 1996, and prospectus supplements dated May 1, 1998, December
31 and May 1, 1997. Definitions of special terms used in the SAI are found in
the prospectus.
Copies of the prospectus and supplements are available free of charge by writing
the Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your agent.
<TABLE>
<CAPTION>
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
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PAGE
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<S> <C> <C> <C>
Part 1 Minimum Distribution Withdrawals -- Traditional IRA Certificates 2
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Part 2 Accumulation Unit Values 2
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Part 3 Annuity Unit Values 2
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Part 4 Custodian and Independent Accountants 3
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Part 5 Alliance Money Market Fund, Alliance Intermediate Government Securities Fund and Alliance High
Yield Fund Yield Information 3
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Part 6 Long-Term Market Trends 5
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Part 7 Financial Statements 6
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</TABLE>
Copyright 1998
The Equitable Life Assurance Society of the United States,
New York, New York 10104.
All rights reserved.
Income Manager is a registered service mark of
The Equitable Life Assurance Society of the United States.
(IM-98-IRA596)
<PAGE>
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PART 1 -- MINIMUM DISTRIBUTION WITHDRAWALS -- TRADITIONAL IRA CERTIFICATES
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 Traditional 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.
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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 HRT or
EQAT, 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%.
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PART 3 -- ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on each Fund's respective effective
date (as shown in the prospectus) 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
2
<PAGE>
- --------------------------------------------------------------------------------
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.
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PART 4 -- CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for shares of each trust owned by the Separate
Account.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 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.
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PART 5 -- ALLIANCE MONEY MARKET FUND, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND AND ALLIANCE HIGH YIELD 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.
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
3
<PAGE>
- --------------------------------------------------------------------------------
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)
[superscript: 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 and Alliance High Yield Fund
The Alliance Intermediate Government Securities and Alliance High Yield Funds
calculate 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 or Alliance High Yield 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 or Alliance High Yield Fund will
vary for each Certificate depending upon the percentage of the Annuity Account
Value allocated to the Alliance Intermediate Government Securities or Alliance
High Yield 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 or Alliance High Yield 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 or
Alliance High Yield 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)
[superscript: 365/30] - 1. The yields for the Alliance Intermediate Government
Securities and Alliance High Yield Funds 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 and Alliance High Yield Funds will fluctuate
and not remain constant.
Alliance Money Market Fund, Alliance Intermediate Government Securities Fund and
Alliance High Yield Fund Yield Information
The yields for the Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund and Alliance High Yield Fund 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. The yields for the Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund and Alliance
High Yield Fund 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 yields be compared to the yields 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 5.35% for the
period ended December 31, 1997. The effective yield for that period was 5.49%.
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 8.07% for the period ended December 31, 1997. The effective yield for
that period was 8.38%.
The 30-day current yield for the Alliance High Yield Fund was 16.14% for the
period ended December 31, 1997. The effective yield for that period was 17.39%.
Because the above yields reflect the deduction of Separate Account expenses,
including the annual
4
<PAGE>
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contract fee, they are lower than the corresponding yield figures for the
Alliance Money Market, Alliance Intermediate Government Securities and Alliance
High Yield Portfolios which reflect only the deduction of HRT-level expenses.
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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, 1957
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE TYPESET DOCUMENT:]
Common Stock Inflation
1957 0.89 1.03
1958 1.28 1.05
1959 1.43 1.06
1960 1.44 1.08
1961 1.83 1.09
1962 1.67 1.10
1963 2.05 1.12
1964 2.38 1.13
1965 2.68 1.15
1966 2.41 1.19
1967 2.99 1.23
1968 3.32 1.29
1969 3.04 1.36
1970 3.16 1.44
1971 3.61 1.49
1972 4.30 1.54
1973 3.67 1.67
1974 2.70 1.88
1975 3.70 2.01
1976 4.58 2.11
1977 4.25 2.25
1978 4.53 2.45
1979 5.37 2.78
1980 7.11 3.12
1981 6.76 3.40
1982 8.20 3.54
1983 10.05 3.67
1984 10.68 3.81
1985 14.11 3.96
1986 16.72 4.00
1987 17.60 4.18
1988 20.55 4.36
1989 27.03 4.57
1990 26.17 4.85
1991 34.16 4.99
1992 36.78 5.14
1993 40.46 5.28
1994 40.99 5.42
1995 56.33 5.56
1996 69.33 5.74
1997 92.44 5.85
[WHITE AREA = COMMON STOCK]
[BLACK AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
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 1997.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK & WHITE LINE GRAPH
IN THE TYPESET DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[BLACK DOTS = INTERMEDIATE-TERM GOVT. BONDS]
[WHITE DOTS = COMMON STOCKS]
[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, 1997 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 nor 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.
5
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<TABLE>
<CAPTION>
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MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
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LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM TREASURY CONSUMER
ENDING 12/31/97: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 33.36% 15.85% 12.95% 8.38% 5.26% 1.92%
3 Years 31.15% 14.76% 13.36% 8.93% 5.35% 2.59%
5 Years 20.24% 10.51% 9.22% 6.40% 4.57% 2.64%
10 Years 18.05% 11.32% 10.85% 8.33% 5.44% 3.43%
20 Years 16.65% 10.39% 10.29% 9.51% 7.29% 4.90%
30 Years 12.12% 8.63% 8.86% 8.52% 6.77% 5.34%
40 Years 12.30% 6.71% 7.09% 7.10% 5.85% 4.44%
50 Years 13.12% 5.70% 6.07% 6.04% 4.99% 3.94%
60 Years 12.53% 5.31% 5.54% 5.44% 4.18% 4.11%
Since 12/31/26 10.99% 5.19% 5.71% 5.25% 3.77% 3.17%
Inflation adjusted since 1926 7.58% 1.96% 2.46% 2.02% 0.58% --
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</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969-1997, 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 1969-1997; 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.
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PART 7 -- FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the Certificates.
6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO.45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1997........................................... FS-3
Statements of Operations for the Year Ended December 31, 1997..................................... FS-6
Statements of Changes in Net Assets for the Years Ended December 31, 1997 and 1996................ FS-9
Notes to Financial Statements..................................................................... FS-14
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996.............................................. F-2
Consolidated Statements of Earnings, Years Ended December 31, 1997, 1996 and 1995.................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1997,
1996 and 1995...................................................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1997, 1996 and 1995.................. F-5
Notes to Consolidated Financial Statements........................................................... F-6
</TABLE>
FS-1
<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 Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund, T.
Rowe Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, Alliance Equity Index Fund, Merrill Lynch Basic Value
Equity Fund, Alliance Common Stock Fund, MFS Research Fund, Alliance Global
Fund, Alliance International Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock Fund,
Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth Fund, MFS
Emerging Growth Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam
Balanced Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund, separate investment funds of The Equitable Life Assurance Society of the
United States ("Equitable Life") Separate Account No. 45 at December 31, 1997
and 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 owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1997 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
----------- ------------- ---------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $82,037,124.......... $81,571,923
11,097,635.......... $11,119,574
19,330,287.......... $18,544,101
Receivable (payable) for policy-related
transactions................................... 2,903,327 50,563 662,782
----------- ----------- ------------
Total Assets...................................... 84,475,250 11,170,137 19,206,883
----------- ----------- ------------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 2,910,079 52,140 665,890
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 206,810 55,747 59,654
----------- ----------- ------------
Total Liabilities................................. 3,116,889 107,887 725,544
----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $81,358,361 $11,062,250 $18,481,339
=========== =========== ============
<CAPTION>
EQUITY SERIES
--------------------------------------------------------------------------
MERRILL
T. ROWE PRICE EQ/PUTNAM ALLIANCE LYNCH
EQUITY GROWTH & ALLIANCE EQUITY BASIC VALUE
EQUITY INCOME VALUE GROWTH & INDEX EQUITY
INCOME FUND FUND INCOME FUND FUND FUND
------------- -------------- ----------- ----------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 18,007,458.......... $18,987,864
14,008,930.......... $14,200,058
88,651,911.......... $94,268,289
99,286.......... $104,008
9,928,247.......... $9,863,914
Receivable (payable) for policy-related
transactions................................... 105,202 186,146 809,151 (8) 34,834
----------- ----------- ----------- --------- ----------
Total Assets...................................... 19,093,066 14,386,204 95,077,440 104,000 9,898,748
----------- ----------- ----------- --------- ----------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 109,104 189,102 829,693 -- 36,845
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 15,447 11,682 366,973 6,482 7,463
----------- ----------- ----------- --------- ----------
Total Liabilities................................. 124,551 200,784 1,196,666 6,482 44,308
----------- ----------- ----------- --------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $18,968,515 $14,185,420 $93,880,774 $ 97,518 $9,854,440
=========== =========== =========== ========= ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
------------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $297,090,529................... $320,541,976
11,939,823................... $11,977,333
38,334,848................... $38,090,450
18,748,095................... $16,610,244
Receivable (payable) for policy-related transactions....... 1,219,096 44,794 646,213 31,494
------------ ----------- ----------- -----------
Total Assets............................................... 321,761,072 12,022,127 38,736,663 16,641,738
------------ ----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ 1,275,113 47,322 83,460 68,383
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 1,176,309 10,019 143,534 90,013
------------ ----------- ----------- -----------
Total Liabilities.......................................... 2,451,422 57,341 226,994 158,396
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $319,309,650 $11,964,786 $38,509,669 $16,483,342
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
T. ROWE MORGAN
PRICE STANLEY ALLIANCE
INTERNATIONAL EMERGING AGGRESSIVE
STOCK MARKETS STOCK
FUND EQUITY FUND FUND
------------- ----------- ------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 13,205,929................... $12,628,951
2,479,420................... $2,241,138
122,157,062................... $118,305,660
Receivable (payable) for policy-related transactions....... (241,260) 14,961 55,012
----------- ---------- ------------
Total Assets............................................... 12,387,691 2,256,099 118,360,672
----------- ---------- ------------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ (238,550) 15,412 76,530
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 9,534 1,594 456,464
----------- ---------- ------------
Total Liabilities.......................................... (229,016) 17,006 532,994
----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $12,616,707 $2,239,093 $117,827,678
=========== ========== ============
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP GROWTH
COMPANY GROWTH COMPANIES
VALUE FUND FUND FUND
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $25,096,987.................. $24,796,551
16,633,779.................. $16,289,343
12,205,272.................. $11,946,078
Receivable (payable) for policy-related transactions...... 208,290 107,600 73,764
----------- ----------- -----------
Total Assets.............................................. 25,004,841 16,396,943 12,019,842
----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 213,483 114,679 76,254
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 19,432 54,205 9,228
----------- ----------- -----------
Total Liabilities......................................... 232,915 168,884 85,482
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $24,771,926 $16,228,059 $11,934,360
=========== =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
------------ ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 20,991,531.................. $21,474,276
5,965,298.................. $6,038,880
64,675,197.................. $66,360,908
2,544,176.................. $2,415,053
Receivable (payable) for policy-related transactions...... 146,316 76,680 120,470 9,748
----------- ---------- ----------- ----------
Total Assets.............................................. 21,620,592 6,115,560 66,481,378 2,424,801
----------- ---------- ----------- ----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 149,280 77,927 132,026 10,238
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 142,854 4,667 366,318 1,768
----------- ---------- ----------- ----------
Total Liabilities......................................... 292,134 82,594 498,344 12,006
----------- ---------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $21,328,458 $6,032,966 $65,983,034 $2,412,795
=========== ========== =========== ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND(A)
----------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 2,767,636 $ 373,989 $ 654,819
Expenses (Note 3):
Asset based charges ....................................... 445,521 70,280 53,671
----------- --------- -----------
NET INVESTMENT INCOME (LOSS) .............................. 2,322,115 303,709 601,148
----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 59,011 12,754 76,963
Realized gain distribution from the Trusts ................ 5,264 -- 706,360
----------- --------- -----------
Net Realized Gain (Loss) ............................... 64,275 12,754 783,323
----------- --------- -----------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... (197,899) (36,715) --
End of period ............................................. (465,201) 21,939 (786,186)
----------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ......................................... (267,302) 58,654 (786,186)
----------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ (203,027) 71,408 (2,863)
----------- --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $ 2,119,088 $ 375,117 $ 598,285
=========== ========= ===========
<CAPTION>
EQUITY SERIES
---------------------------------------------------------------
T. ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & EQUITY BASIC VALUE
INCOME INCOME INCOME INDEX EQUITY
FUND(A) FUND(A) VALUE FUND FUND(A) FUND(A)
----------- -------- ---------- -------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 141,756 $ 65,607 $ 522,395 $ 596 $ 49,960
Expenses (Note 3):
Asset based charges ....................................... 62,938 44,334 617,639 409 29,450
---------- ----------- ------------ -------- --------
NET INVESTMENT INCOME (LOSS) .............................. 78,818 21,273 (95,244) 187 20,510
---------- ----------- ------------ -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 2,121 963 707,686 1,022 711
Realized gain distribution from the Trusts ................ 52,414 53,683 5,306,878 370 47,068
---------- ----------- ------------ -------- --------
Net Realized Gain (Loss) ............................... 54,535 54,646 6,014,564 1,392 47,779
---------- ----------- ------------ -------- --------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... -- -- 764,236 -- --
End of period ............................................. 980,406 191,128 5,616,378 4,722 (64,333)
---------- ----------- ------------ -------- --------
Change in unrealized appreciation (depreciation)
during the period ......................................... 980,406 191,128 4,852,142 4,722 (64,333)
---------- ----------- ------------ -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ 1,034,941 245,774 10,866,706 6,114 (16,554)
---------- ----------- ------------ -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $1,113,759 $ 267,047 $ 10,771,462 $ 6,301 $ 3,956
========== =========== ============ ======== ========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
---------------------------------------------------------
ALLIANCE ALLIANCE
COMMON MFS ALLIANCE INTER-
STOCK RESEARCH GLOBAL NATIONAL
FUND FUND(A) FUND FUND
------------ ---------- ------------ -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,007,250 $ 25,364 $ 662,565 $ 454,446
Expenses (Note 3):
Asset based charges .................................. 2,216,874 40,703 334,193 165,980
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (1,209,624) (15,339) 328,372 288,466
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 3,442,671 1,227 423,327 259,996
Realized gain distribution from the Trusts ........... 23,990,653 100,696 2,414,538 833,830
----------- -------- ---------- -----------
Net Realized Gain (Loss) .......................... 27,433,324 101,923 2,837,865 1,093,826
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 1,356,454 -- 199,484 31,388
End of period ........................................ 23,451,447 37,510 (244,398) (2,137,851)
----------- -------- ---------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. 22,094,993 37,510 (443,882) (2,169,239)
----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 49,528,317 139,433 2,393,983 (1,075,413)
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $48,318,693 $124,094 $2,722,355 $ (786,947)
=========== ======== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING ALLIANCE
NATIONAL MARKETS AGGRESSIVE
STOCK EQUITY STOCK
FUND(A) FUND(B) FUND
---------- --------- ------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,646 $ 6,387 $ 105,375
Expenses (Note 3):
Asset based charges .................................. 47,444 5,153 985,564
--------- --------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (45,798) 1,234 (880,189)
--------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. (53,503) (26,406) 61,253
Realized gain distribution from the Trusts ........... -- -- 9,818,273
--------- --------- -----------
Net Realized Gain (Loss) .......................... (53,503) (26,406) 9,879,526
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- (2,165,186)
End of period ........................................ (576,978) (238,282) (3,851,402)
--------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. (576,978) (238,282) (1,686,216)
--------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... (630,481) (264,688) 8,193,310
--------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $(676,279) $(263,454) $ 7,313,121
========= ========= ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
--------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 21,393 $ 773 $ 22,515
Expenses (Note 3):
Asset based charges .................................. 85,830 50,629 38,336
--------- --------- ---------
NET INVESTMENT INCOME (LOSS) ......................... (64,437) (49,856) (15,821)
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 228,992 62,796 52,672
Realized gain distribution from the Trusts ........... 109,076 377,750 274,537
--------- --------- ---------
Net Realized Gain (Loss) .......................... 338,068 440,546 327,209
--------- ---------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- --
End of period ........................................ (300,436) (344,436) (259,194)
--------- --------- ---------
Change in unrealized appreciation (depreciation)
during the period ................................. (300,436) (344,436) (259,194)
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 37,632 96,110 68,015
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $ (26,805) $ 46,254 $ 52,194
========= ========= =========
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND(A) FUND FUND(A)
---------- ---------- ----------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 647,522 $ 69,781 $ 1,260,100 $ 10,682
Expenses (Note 3):
Asset based charges .................................. 165,768 18,233 523,559 7,708
---------- --------- ----------- --------
NET INVESTMENT INCOME (LOSS) ......................... 481,754 51,548 736,541 2,974
---------- --------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 49,147 (1,203) 187,731 (109)
Realized gain distribution from the Trusts ........... 638,548 46,731 3,432,867 24,328
---------- --------- ----------- --------
Net Realized Gain (Loss) .......................... 687,695 45,528 3,620,598 24,219
---------- --------- ----------- --------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 4,651 -- (158,777) --
End of period ........................................ 482,745 73,582 1,685,711 (129,123)
---------- --------- ----------- --------
Change in unrealized appreciation (depreciation)
during the period ................................. 478,094 73,582 1,844,488 (129,123)
---------- --------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 1,165,789 119,110 5,465,086 (104,904)
---------- --------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $1,647,543 $ 170,658 $ 6,201,627 $(101,930)
========== ========= =========== =========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------
ALLIANCE
MONEY MARKET FUND
------------------------------
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................... $ 2,322,115 $ 791,163
Net realized gain (loss) ................................ 64,275 19,803
Change in unrealized appreciation /(depreciation)
of investments ....................................... (267,302) (165,897)
------------- -------------
Net increase in net assets from operations .............. 2,119,088 645,069
------------- -------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 137,532,670 95,681,367
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 55,819,439 19,687,669
------------- -------------
Total ............................................. 193,352,109 115,369,036
------------- -------------
Benefit & other policy transaction ................... 1,577,365 198,356
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 618,083 514,843
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 144,167,408 87,121,388
------------- -------------
Total ............................................. 146,362,856 87,834,587
------------- -------------
Net increase in net assets from Contract Owner
transactions ........................................ 46,989,253 27,534,449
------------- -------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT 45 (NOTE 5) ......................... (46,770) (17,582)
------------- -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 49,061,571 28,161,936
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 32,296,790 4,134,854
------------- -------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 81,358,361 $ 32,296,790
============= =============
<CAPTION>
FIXED INCOME SERIES:
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE HIGH YIELD
GOVERNMENT SECURITIES FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................... $ 303,709 $ 138,808 $ 601,148
Net realized gain (loss) ................................ 12,754 (21,067) 783,323
Change in unrealized appreciation /(depreciation)
of investments ....................................... 58,654 (41,524) (786,186)
------------ ------------ ------------
Net increase in net assets from operations .............. 375,117 76,217 598,285
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 5,416,131 1,798,660 13,779,925
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 3,270,944 8,533,013 22,095,921
------------ ------------ ------------
Total ............................................. 8,687,075 10,331,673 35,875,846
------------ ------------ ------------
Benefit & other policy transaction ................... 189,517 15,968 161,257
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 128,377 77,637 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 1,145,902 8,982,626 17,780,088
------------ ------------ ------------
Total ............................................. 1,463,796 9,076,231 17,986,890
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ........................................ 7,223,279 1,255,442 17,888,956
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ..................... (12,130) (6,709) (5,902)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 7,586,266 1,324,950 18,481,339
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 3,475,984 2,151,034 --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 11,062,250 $ 3,475,984 $ 18,481,339
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
------------------------------
T. ROWE EQ/PUTNAM
PRICE EQUITY GROWTH &
INCOME INCOME VALUE
FUND(A) FUND(A)
-------------- --------------
1997 1997
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss) ............................... $ 78,818 $ 21,273
Net realized gain (loss) ................................... 54,535 54,646
Change in unrealized appreciation / (depreciation)
of investments .......................................... 980,406 191,128
------------ ------------
Net increase in net assets from operations ................. 1,113,759 267,047
------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 13,813,772 10,975,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 4,356,204 3,217,543
------------ ------------
Total ................................................ 18,169,976 14,192,742
------------ ------------
Benefit & other policy transaction ...................... 86,052 58,925
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 40,797 32,578
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 183,349 180,506
------------ ------------
Total ................................................ 310,198 272,009
------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 17,859,778 13,920,733
------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (5,022) (2,360)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 18,968,515 14,185,420
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- --
------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 18,968,515 $ 14,185,420
============ ============
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------
ALLIANCE
ALLIANCE EQUITY MERRILL LYNCH
GROWTH & INCOME INDEX BASIC VALUE
FUND FUND(A) EQUITY FUND(A)
--------------------------- ---------- ---------------
1997 1996 1997 1997
------------ ------------ ---------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ (95,244) $ 64,283 $ 187 $ 20,510
Net realized gain (loss) ................................... 6,014,564 693,777 1,392 47,779
Change in unrealized appreciation / (depreciation)
of investments .......................................... 4,852,142 698,407 4,722 (64,333)
------------ ------------ -------- ------------
Net increase in net assets from operations ................. 10,771,462 1,456,467 6,301 3,956
------------ ------------ -------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 58,696,016 6,251,620 77,031 8,075,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 16,269,895 6,040,990 15,328 1,941,071
------------ ------------ -------- ------------
Total ................................................ 74,965,911 12,292,610 92,359 10,016,270
------------ ------------ -------- ------------
Benefit & other policy transaction ...................... 1,455,357 130,199 -- 9,691
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 425,279 31,991 -- 17,792
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 4,907,606 342,494 -- 137,464
------------ ------------ -------- ------------
Total ................................................ 6,788,242 504,684 -- 164,947
------------ ------------ -------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 68,177,669 11,787,926 92,359 9,851,323
------------ ------------ -------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (94,285) (27,565) (1,142 (839)
------------ ------------ -------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 78,854,846 13,216,828 97,518 9,854,440
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,025,928 1,809,100 -- --
------------ ------------ -------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 93,880,774 $ 15,025,928 $ 97,518 $ 9,854,440
============ ============ ======== ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
MFS
ALLIANCE RESEARCH
COMMON STOCK FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) ............................... $ (1,209,624) $ (42,865) $ (15,339)
Net realized gain (loss) ................................... 27,433,324 6,011,054 101,923
Change in unrealized appreciation / (depreciation)
of investments .......................................... 22,094,993 1,504,011 37,510
------------- ------------ ------------
Net increase (decrease) in net assets from operations ...... 48,318,693 7,472,200 124,094
------------- ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 175,880,351 36,558,323 9,502,168
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 61,077,537 34,378,499 2,602,553
------------- ------------ ------------
Total ................................................ 236,957,888 70,936,822 12,104,721
------------- ------------ ------------
Benefit & other policy transaction ...................... 4,271,079 427,323 28,630
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 1,459,175 290,642 23,738
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 35,438,036 8,933,676 209,610
------------- ------------ ------------
Total ................................................ 41,168,290 9,651,641 261,978
------------- ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 195,789,598 61,285,181 11,842,743
------------- ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (305,436) (85,006) (2,051)
------------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 243,802,855 68,672,375 11,964,786
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 75,506,795 6,834,420 --
------------- ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 319,309,650 $ 75,506,795 $ 11,964,786
============= ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------------
ALLIANCE ALLIANCE
GLOBAL FUND INTERNATIONAL FUND
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ 328,372 $ 88,313 $ 288,466 $ 53,333
Net realized gain (loss) ................................... 2,837,865 543,216 1,093,826 234,294
Change in unrealized appreciation / (depreciation)
of investments .......................................... (443,882) 184,372 (2,169,239) 16,354
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from operations ...... 2,722,355 815,901 (786,947) 303,981
------------ ------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 20,384,580 9,199,245 9,574,522 3,782,377
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 7,792,945 6,255,073 18,180,472 5,791,839
------------ ------------ ------------ -----------
Total ................................................ 28,177,525 15,454,318 27,754,994 9,574,216
------------ ------------ ------------ -----------
Benefit & other policy transaction ...................... 621,118 70,774 341,327 38,451
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 155,169 36,757 97,083 75,353
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 6,961,429 1,836,433 18,593,662 1,979,003
------------ ------------ ------------ -----------
Total ................................................ 7,737,716 1,943,964 19,032,072 2,092,807
------------ ------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ............................................ 20,439,809 13,510,354 8,722,922 7,481,409
------------ ------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (28,799) (18,054) (36,637) (11,874)
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 23,133,365 14,308,201 7,899,338 7,773,516
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,376,304 1,068,103 8,584,004 810,488
------------ ------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 38,509,669 $ 15,376,304 $ 16,483,342 $ 8,584,004
============ ============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING
NATIONAL MARKETS ALLIANCE
STOCK EQUITY AGGRESSIVE STOCK
FUND(A) FUND(B) FUND
------------- ----------- --------------------------------
1997 1997 1997 1996
------------- ----------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ...................................... $ (45,798) $ 1,234 $ (880,189) $ (121,400)
Net realized gain (loss) ................................... (53,503) (26,406) 9,879,526 4,080,335
Change in unrealized appreciation / (depreciation)
of investments .......................................... (576,978) (238,282) (1,686,216) (1,995,216)
------------ ----------- ------------- ------------
Net increase (decrease) in net assets from operations ...... (676,279) (263,454) 7,313,121 1,963,719
------------ ----------- ------------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 9,658,570 1,617,148 66,019,813 22,776,845
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 5,113,170 889,247 17,726,363 20,452,746
------------ ----------- ------------- ------------
Total ................................................ 14,771,740 2,506,395 83,746,176 43,229,591
------------ ----------- ------------- ------------
Benefit & other policy transaction ...................... 37,224 -- 1,854,804 245,070
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 22,024 394 482,491 90,356
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 1,416,476 2,488 11,669,668 7,099,325
------------ ----------- ------------- ------------
Total ................................................ 1,475,724 2,882 14,006,963 7,434,751
------------ ----------- ------------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 13,296,016 2,503,513 69,739,213 35,794,840
------------ ----------- ------------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (3,030) (966) (111,908) (33,503)
------------ ----------- ------------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 12,616,707 2,239,093 76,940,426 37,725,056
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- 40,887,252 3,162,196
------------ ----------- ------------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 12,616,707 $ 2,239,093 $ 117,827,678 $ 40,887,252
============ =========== ============= ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
WARBURG MFS
PINCUS SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
------------ ------------- ----------------
1997 1997 1997
------------ ------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ...................................... $ (64,437) $ (49,856) $ (15,821)
Net realized gain (loss) ................................... 338,068 440,546 327,209
Change in unrealized appreciation / (depreciation)
of investments .......................................... (300,436) (344,436) (259,194)
------------ ------------ ------------
Net increase (decrease) in net assets from operations ...... (26,805) 46,254 52,194
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 17,791,841 12,116,331 9,607,211
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 11,695,862 5,602,864 3,864,604
------------ ------------ ------------
Total ................................................ 29,487,703 17,719,195 13,471,815
------------ ------------ ------------
Benefit & other policy transaction ...................... 134,692 20,842 45,537
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 23,284 8,570 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 4,520,417 1,504,600 1,527,808
------------ ------------ ------------
Total ................................................ 4,678,393 1,534,012 1,587,690
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 24,809,310 16,185,183 11,884,125
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (10,579) (3,378) (1,959)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 24,771,926 16,228,059 11,934,360
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 24,771,926 $ 16,228,059 $ 11,934,360
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------
ALLIANCE EQ/PUTNAM
CONSERVATIVE BALANCED
INVESTORS FUND FUND(A)
--------------------------- ----------- -
1997 1996 1997
------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 481,754 $ 193,429 $ 51,548
Net realized gain (loss) ............................. 687,695 154,966 45,528
Change in unrealized appreciation / (depreciation)
of investments .................................... 478,094 (12,221) 73,582
----------- ----------- -----------
Net increase (decrease) in net assets from operations 1,647,543 336,174 170,658
------------ ----------- -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 10,862,780 3,977,495 4,294,496
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 3,151,066 2,837,790 1,721,220
------------ ----------- -----------
Total .......................................... 14,013,846 6,815,285 6,015,716
------------ ----------- -----------
Benefit & other policy transaction ................ 567,547 60,271 17,533
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 138,461 100,314 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 1,428,179 814,338 120,099
------------ ----------- -----------
Total .......................................... 2,134,187 974,923 152,925
------------ ----------- -----------
Net increase in net assets from Contract Owner
transactions ...................................... 11,879,659 5,840,362 5,862,791
------------ ----------- -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (57,026) (12,633) (483)
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 13,470,176 6,163,903 6,032,966
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 7,858,282 1,694,379 --
------------ ----------- -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 21,328,458 $ 7,858,282 $ 6,032,966
============ =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------
ALLIANCE MERRILL LYNCH
GROWTH WORLD STRATEGY
INVESTORS FUND FUND(A)
---------------------------- --------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 736,541 $ 218,025 $ 2,974
Net realized gain (loss) ............................. 3,620,598 1,601,901 24,219
Change in unrealized appreciation / (depreciation)
of investments .................................... 1,844,488 (197,988) (129,123)
------------ ------------ -----------
Net increase (decrease) in net assets from operations 6,201,627 1,621,938 (101,930)
------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 32,084,069 11,004,121 2,043,811
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 7,981,423 9,331,901 561,601
------------ ------------ -----------
Total .......................................... 40,065,492 20,336,022 2,605,412
------------ ------------ -----------
Benefit & other policy transaction ................ 1,014,211 206,468 3,514
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 421,582 228,021 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 2,744,848 1,177,040 84,455
------------ ------------ -----------
Total .......................................... 4,180,641 1,611,529 90,566
------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ...................................... 35,884,851 18,724,493 2,514,846
------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (111,839) (32,214) (121)
------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 41,974,639 20,314,217 2,412,795
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 24,008,395 3,694,178 --
------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 65,983,034 $ 24,008,395 $ 2,412,795
============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
1940 Act"). The Account consists of 22 investment funds (Funds): Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund,
Alliance High Yield Fund, T. Rowe Price Equity Income Fund, EQ/Putnam
Growth & Income Value Fund, Alliance Growth & Income Fund, Alliance Equity
Index Fund, Merrill Lynch Basic Value Equity Fund, Alliance Common Stock
Fund, MFS Research Fund, Alliance Global Fund, Alliance International
Fund, T. Rowe Price International Stock Fund, Morgan Stanley Emerging
Markets Equity Fund, Alliance Aggressive Stock Fund, Warburg Pincus Small
Company Value Fund, Alliance Small Cap Growth Fund, MFS Emerging Growth
Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam Balanced
Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund. The assets in each Fund are invested in shares of a corresponding
portfolio (Portfolio) of a mutual fund, Class IA and IB shares of The
Hudson River Trust (HRT) or Class IB shares of EQ Advisors Trust (EQAT)
(collectively known as the Trusts). Class IB shares are offered by the
Funds at net asset value and are subject to distribution fees imposed
under a distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act. Class IA shares of HRT continue to be purchased by contracts in-force
prior to May 1, 1997. The Trusts are open-end, diversified management
investment companies that sell its shares to 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 is also available
for purchase by certain types of qualified plans. 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 less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth 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.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 charges for mortality and expense
risks at an annual rate of 0.90% of daily net assets. In addition, asset
based administrative charges are also charged to the account at an annual
rate of 0.25% of daily net assets. The charges may be retained in the
Account by Equitable Life and participate in the net investment results of
the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.15% of daily net assets. Trust shares are
valued at their net asset value with investment advisory or management
fees, the 12b-1 fee, and other expenses of the Trust, in effect, passed on
to the Account and reflected in the accumulation unit values of the
Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
------------------------------------------
<S> <C> <C>
Class A Net Issued........................................... -- 1,128
Net Redeemed......................................... (374) --
Class B Net Issued........................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
------------------------------------------------
Class A Net Issued........................................... 161 92
Class B Net Issued........................................... 345 --
ALLIANCE HIGH YIELD FUND
------------------------------------
Class A Net Issued........................................... 98 --
Class B Net Issued........................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,565 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
----------------------------------------------
Class A Net Issued........................................... 2,377 905
Class B Net Issued........................................... 1,829 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-----------------------------------------
ALLIANCE EQUITY INDEX FUND (A) (IN THOUSANDS)
<S> <C> <C>
Class B Net Issued............................................ 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
-----------------------------------------
Class B Net Issued............................................ 849 --
ALLIANCE COMMON STOCK FUND
--------------------------
Class A Net Issued............................................ 620 439
Class B Net Issued............................................ 519 --
MFS RESEARCH FUND (A)
---------------------
Class B Net Issued............................................ 1,039 --
ALLIANCE GLOBAL FUND
---------------------
Class A Net Issued............................................ 444 561
Class B Net Issued............................................ 308 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Class A Net Issued............................................ 438 643
Class B Net Issued............................................ 285 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (A)
------------------------------------------
Class B Net Issued............................................ 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
-----------------------------------------------
Class B Net Issued............................................ 282 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Concluded):
Accumulation units issued and redeemed during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- ----------------
ALLIANCE AGGRESSIVE STOCK FUND (IN THOUSANDS)
------------------------------
<S> <C> <C>
Class A Net Issued....................................... 641 562
Class B Net Issued....................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
-------------------------------------------
Class B Net Issued....................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND
------------------------------
Class A Net Issued....................................... 208 --
Class B Net Issued....................................... 1,084 --
MFS EMERGING GROWTH COMPANIES FUND (A)
--------------------------------------
Class B Net Issued....................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
------------------------------------
Class A Net Issued....................................... 356 354
Class B Net Issued....................................... 295 --
EQ/PUTNAM BALANCED FUND (A)
---------------------------
Class B Net Issued....................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Class A Net Issued....................................... 681 758
Class B Net Issued....................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
------------------------------------
Class B Net Issued....................................... 232 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. 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 contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
INVESTMENT FUND 1997 1996
------------------------------ ----------------------------
<S> <C> <C>
Alliance Money Market Fund..................................... $(240,000) $(125,000)
Alliance Intermediate Government Securities Fund............... (60,000) (25,000)
Alliance High Yield Fund(1).................................... 10,000 --
T. Rowe Price Equity Income Fund(1)............................ -- --
EQ/Putnam Growth & Income Value Fund(1)........................ -- --
Alliance Growth & Income Fund.................................. (250,000) (60,000)
Alliance Equity Index Fund..................................... 5,000 --
Merrill Lynch Basic Value Equity Fund(1)....................... -- --
Alliance Common Stock Fund..................................... (840,000) (223,000)
MFS Research Fund(1)........................................... -- --
Alliance Global Fund........................................... (185,000) (52,000)
Alliance International Fund.................................... (120,000) (35,000)
T. Rowe Price International Stock Fund(1)...................... -- --
Morgan Stanley Emerging Markets Equity Fund(2)................. -- --
Alliance Aggressive Stock Fund................................. (435,000) (110,000)
Warburg Pincus Small Company Value Fund(1)..................... -- --
Alliance Small Cap Growth Fund(1).............................. 10,000 --
MFS Emerging Growth Companies Fund(1).......................... -- --
Alliance Conservative Investors Fund........................... (87,000) (45,000)
EQ/Putnam Balanced Fund(1)..................................... -- --
Alliance Growth Investors Fund................................. (185,000) (105,000)
Merrill Lynch World Strategy Fund(1)........................... -- --
</TABLE>
----------------------
(1) Commenced operations on May 1, 1997.
(2) Commenced operations on November 20, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
ALLIANCE MONEY MARKET FUND ----------------------------- --------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period....................... $24.81 $23.83
Class A Unit value, end of period............................. $25.85 $24.81
Class B Unit value, beginning of period (c)................... $25.17 --
Class B Unit value, end of period (c)......................... $25.85 --
Number of units outstanding, end of period (000's):
Class A.................................................... 928 1,302
Class B.................................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A Unit value, beginning of period....................... $13.77 $13.42
Class A Unit value, end of period............................. $14.60 $13.77
Class B Unit value, beginning of period (c)................... $13.88 --
Class B Unit value, end of period (c)......................... $14.58 --
Number of units outstanding, end of period (000's):
Class A.................................................... 413 252
Class B.................................................... 345 --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A Unit value, beginning of period....................... $26.95 --
Class A Unit value, end of period............................. $30.73 --
Class B Unit value, beginning of period....................... $26.91 --
Class B Unit value, end of period............................. $30.63 --
Number of units outstanding, end of period (000's):
Class A.................................................... 98 --
Class B.................................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
- ------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.12 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,565 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A) ------------------------------ ---------------------------
- --------------------------------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.53 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A Unit value, beginning of period....................... $14.23 $11.99
Class A Unit value, end of period............................. $17.83 $14.23
Class B Unit value, beginning of period (c)................... $14.67 --
Class B Unit value, end of period (c)......................... $17.80 --
Number of units outstanding, end of period (000's):
Class A.................................................... 3,433 1,056
Class B.................................................... 1,829 --
ALLIANCE EQUITY INDEX FUND (A)
- ------------------------------
Class A Unit value, beginning of period....................... $17.62 --
Class A Unit value, end of period............................. $21.41 --
Class B Unit value, beginning of period....................... $17.62 --
Class B Unit value, end of period............................. $21.38 --
Number of units outstanding, end of period (000's):
Class A.................................................... -- --
Class B.................................................... 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
- -----------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.61 --
Number of units outstanding, end of period (000's):
Class B.................................................... 849 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
ALLIANCE COMMON STOCK FUND ------------------------- ------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period........................... $152.96 $124.52
Class A Unit value, end of period................................. $195.37 $152.96
Class B Unit value, beginning of period (c)....................... $153.35 --
Class B Unit value, end of period (c)............................. $194.74 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,114 494
Class B........................................................ 519 --
MFS RESEARCH FUND (A)
- ---------------------
Class B Unit value, beginning of period........................... $10.00 --
Class B Unit value, end of period................................. $11.52 --
Number of units outstanding, end of period (000's):
Class B........................................................ 1,039 --
ALLIANCE GLOBAL FUND
- --------------------
Class A Unit value, beginning of period........................... $25.25 $22.29
Class A Unit value, end of period................................. $27.85 $25.25
Class B Unit value, beginning of period (c)....................... $24.87 --
Class B Unit value, end of period (c)............................. $27.76 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,074 609
Class B........................................................ 308 --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A Unit value, beginning of period........................... $11.98 $11.03
Class A Unit value, end of period................................. $11.48 $11.98
Class B Unit value, beginning of period (c)....................... $11.86 --
Class B Unit value, end of period (c)............................. $11.46 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,151 717
Class B........................................................ 285 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
T. ROWE PRICE INTERNATIONAL STOCK FUND (A) --------------------------- ------------------------
- -----------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 9.77 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
- -----------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 7.95 --
Number of units outstanding, end of period (000's):
Class B.................................................... 282 --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A Unit value, beginning of period....................... $65.94 $54.59
Class A Unit value, end of period............................. $72.23 $65.94
Class B Unit value, beginning of period (c)................... $62.84 --
Class B Unit value, end of period (c)......................... $72.00 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,261 620
Class B.................................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
- -------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.82 --
Number of units outstanding, end of period (000's):
Class B.................................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND (A)
- ----------------------------------
Class A Unit value, beginning of period....................... $10.00 --
Class A Unit value, end of period............................. $12.57 --
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.55 --
Number of units outstanding, end of period (000's):
Class A.................................................... 208 --
Class B.................................................... 1,084 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
MFS EMERGING GROWTH FUND (A) --------------------------- ------------------------
- ----------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.15 --
Number of units outstanding, end of period (000's):
Class B.................................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A Unit value, beginning of period....................... $17.21 $16.55
Class A Unit value, end of period............................. $19.26 $17.21
Class B Unit value, beginning of period (c)................... $17.33 --
Class B Unit value, end of period (c)......................... $19.23 --
Number of units outstanding, end of period (000's):
Class A.................................................... 813 457
Class B.................................................... 295 --
EQ/PUTMAN BALANCED FUND (A)
- ---------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.36 --
Number of units outstanding, end of period (000's):
Class B.................................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A Unit value, beginning of period....................... $26.26 $23.59
Class A Unit value, end of period............................. $30.31 $26.26
Class B Unit value, beginning of period (c)................... $26.23 --
Class B Unit value, end of period (c)......................... $30.22 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,596 914
Class B.................................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
- -------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $10.39 --
Number of units outstanding, end of period (000's):
Class B.................................................... 232 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-23
<PAGE>
February 10, 1998
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 and for loan impairments in 1995.
/s/ Price Waterhouse, LLP
- ---------------------------
Price Waterhouse LLP
New York, New York
February 10, 1998
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 19,630.9 $ 18,077.0
Mortgage loans on real estate............................................. 2,611.4 3,133.0
Equity real estate........................................................ 2,749.2 3,297.5
Policy loans.............................................................. 2,422.9 2,196.1
Other equity investments.................................................. 951.5 860.6
Investment in and loans to affiliates..................................... 731.1 685.0
Other invested assets..................................................... 624.7 25.4
----------------- -----------------
Total investments..................................................... 29,721.7 28,274.6
Cash and cash equivalents................................................... 300.5 538.8
Deferred policy acquisition costs........................................... 3,236.6 3,104.9
Amounts due from discontinued operations.................................... 572.8 996.2
Other assets................................................................ 2,685.2 2,552.2
Closed Block assets......................................................... 8,566.6 8,495.0
Separate Accounts assets.................................................... 36,538.7 29,646.1
----------------- -----------------
Total Assets................................................................ $ 81,622.1 $ 73,607.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,579.5 $ 21,865.6
Future policy benefits and other policyholder's liabilities................. 4,553.8 4,416.6
Short-term and long-term debt............................................... 1,991.2 1,766.9
Other liabilities........................................................... 3,257.1 2,785.1
Closed Block liabilities.................................................... 9,073.7 9,091.3
Separate Accounts liabilities............................................... 36,306.3 29,598.3
----------------- -----------------
Total liabilities..................................................... 76,761.6 69,523.8
----------------- -----------------
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........................................................... 1,235.9 798.7
Net unrealized investment gains............................................. 533.6 189.9
Minimum pension liability................................................... (17.3) (12.9)
----------------- -----------------
Total shareholder's equity............................................ 4,860.5 4,084.0
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 81,622.1 $ 73,607.8
================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 950.6 $ 874.0 $ 788.2
Premiums...................................................... 601.5 597.6 606.8
Net investment income......................................... 2,282.8 2,203.6 2,088.2
Investment (losses) gains, net................................ (45.2) (9.8) 5.3
Commissions, fees and other income............................ 1,227.2 1,081.8 897.1
Contribution from the Closed Block............................ 102.5 125.0 143.2
----------------- ----------------- -----------------
Total revenues.......................................... 5,119.4 4,872.2 4,528.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,266.2 1,270.2 1,248.3
Policyholders' benefits....................................... 978.6 1,317.7 1,008.6
Other operating costs and expenses............................ 2,203.9 2,075.7 1,775.8
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,448.7 4,663.6 4,032.7
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 670.7 208.6 496.1
Federal income taxes.......................................... 91.5 9.7 120.5
Minority interest in net income of consolidated subsidiaries.. 54.8 81.7 62.8
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 524.4 117.2 312.8
Discontinued operations, net of Federal income taxes.......... (87.2) (83.8) -
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (23.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 437.2 $ 10.3 $ 312.8
================= ================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(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 and end of year..... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 798.7 788.4 475.6
Net earnings.................................................. 437.2 10.3 312.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,235.9 798.7 788.4
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year... 189.9 396.5 (220.5)
Change in unrealized investment gains (losses)................ 343.7 (206.6) 617.0
----------------- ----------------- -----------------
Net unrealized investment gains, end of year.................. 533.6 189.9 396.5
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (12.9) (35.1) (2.7)
Change in minimum pension liability........................... (4.4) 22.2 (32.4)
-----------------
----------------- -----------------
Minimum pension liability, end of year........................ (17.3) (12.9) (35.1)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 437.2 $ 10.3 $ 312.8
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Interest credited to policyholders' account balances........ 1,266.2 1,270.2 1,248.3
Universal life and investment-type product
policy fee income......................................... (950.6) (874.0) (788.2)
Investment losses (gains)................................... 45.2 9.8 (5.3)
Change in Federal income tax payable........................ (74.4) (197.1) 221.6
Other, net.................................................. 169.4 330.2 80.5
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 893.0 549.4 1,069.7
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,702.9 2,275.1 1,897.4
Sales....................................................... 10,385.9 8,964.3 8,867.1
Purchases................................................... (13,205.4) (12,559.6) (11,675.5)
(Increase) decrease in short-term investments............... (555.0) 450.3 (99.3)
Decrease in loans to discontinued operations................ 420.1 1,017.0 1,226.9
Sale of subsidiaries........................................ 261.0 - -
Other, net.................................................. (612.6) (281.0) (413.4)
----------------- ----------------- -----------------
Net cash used by investing activities......................... (603.1) (133.9) (196.8)
----------------- ----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................. 1,281.7 1,925.4 2,586.5
Withdrawals............................................... (1,886.8) (2,385.2) (2,657.1)
Net increase (decrease) in short-term financings............ 419.9 (.3) (16.4)
Additions to long-term debt................................. 32.0 - 599.7
Repayments of long-term debt................................ (196.4) (124.8) (40.7)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (83.9) - (1,215.4)
Other, net.................................................. (94.7) (66.5) (48.4)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (528.2) (651.4) (791.8)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (238.3) (235.9) 81.1
Cash and cash equivalents, beginning of year.................. 538.8 774.7 693.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 300.5 $ 538.8 $ 774.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 217.1 $ 109.9 $ 89.6
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 170.0 $ (10.0) $ (82.7)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and, prior to
December 31, 1996, its wholly owned life insurance subsidiary, Equitable
Variable Life Insurance Company ("EVLICO"). Effective January 1, 1997,
EVLICO was merged into Equitable Life, which continues to conduct the
Company's insurance business. Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance") 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 58.7% at December 31, 1997 (54.3% 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") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and, through
June 10, 1997, Equitable Real Estate Investment Management, Inc.
("EREIM"), a real estate investment management subsidiary which was sold
(see Note 5); 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.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued operations (see Note
7).
The years "1997," "1996" and "1995" refer to the years ended December
31, 1997, 1996 and 1995, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1997 presentation.
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.
F-6
<PAGE>
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. No reallocation, transfer, borrowing
or lending of assets can be made between the Closed Block and other
portions of Equitable Life's General Account, any of its Separate
Accounts or any affiliate of Equitable Life without the approval of the
New York Superintendent of Insurance (the "Superintendent"). Closed
Block assets and liabilities are carried on the same basis as similar
assets and liabilities held in the General Account. The excess of Closed
Block liabilities over Closed Block assets represents the expected
future post-tax contribution from the Closed Block which would be
recognized in income over the period the policies and contracts in the
Closed Block remain in force.
Discontinued Operations
Discontinued operations consist of the business of the former Guaranteed
Interest Contract ("GIC") segment which includes the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and the GIC
lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and, during the 1997 and 1996 fourth quarter
reviews, the allowance for future losses was increased. Management
believes the allowance for future losses at December 31, 1997 is
adequate to provide for all future losses; however, the determination of
the allowance continues to involve numerous estimates and subjective
judgments regarding the expected performance of Discontinued Operations
Investment Assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of the discontinued operations
differ from management's current best estimates and assumptions
underlying the allowance for future losses, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management's previous
assumptions, periodic adjustments to the allowance are likely to result
(see Note 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 SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". (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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to The Equitable'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 for production of income. Real estate
which management has committed to disposing of by sale or abandonment is
classified as real estate held for sale. Valuation allowances on real
estate held for sale continue to be computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
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 vacated in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impaired loans
within SFAS No. 114's scope are to be 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 adoption of
this statement did not have a material effect on the level of the
allowances for possible losses or on the Company's consolidated
statements of earnings and shareholder's equity.
F-7
<PAGE>
New Accounting Pronouncements
In January 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits," which revises current note disclosure
requirements for employers' pension and other retiree benefits. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt the provisions of SFAS No. 132 in the 1998
consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP
97-3 provides guidance for assessments related to insurance activities
and requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual and interim financial statements
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment
performance and for deciding how to allocate resources to segments. This
statement is effective for fiscal years beginning after December 15,
1997 and need not be applied to interim reporting in the initial year of
adoption. Restatement of comparative information for earlier periods is
required. Management is currently reviewing its definition of business
segments in light of the requirements of SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires an enterprise to classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt
the provisions of SFAS No. 130 in its 1998 consolidated financial
statements.
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.
Implementation of SFAS No. 125 did not have nor is SFAS No. 127 expected
to have a material impact on the Company's consolidated financial
statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
F-8
<PAGE>
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains 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 discontinued operations,
participating group annuity contracts and deferred policy acquisition
costs ("DAC") related to universal life and investment-type products and
participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
F-9
<PAGE>
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, 1997, the expected investment yield, excluding
policy loans, generally ranged from 7.53% grading to 7.92% over a 20
year period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its 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.
F-11
<PAGE>
Claim reserves and associated liabilities for individual DI and major
medical policies were $886.7 million and $869.4 million at December 31,
1997 and 1996, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 190.2 $ 189.0 $ 176.0
Incurred benefits related to prior years........... 2.1 69.1 67.8
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 192.3 $ 258.1 $ 243.8
================= ================ =================
Benefits paid related to current year.............. $ 28.8 $ 32.6 $ 37.0
Benefits paid related to prior years............... 146.2 153.3 137.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 175.0 $ 185.9 $ 174.8
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1997, participating policies, including those in the
Closed Block, represent approximately 21.2% ($50.2 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1997, 1996 and 1995, investment results of
such Separate Accounts were $3,411.1 million, $2,970.6 million and
$1,963.2 million, respectively.
F-12
<PAGE>
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the opinion, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the
exercise price. See Note 21 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,230.3 $ 785.0 $ 74.5 $ 14,940.8
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 673.0 6.8 .1 679.7
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
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......................... $ 362.0 $ 49.3 $ 17.7 $ 393.6
================= ================= ================ =================
</TABLE>
F-13
<PAGE>
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 on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1997 and 1996, securities
without a readily ascertainable market value having an amortized cost of
$3,759.2 million and $3,915.7 million, respectively, had estimated fair
values of $3,903.9 million and $4,024.6 million, respectively.
The contractual maturity of bonds at December 31, 1997 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 149.9 $ 151.3
Due in years two through five.......................................... 2,962.8 3,025.2
Due in years six through ten........................................... 6,863.9 7,093.0
Due after ten years.................................................... 6,952.3 7,502.7
Mortgage-backed securities............................................. 1,702.8 1,725.0
---------------- -----------------
Total.................................................................. $ 18,631.7 $ 19,497.2
================ =================
</TABLE>
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,
1997, approximately 17.85% of the $18,610.6 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.
Fixed maturity investments with restructured or modified terms are not
material.
F-14
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 137.1 $ 325.3 $ 284.9
SFAS No. 121 release............................... - (152.4) -
Additions charged to income........................ 334.6 125.0 136.0
Deductions for writedowns and
asset dispositions............................... (87.2) (160.8) (95.6)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 55.8 $ 50.4 $ 65.5
Equity real estate............................... 328.7 86.7 259.8
----------------- ---------------- -----------------
Total.............................................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
</TABLE>
At December 31, 1997, 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 $12.6 million
of fixed maturities and $.9 million of mortgage loans on real estate.
At December 31, 1997 and 1996, 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 $23.4 million (0.9% of total
mortgage loans on real estate) and $12.4 million (0.4% 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 $183.4
million and $388.3 million at December 31, 1997 and 1996, 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 $17.2 million, $35.5 million and $52.1 million in
1997, 1996 and 1995, respectively. Gross interest income on these loans
included in net investment income aggregated $12.7 million, $28.2
million and $37.4 million in 1997, 1996 and 1995, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 196.7 $ 340.0
Impaired mortgage loans without provision for losses............... 3.6 122.3
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 200.3 462.3
Provision for losses............................................... (51.8) (46.4)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 148.5 $ 415.9
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
F-15
<PAGE>
During 1997, 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $246.9 million, $552.1 million
and $429.0 million. Interest income recognized on these impaired
mortgage loans totaled $15.2 million, $38.8 million and $27.9 million
($2.3 million, $17.9 million and $13.4 million recognized on a cash
basis) for 1997, 1996 and 1995, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1997 and 1996, the carrying value of equity real estate
held for sale amounted to $1,023.5 million and $345.6 million,
respectively. For 1997, 1996 and 1995, respectively, real estate of
$152.0 million, $58.7 million and $35.3 million was acquired in
satisfaction of debt. At December 31, 1997 and 1996, the Company owned
$693.3 million and $771.7 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 $541.1
million and $587.5 million at December 31, 1997 and 1996, respectively.
Depreciation expense on real estate totaled $74.9 million, $91.8 million
and $121.7 million for 1997, 1996 and 1995, respectively.
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(29 and 34 individual ventures as of December 31, 1997 and 1996,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 1,700.9 $ 1,883.7
Investments in securities, generally at estimated fair value........... 1,374.8 2,430.6
Cash and cash equivalents.............................................. 105.4 98.0
Other assets........................................................... 584.9 427.0
---------------- -----------------
Total Assets........................................................... $ 3,766.0 $ 4,839.3
================ =================
Borrowed funds - third party........................................... $ 493.4 $ 1,574.3
Borrowed funds - the Company........................................... 31.2 137.9
Other liabilities...................................................... 284.0 415.8
---------------- -----------------
Total liabilities...................................................... 808.6 2,128.0
---------------- -----------------
Partners' capital...................................................... 2,957.4 2,711.3
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 3,766.0 $ 4,839.3
================ =================
Equity in partners' capital included above............................. $ 568.5 $ 806.8
Equity in limited partnership interests not included above............. 331.8 201.8
Other.................................................................. 4.3 9.8
---------------- -----------------
Carrying Value......................................................... $ 904.6 $ 1,018.4
================ =================
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 310.5 $ 348.9 $ 463.5
Revenues of other limited partnership interests.... 506.3 386.1 242.3
Interest expense - third party..................... (91.8) (111.0) (135.3)
Interest expense - the Company..................... (7.2) (30.0) (41.0)
Other expenses..................................... (263.6) (282.5) (397.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.2 $ 311.5 $ 131.8
================= ================ =================
Equity in net earnings included above.............. $ 76.7 $ 73.9 $ 49.1
Equity in net earnings of limited partnerships
interests not included above..................... 69.5 35.8 44.8
Other.............................................. (.9) .9 1.0
-----------------
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 145.3 $ 110.6 $ 94.9
================= ================ =================
</TABLE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,459.4 $ 1,307.4 $ 1,151.1
Mortgage loans on real estate...................... 260.8 303.0 329.0
Equity real estate................................. 390.4 442.4 560.4
Other equity investments........................... 156.9 122.0 76.9
Policy loans....................................... 177.0 160.3 144.4
Other investment income............................ 181.7 217.4 273.0
----------------- ---------------- -----------------
Gross investment income.......................... 2,626.2 2,552.5 2,534.8
----------------- ---------------- -----------------
Investment expenses.............................. 343.4 348.9 446.6
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,282.8 $ 2,203.6 $ 2,088.2
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 88.1 $ 60.5 $ 119.9
Mortgage loans on real estate...................... (11.2) (27.3) (40.2)
Equity real estate................................. (391.3) (79.7) (86.6)
Other equity investments........................... 14.1 18.9 12.8
Sale of subsidiaries............................... 252.1 - -
Issuance and sales of Alliance Units............... - 20.6 -
Other.............................................. 3.0 (2.8) (.6)
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (45.2) $ (9.8) $ 5.3
================= ================ =================
</TABLE>
F-17
<PAGE>
Writedowns of fixed maturities amounted to $11.7 million, $29.9 million
and $46.7 million for 1997, 1996 and 1995, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million and $23.7 million for 1997 and 1996,
respectively. In the fourth quarter of 1997, the Company reclassified
$1,095.4 million depreciated cost of equity real estate from real estate
held for the production of income to real estate held for sale.
Additions to valuation allowances of $227.6 million were recorded upon
these transfers. Additionally in the fourth quarter, $132.3 million of
writedowns on real estate held for production of income were recorded.
For 1997, 1996 and 1995, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $9,789.7
million, $8,353.5 million and $8,206.0 million. Gross gains of $166.0
million, $154.2 million and $211.4 million and gross losses of $108.8
million, $92.7 million and $64.2 million, respectively, were realized on
these sales. The change in unrealized investment gains (losses) related
to fixed maturities classified as available for sale for 1997, 1996 and
1995 amounted to $513.4 million, $(258.0) million and $1,077.2 million,
respectively.
For 1997, 1996 and 1995, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $137.5 million, $136.7
million and $131.2 million, respectively.
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note maturing in eight years and bearing interest at the rate of
7.4%, subject to certain adjustments. Equitable Life recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE will continue to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively, the businesses sold reported combined revenues of $91.6
million, $226.1 million and $245.6 million and combined net earnings of
$10.7 million, $30.7 million and $27.9 million. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 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 to 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. The Company recognized an investment gain
of $20.6 million as a result of the issuance of Alliance Units in this
transaction. On June 30, 1997, Alliance reduced the recorded value of
goodwill and contracts associated with Alliance's acquisition of
Cursitor by $120.9 million. This charge reflected Alliance's view that
Cursitor's continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1997, the Company's ownership of Alliance Units was approximately 56.9%.
F-18
<PAGE>
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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 189.9 $ 396.5 $ (220.5)
Changes in unrealized investment gains (losses).... 543.3 (297.6) 1,198.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 53.2 - (78.1)
DAC............................................ (89.0) 42.3 (216.8)
Deferred Federal income taxes.................. (163.8) 48.7 (287.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 533.6 $ 189.9 $ 396.5
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 871.2 $ 357.8 $ 615.9
Other equity investments....................... 33.7 31.6 31.1
Other, principally Closed Block................ 80.9 53.1 93.1
----------------- ---------------- -----------------
Total........................................ 985.8 442.5 740.1
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (19.0) (72.2) (72.2)
DAC.......................................... (141.0) (52.0) (94.3)
Deferred Federal income taxes................ (292.2) (128.4) (177.1)
----------------- ---------------- -----------------
Total.............................................. $ 533.6 $ 189.9 $ 396.5
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,059.4 and $3,820.7)........................................... $ 4,231.0 $ 3,889.5
Mortgage loans on real estate........................................ 1,341.6 1,380.7
Policy loans......................................................... 1,700.2 1,765.9
Cash and other invested assets....................................... 282.7 336.1
DAC.................................................................. 775.2 876.5
Other assets......................................................... 235.9 246.3
----------------- -----------------
Total Assets......................................................... $ 8,566.6 $ 8,495.0
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 8,993.2 $ 8,999.7
Other liabilities.................................................... 80.5 91.6
----------------- -----------------
Total Liabilities.................................................... $ 9,073.7 $ 9,091.3
================= =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 687.1 $ 724.8 $ 753.4
Investment income (net of investment
expenses of $27.0, $27.3 and $26.7).............. 574.9 546.6 538.9
Investment losses, net............................. (42.4) (5.5) (20.2)
----------------- ---------------- -----------------
Total revenues............................... 1,219.6 1,265.9 1,272.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,066.7 1,106.3 1,077.6
Other operating costs and expenses................. 50.4 34.6 51.3
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,117.1 1,140.9 1,128.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 102.5 $ 125.0 $ 143.2
================= ================ =================
</TABLE>
At December 31, 1997 and 1996, problem mortgage loans on real estate had
an amortized cost of $8.1 million and $4.3 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $70.5 million and $114.2 million,
respectively. At December 31, 1996, the restructured mortgage loans on
real estate amount included $.7 million 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 109.1 $ 128.1
Impaired mortgage loans without provision for losses................... .6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 109.7 128.7
Provision for losses................................................... (17.4) (12.9)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 92.3 $ 115.8
================ =================
</TABLE>
During 1997, 1996 and 1995, the Closed Block's average recorded
investment in impaired mortgage loans was $110.2 million, $153.8 million
and $146.9 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $9.4 million, $10.9 million and $5.9
million ($4.1 million, $4.7 million and $1.3 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $18.5 million and $13.8 million on
mortgage loans on real estate and $16.8 million and $3.7 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million, $12.8 million and $16.8 million for 1997, 1996 and 1995,
respectively and writedowns of equity real estate subsequent to the
adoption of SFAS No. 121 amounted to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in the fourth
quarter, $28.8 million of writedowns on real estate held for production
of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-20
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 655.5 $ 1,111.1
Equity real estate................................................... 655.6 925.6
Other equity investments............................................. 209.3 300.5
Short-term investments............................................... 102.0 63.2
Other invested assets................................................ 41.9 50.9
----------------- -----------------
Total investments.................................................. 1,664.3 2,451.3
Cash and cash equivalents............................................ 106.8 42.6
Other assets......................................................... 253.9 242.9
----------------- -----------------
Total Assets......................................................... $ 2,025.0 $ 2,736.8
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,048.3 $ 1,335.9
Allowance for future losses.......................................... 259.2 262.0
Amounts due to continuing operations................................. 572.8 996.2
Other liabilities.................................................... 144.7 142.7
----------------- -----------------
Total Liabilities.................................................... $ 2,025.0 $ 2,736.8
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $97.3, $127.5 and $153.1)............ $ 188.6 $ 245.4 $ 323.6
Investment losses, net............................. (173.7) (18.9) (22.9)
Policy fees, premiums and other income............. .2 .2 .7
----------------- ---------------- -----------------
Total revenues..................................... 15.1 226.7 301.4
Benefits and other deductions...................... 169.5 250.4 326.5
Losses charged to allowance for future losses...... (154.4) (23.7) (25.1)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (134.1) (129.0) -
Federal income tax benefit......................... 46.9 45.2 -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (87.2) $ (83.8) $ -
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses, and
adjusts the allowance, if appropriate. Additionally, as part of the
Company's annual planning process which takes place in the fourth
quarter of each year, investment and benefit cash flow projections are
prepared. These updated assumptions and estimates resulted in the need
to strengthen the allowance in 1997 and 1996, respectively.
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in the fourth quarter, $92.5 million of writedown on real
estate held for production of income were recognized.
Benefits and other deductions includes $53.3 million, $114.3 million and
$154.6 million of interest expense related to amounts borrowed from
continuing operations in 1997, 1996 and 1995, respectively.
F-21
<PAGE>
Valuation allowances amounted to $28.4 million and $9.0 million on
mortgage loans on real estate and $88.4 million and $20.4 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1997 and 1996, problem mortgage loans on real estate had
amortized costs of $11.0 million and $7.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $109.4 million and $208.1 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 101.8 $ 83.5
Impaired mortgage loans without provision for losses................... .2 15.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 102.0 98.5
Provision for losses................................................... (27.3) (8.8)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 74.7 $ 89.7
================ =================
</TABLE>
During 1997, 1996 and 1995, the discontinued operations' average
recorded investment in impaired mortgage loans was $89.2 million, $134.8
million and $177.4 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $6.6 million, $10.1 million and
$4.5 million ($5.3 million, $7.5 million and $.4 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, discontinued operations had carrying
values of $156.2 million and $263.0 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,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 422.2 $ 174.1
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.6
Other.............................................................. .3 .5
----------------- -----------------
Total Equitable Life........................................... 599.4 599.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.87% - 12.00% due through 2006.................... 951.1 968.6
----------------- -----------------
Alliance:
Other.............................................................. 18.5 24.7
----------------- -----------------
Total long-term debt................................................. 1,569.0 1,592.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,991.2 $ 1,766.9
================= =================
</TABLE>
F-22
<PAGE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in June 2000.
The interest rates are based on external indices dependent on the type
of borrowing and at December 31, 1997 range from 5.88% to 8.50%. There
were no borrowings outstanding under this bank credit facility at
December 31, 1997.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1997, $50.0 million was outstanding under this program.
During 1996, Alliance entered into a $250.0 million five-year revolving
credit facility with a group of banks. Under the facility, the interest
rate, at the option of Alliance, is a floating rate generally based upon
a defined prime rate, a rate related to the London Interbank Offered
Rate ("LIBOR") or the Federal funds rate. A facility fee is payable on
the total facility. The revolving credit facility will be used to
provide back-up liquidity for Alliance's $250.0 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. At December 31, 1997,
Alliance had $72.0 million in commercial paper outstanding and there
were no borrowings under the revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
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. 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 $1,164.0 million and $1,406.4 million at December 31, 1997
and 1996, respectively, as collateral for certain long-term debt.
At December 31, 1997, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1998 and the succeeding
four years are $565.8 million, $201.4 million, $8.6 million, $1.7
million and $1.8 million, respectively, and $790.6 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 186.5 $ 97.9 $ (11.7)
Deferred......................................... (95.0) (88.2) 132.2
----------------- ---------------- -----------------
Total.............................................. $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
F-23
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 234.7 $ 73.0 $ 173.7
Non-taxable minority interest...................... (38.0) (28.6) (22.0)
Adjustment of tax audit reserves................... (81.7) 6.9 4.1
Equity in unconsolidated subsidiaries.............. (45.1) (32.3) (19.4)
Other.............................................. 21.6 (9.3) (15.9)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 257.9 $ - $ 259.2 $ -
Other.................................. 30.7 - - 1.8
DAC, reserves and reinsurance.......... - 222.8 - 166.0
Investments............................ - 405.7 - 328.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 288.6 $ 628.5 $ 259.2 $ 496.4
=============== ================ =============== ===============
</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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 46.2 $ (156.2) $ 63.3
Investments........................................ (113.8) 78.6 13.0
Compensation and related benefits.................. 3.7 22.3 30.8
Other.............................................. (31.1) (32.9) 25.1
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................................ $ (95.0) $ (88.2) $ 132.2
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the 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.
F-24
<PAGE>
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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 448.6 $ 461.4 $ 474.2
Reinsurance assumed................................ 198.3 177.5 171.3
Reinsurance ceded.................................. (45.4) (41.3) (38.7)
----------------- ---------------- -----------------
Premiums........................................... $ 601.5 $ 597.6 $ 606.8
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 61.0 $ 48.2 $ 44.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 70.6 $ 54.1 $ 48.9
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 36.4 $ 32.3 $ 28.5
================= ================ =================
</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 $1.6 million,
$2.4 million and $260.6 million for 1997, 1996 and 1995, respectively.
Ceded death and disability benefits totaled $4.3 million, $21.2 million
and $188.1 million for 1997, 1996 and 1995, respectively. Insurance
liabilities ceded totaled $593.8 million and $652.4 million at December
31, 1997 and 1996, 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 benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 32.5 $ 33.8 $ 30.0
Interest cost on projected benefit obligations..... 128.2 120.8 122.0
Actual return on assets............................ (307.6) (181.4) (309.2)
Net amortization and deferrals..................... 166.6 43.4 155.6
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 19.7 $ 16.6 $ (1.6)
================= ================ =================
</TABLE>
F-25
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,702.6 $ 1,672.2
Non-vested........................................................... 3.9 10.1
---------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,706.5 $ 1,682.3
================ =================
Plan assets at fair value.............................................. $ 1,867.4 $ 1,626.0
Projected benefit obligations.......................................... 1,801.3 1,765.5
---------------- -----------------
Projected benefit obligations (in excess of) or less than plan assets.. 66.1 (139.5)
Unrecognized prior service cost........................................ (9.9) (17.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 95.0 280.0
Unrecognized net asset at transition................................... 3.1 4.7
Additional minimum liability........................................... - (19.3)
---------------- -----------------
Prepaid Pension Cost.................................................. $ 154.3 $ 108.0
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.07%, respectively, at December 31, 1997 and
7.5% and 4.25%, respectively, at December 31, 1996. As of January 1,
1997 and 1996, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
The Company recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $17.3 million and $12.9 million,
net of Federal income taxes, at December 31, 1997 and 1996,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $33.2 million,
$34.7 million and $36.4 million for 1997, 1996 and 1995, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1997, 1996 and 1995, the Company made
estimated postretirement benefits payments of $18.7 million, $18.9
million and $31.1 million, respectively.
F-26
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.5 $ 5.3 $ 4.0
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 34.6 34.7
Net amortization and deferrals..................... 1.9 2.4 (2.3)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 41.1 $ 42.3 $ 36.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 388.5 $ 381.8
Fully eligible active plan participants.............................. 45.7 50.7
Other active plan participants....................................... 56.6 60.7
---------------- -----------------
490.8 493.2
Unrecognized prior service cost........................................ 40.3 50.5
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (140.6) (150.5)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 390.5 $ 393.2
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and costs to the Company of providing these
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 8.75% in 1997,
gradually declining to 2.75% in the year 2009 and in 1996 was 9.5%,
gradually declining to 3.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.50% at December 31, 1997 and 1996, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1997
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, 1997 and 1996, respectively, was $1,353.4 million and
$649.9 million. The average unexpired terms at December 31, 1997 ranged
from 1.5 to 3.8 years. At December 31, 1997, the cost of terminating
outstanding matched swaps in a loss position was $10.9 million and the
unrealized gain on outstanding matched swaps in a gain position was
$38.9 million. The Company has no intention of terminating these
contracts prior to maturity. During 1996 and 1995, net gains of $.2
million and $1.4 million, respectively, were recorded in connection with
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
F-27
<PAGE>
December 31, 1997 of contracts purchased and sold were $7,250.0 million
and $875.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $48.5 million and is being amortized ratably over
the contract periods ranging from 1 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1997 and 1996.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
F-28
<PAGE>
Fair values 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,611.4 $ 2,822.8 $ 3,133.0 $ 3,394.6
Other limited partnership interests.... 509.4 509.4 467.0 467.0
Policy loans........................... 2,422.9 2,493.9 2,196.1 2,221.6
Policyholders' account balances -
investment contracts................. 12,611.0 12,714.0 12,908.7 12,992.2
Long-term debt......................... 1,569.0 1,531.5 1,592.8 1,557.7
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,341.6 1,420.7 1,380.7 1,425.6
Other equity investments............... 86.3 86.3 105.0 105.0
Policy loans........................... 1,700.2 1,784.2 1,765.9 1,798.0
SCNILC liability....................... 27.6 30.3 30.6 34.9
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 655.5 779.9 1,111.1 1,220.3
Fixed maturities....................... 38.7 38.7 42.5 42.5
Other equity investments............... 209.3 209.3 300.5 300.5
Guaranteed interest contracts.......... 37.0 34.0 290.7 300.5
Long-term debt......................... 102.0 102.1 102.1 102.2
</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 $202.6 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $362.1 million at December 31, 1997, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $47.4 million of letters of credit outstanding
at December 31, 1997.
F-29
<PAGE>
14) LITIGATION
Equitable Life recently agreed to settle, subject to court approval,
previously disclosed cases brought by persons insured under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life (the "Policies") in New York (Golomb et al. v. The
Equitable Life Assurance Society of the United States), Pennsylvania
(Malvin et al. v. The Equitable Life Assurance Society of the United
States), Texas (Bowler et al. v. The Equitable Life Assurance Society of
the United States), Florida (Bachman v. The Equitable Life Assurance
Society of the United States) and California (Fletcher v. The Equitable
Life Assurance Society of the United States). Plaintiffs in these cases
claimed that Equitable Life's method for determining premium increases
breached the terms of certain forms of the Policies and was
misrepresented. Plaintiffs in Bowler and Fletcher also claimed that
Equitable Life misrepresented to policyholders in Texas and California,
respectively, that premium increases had been approved by insurance
departments in those states and determined annual rate increases in a
manner that discriminated against policyholders in those states in
violation of the terms of the Policies, representations to policyholders
and/or state law. The New York trial court dismissed the Golomb action
with prejudice and plaintiffs appealed. In Bowler and Fletcher,
Equitable Life denied the material allegations of the complaints and
filed motions for summary judgment which have been fully briefed. The
Malvin action was stayed indefinitely pending the outcome of proceedings
in Golomb and in Fletcher the magistrate concluded that the case should
be remanded to California state court and Equitable Life appealed that
determination to the district judge. On December 23, 1997, Equitable
Life entered into a settlement agreement, subject to court approval,
which would result in the dismissal with prejudice of each of the five
pending actions and the resolution of all similar claims on a nationwide
basis.
The settlement agreement provides for the creation of a nationwide class
consisting of all persons holding, and paying premiums on, the Policies
at any time since January 1, 1988. An amended complaint will be filed in
the federal district court in Tampa, Florida (where the Florida action
is pending), that would assert claims of the kind previously made in the
cases described above on a nationwide basis, on behalf of policyholders
in the nationwide class, which consists of approximately 127,000 former
and current policyholders. If the settlement is approved, Equitable Life
would pay $14,166,000 in exchange for release of all claims for past
damages on claims of the type described in the five pending actions and
the amended complaint. Costs of administering the settlement and any
attorneys' fees awarded by the court to plaintiffs' counsel would be
deducted from this fund before distribution of the balance to the class.
In addition to this payment, Equitable Life will provide future relief
to current holders of certain forms of the Policies in the form of an
agreement to be embodied in the court's judgment, restricting the
premium increases Equitable Life can seek on these Policies in the
future. The parties estimate the present value of these restrictions at
$23,333,000, before deduction of any attorneys' fees that may be awarded
by the court. The estimate is based on assumptions about future events
that cannot be predicted with certainty and accordingly the actual value
of the future relief may differ. The parties to the settlement shortly
will be asking the court to approve preliminarily the settlement and
settlement class and to permit distribution of notice of the settlement
to policyholders, establish procedures for objections, an opportunity to
opt out of the settlements as it affects past damages, and a court
hearing on whether the settlement should be finally approved. Equitable
Life cannot predict whether the settlement will be approved or, if it is
not approved, the outcome of the pending litigations. As noted,
proceedings in Malvin were stayed indefinitely; proceedings in the other
actions have been stayed or deferred to accommodate the settlement
approval process.
A number of lawsuits have 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,
alleged 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, Equitable
Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues
for certain limited purposes, including the defense of litigation) and
The Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. Among
litigations pending against Equitable Life, EVLICO and EOC of the type
referred to in this paragraph are the litigations described in the
following seven paragraphs.
F-30
<PAGE>
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. 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 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. In June 1996, the Court
issued a decision and order dismissing with prejudice plaintiffs' causes
of action for fraud, constructive fraud, breach of fiduciary duty,
negligence, and unjust enrichment, and dismissing without prejudice
plaintiffs' 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. In April 1997, plaintiffs noticed an
appeal from the court's June 1996 order. Subsequently, Equitable Life
and EOC noticed a cross-appeal from so much of the June 1996 order that
denied their motion to dismiss. Briefing on the appeals is scheduled to
begin on February 23, 1998. In June 1997, plaintiffs filed their
memorandum of law and affidavits in support of their motion for class
certification. That memorandum states that plaintiffs seek to certify a
class solely on their breach of contract claims, and not on their
negligent misrepresentation claim. Plaintiffs' class certification
motion has been fully briefed by the parties and is sub judice. In
August 1997, Equitable Life and EOC moved for summary judgment
dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation. Defendants' summary judgment motion has
been fully briefed by the parties. On January 5, 1998, plaintiffs filed
a note of issue (placing the case on the trial calendar).
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 originally was brought by an
individual who purchased a whole life policy from Equitable Life in
1989. In September 1997, with leave of the court, plaintiff filed a
second amended petition naming six additional policyholder plaintiffs
and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the
second amended petition. Plaintiffs purport to represent a class
consisting of all persons who purchased whole life or universal life
insurance policies from Equitable Life from January 1, 1981 through July
22, 1992. Plaintiffs allege improper sales practices based on
allegations of misrepresentations concerning one or more of the
following: the number of years that premiums would need to be paid; a
policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages,
including punitive damages, in an unspecified amount. In October 1997,
Equitable Life filed (i) exceptions to the second amended petition,
asserting deficiencies in pleading of venue and vagueness; and (ii) a
motion to strike certain allegations. On January 23, 1998, the court
heard argument on Equitable Life's exceptions and motion to strike.
Those motions are sub judice. Motion practice regarding discovery
continues.
On July 26, 1996, an action entitled Michael Bradley v. Equitable
Variable Life Insurance Company was commenced in New York state court,
Kings County. 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. EVLICO answered the complaint,
denying the material allegations. In September 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 in Cole in
January 1997. Plaintiff then moved for certification of a nationwide
class consisting of all persons or entities who, since January 1, 1980,
were sold one or more life insurance products based on
misrepresentations as to the number of years that the annual premium
would need to be paid, and/or who were allegedly induced to purchase
additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. Discovery and
briefing regarding plaintiff's motion for class certification are
ongoing.
F-31
<PAGE>
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 in 1988. The complaint puts
in 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 alleges 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. In May
1997, plaintiff served a motion for class certification. In July 1997,
the parties submitted to the Court a joint scheduling report, joint
scheduling order and a confidentiality stipulation and order. The Court
signed the latter stipulation, and the others remain sub judice. Further
briefing on plaintiff's class certification motion will await entry of a
scheduling order and further class certification discovery, which has
commenced and is on-going. In January 1998, the judge assigned to the
case recused himself, and the case was reassigned. Defendants are to
serve their answer in February 1998.
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 amended complaint alleges that Equitable Life's and EVLICO's
agents were trained not to 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. Equitable Life and EVLICO have
answered the amended complaint, denying the material allegations and
asserting certain affirmative defenses. Motion practice regarding
discovery continues.
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. Plaintiff
filed an amended complaint in April 1997. In July 1997, Equitable Life
served a motion to dismiss the amended complaint or, in the alternative,
for summary judgment. On September 12, 1997, plaintiff moved for class
certification. This motion is scheduled for hearing on February 18,
1998.
On September 11, 1997, an action entitled Pamela L. and James A. Luther,
individually and as representatives of all people similarly situated v.
The Equitable Life Assurance Society of the United States, The Equitable
Companies Incorporated, and Casey Cammack, individually and as agent for
The Equitable Life Assurance Society of the United States and The
Equitable Companies Incorporated, was filed in Texas state court. The
action was brought by holders of a whole life policy and the beneficiary
under that policy. Plaintiffs purport to represent a nationwide class of
persons having an ownership or beneficial interest in whole and
universal life policies issued by Equitable Life from January 1, 1982
through December 31, 1996. Also included in the purported class are
persons having an ownership interest in variable annuities purchased
from Equitable Life from January 1, 1992 to the present. The complaint
puts in issue the allegations that uniform sales presentations,
illustrations, and materials that Equitable Life agents used
misrepresented the stated number of years that premiums would need to be
paid and misrepresented the extent to which the policies at issue were
F-32
<PAGE>
proper replacement policies. Plaintiffs seek compensatory damages,
attorneys' fees and expenses. In October 1997, Equitable Life served a
general denial of the allegations against it. The same day, the Holding
Company entered a special appearance contesting the court's jurisdiction
over it. In November 1997, Equitable Life filed a plea in abatement,
which, under Texas law, stayed further proceedings in the case because
plaintiffs had not served a demand letter. Plaintiffs served a demand
letter upon Equitable Life and the Holding Company, the response to
which is due 60 days thereafter. 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, Dillon, Franze, Chaviano and
Luther litigations should not have a material adverse effect on the
financial position of the Company. The Company's management cannot make
an estimate of loss, if any, or predict whether or not any such
litigation will have a material adverse effect on the Company's results
of operations in any particular period.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of The Equitable from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States, alleges, among other things, that Equitable Life
discriminated on the basis of race against African-American applicants
and potential applicants in hiring individuals as sales agents.
Plaintiffs seek a declaratory judgment and affirmative and negative
injunctive relief, including the payment of back-pay, pension and other
compensation. Although the outcome of any litigation cannot be predicted
with certainty, the Company's management believes that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position of the Company. The Company's management cannot
make an estimate of loss, if any, or predict whether or not such matter
will have a material adverse effect on the Company's results of
operations in any particular period.
The U.S. Department of Labor ("DOL") is conducting an investigation of
Equitable Life's management of 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 retains EREIM as advisor. Equitable Life agreed to indemnify the
purchaser of EREIM (which Equitable Life sold in June 1997) with respect
to any fines, penalties and rebates to clients in connection with this
investigation. In early 1995, the DOL commenced a national investigation
of commingled real estate funds with pension investors, including PPF.
The investigation 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, the Company's management believes
that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of the Company. The Company's
management cannot make an estimate of loss, if any, or predict whether
or not this investigation will have a material adverse effect on the
Company's results of operations in any particular period.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which sought 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, sought an
unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that 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 alleged 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
F-33
<PAGE>
New York granted the defendants' motion to dismiss all counts of the
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996,
the court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for
the Second Circuit issued an order granting defendants' motion to strike
and dismissing plaintiffs' appeal of the First Decision. 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 (i)
the Fund failed to hedge against the risks of investing in foreign
securities despite representations that it would do so, (ii) the Fund
did not properly disclose that it planned to invest in mortgage-backed
derivative securities and (iii) two advertisements used by the Fund
misrepresented the risks of investing in the Fund. On July 15, 1997, the
District Court denied plaintiffs' motion for leave to file an amended
complaint and ordered that the case be dismissed ("Second Decision").
The plaintiffs have appealed the Second Decision to the United States
Court of Appeals for the Second Circuit. 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 U. S. 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 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 that 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 U.S. 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. On October 10, 1997, DLJSC and
F-34
<PAGE>
others were named as defendants in a new adversary proceeding in the
Bankruptcy Court brought by the NGC Settlement Trust, an entity created
by the NGC plan of reorganization to deal with asbestos-related claims.
The Trust's allegations are substantially similar to the claims in the
State Court action. In court papers dated October 16, 1997, the State
Court plaintiff indicated that he would intervene in the Trust's
adversary proceeding. On January 21, 1998, the Bankruptcy Court ruled
that the State Court plaintiff's claims were not barred by the NGC plan
of reorganization insofar as they alleged nondisclosure of certain cost
reductions announced by NGC in October 1993. The Texas State Court
action, which 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 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 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. On
February 26, 1997, the parties agreed to a settlement of these actions,
subject to the District Court's approval, which was granted on July 31,
1997. The settlement is also subject to approval by the U.S. Bankruptcy
Court for the Eastern District of Louisiana of proposed modifications to
a confirmed plan of reorganization for Harrah's Jazz Company and
Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan.
There can be no assurance of the Bankruptcy Court's approval of the
modifications to the plan of reorganization, or that the conditions to
the effectiveness of the plan will be satisfied or waived. In the
opinion of DLJ's management, the settlement, if approved, will not have
a material adverse effect on DLJ's results of operations or on its
consolidated financial condition.
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 1998 and the succeeding four years are $93.5 million, $84.4
million, $70.2 million, $56.4 million, $47.0 million and $489.3 million
thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1998 and the succeeding four years are $7.3
million, $5.9 million, $3.8 million, $2.4 million, $.8 million and $2.9
million thereafter.
At December 31, 1997, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $247.0 million, $238.1 million, $218.7
million, $197.9 million, $169.1 million and $813.0 million thereafter.
F-35
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 721.5 $ 704.8 $ 628.4
Commissions........................................ 409.6 329.5 314.3
Short-term debt interest expense................... 31.7 8.0 11.4
Long-term debt interest expense.................... 121.2 137.3 108.1
Amortization of policy acquisition costs........... 287.3 405.2 317.8
Capitalization of policy acquisition costs......... (508.0) (391.9) (391.0)
Rent expense, net of sub-lease income.............. 101.8 113.7 109.3
Cursitor intangible assets writedown............... 120.9 - -
Other.............................................. 917.9 769.1 677.5
----------------- ---------------- -----------------
Total.............................................. $ 2,203.9 $ 2,075.7 $ 1,775.8
================= ================ =================
</TABLE>
During 1997, 1996 and 1995, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $42.4 million, $24.4 million and $32.0 million,
respectively. The amounts paid during 1997, associated with cost
reduction programs, totaled $22.8 million. At December 31, 1997, the
liabilities associated with cost reduction programs amounted to $62.0
million. The 1997 cost reduction program include costs related to
employee termination and exit costs. The 1996 cost reduction program
included restructuring costs related to the consolidation of insurance
operations' service centers. The 1995 cost reduction program included
relocation expenses, including the accelerated amortization of building
improvements associated with the relocation of the home office.
Amortization of DAC in 1996 included a $145.0 million writeoff of DAC
related to DI contracts.
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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1997, 1996 and 1995, statutory net
loss totaled $351.7 million, $351.1 million and $352.4 million,
respectively. No amounts are expected to be available for dividends from
Equitable Life to the Holding Company in 1998.
At December 31, 1997, the Insurance Group, in accordance with various
government and state regulations, had $19.7 million of securities
deposited with such government or state agencies.
F-36
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 203.6 $ 56.0 $ 78.1
Change in asset valuation reserves................. 147.1 (48.4) 365.7
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 350.7 7.6 443.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (31.1) (298.5) (66.0)
DAC.............................................. 220.7 (13.3) 73.2
Deferred Federal income taxes.................... 103.1 108.0 (158.1)
Valuation of investments......................... 46.8 289.8 189.1
Valuation of investment subsidiary............... (555.8) (117.7) (188.6)
Limited risk reinsurance......................... 82.3 92.5 416.9
Issuance of surplus notes........................ - - (538.9)
Postretirement benefits.......................... (3.1) 28.9 (26.7)
Other, net....................................... 30.3 12.4 115.1
GAAP adjustments of Closed Block................. 3.6 (9.8) 15.7
GAAP adjustments of discontinued operations...... 189.7 (89.6) 37.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 437.2 $ 10.3 $ 312.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,462.5 $ 2,258.9 $ 2,202.9
Asset valuation reserves........................... 1,444.6 1,297.5 1,345.9
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,907.1 3,556.4 3,548.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,336.1) (1,305.0) (1,006.5)
DAC.............................................. 3,236.6 3,104.9 3,075.8
Deferred Federal income taxes.................... (370.8) (306.1) (452.0)
Valuation of investments......................... 783.5 286.8 417.7
Valuation of investment subsidiary............... (1,338.6) (782.8) (665.1)
Limited risk reinsurance......................... (254.2) (336.5) (429.0)
Issuance of surplus notes........................ (539.0) (539.0) (538.9)
Postretirement benefits.......................... (317.5) (314.4) (343.3)
Other, net....................................... 203.7 126.3 4.4
GAAP adjustments of Closed Block................. 814.3 783.7 830.8
GAAP adjustments of discontinued operations...... 71.5 (190.3) (184.6)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================ =================
</TABLE>
F-37
<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.
Insurance Operations 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.
Investment Services 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 $81.9
million, $127.5 million and $124.1 million for 1997, 1996 and 1995,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the GIC Segment of
$5.1 million, $15.7 million and $14.7 million for 1997, 1996 and 1995,
respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,684.2 $ 3,770.6 $ 3,614.6
Investment services................................ 1,455.1 1,126.1 949.1
Consolidation/elimination.......................... (19.9) (24.5) (34.9)
----------------- ---------------- -----------------
Total.............................................. $ 5,119.4 $ 4,872.2 $ 4,528.8
================= ================ =================
Earnings (loss) from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change
Insurance operations............................... $ 250.3 $ (36.6) $ 303.1
Investment services................................ 485.7 311.9 224.0
Consolidation/elimination.......................... - .2 (3.1)
----------------- ---------------- -----------------
Subtotal..................................... 736.0 275.5 524.0
Corporate interest expense......................... (65.3) (66.9) (27.9)
----------------- ---------------- -----------------
Total.............................................. $ 670.7 $ 208.6 $ 496.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................................................... $ 68,305.9 $ 60,464.9
Investment services.................................................... 13,719.8 13,542.5
Consolidation/elimination.............................................. (403.6) (399.6)
---------------- -----------------
Total.................................................................. $ 81,622.1 $ 73,607.8
================ =================
</TABLE>
F-38
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1997 and 1996, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
1996
Total Revenues................ $ 1,176.5 $ 1,199.4 $ 1,198.4 $ 1,297.9
================= ================= ================== ==================
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)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million. 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 and
reserve strengthenings on DI business of $113.7 million, Pension Par of
$47.5 million and Discontinued Operations of $83.8 million.
20) INVESTMENT IN DLJ
At December 31, 1997, the Company's ownership of DLJ interest was
approximately 34.4%. 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-39
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 16,535.7 $ 15,728.1
Securities purchased under resale agreements........................... 22,628.8 20,598.7
Broker-dealer related receivables...................................... 28,159.3 16,858.8
Other assets........................................................... 3,182.0 2,318.1
---------------- -----------------
Total Assets........................................................... $ 70,505.8 $ 55,503.7
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 36,006.7 $ 29,378.3
Broker-dealer related payables......................................... 25,706.1 19,409.7
Short-term and long-term debt.......................................... 3,670.6 2,704.5
Other liabilities...................................................... 2,860.9 2,164.0
---------------- -----------------
Total liabilities...................................................... 68,244.3 53,656.5
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,061.5 1,647.2
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 70,505.8 $ 55,503.7
================ =================
DLJ's equity as reported............................................... $ 2,061.5 $ 1,647.2
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.5 23.9
The Holding Company's equity ownership in DLJ.......................... (740.2) (590.2)
Minority interest in DLJ............................................... (729.3) (588.6)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 615.5 $ 492.3
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 2,356.8 $ 1,818.2
Net investment income.................................................. 1,652.1 1,074.2
Dealer, trading and investment gains, net.............................. 631.6 598.4
---------------- -----------------
Total revenues......................................................... 4,640.5 3,490.8
Total expenses including income taxes.................................. 4,232.3 3,199.5
---------------- -----------------
Net earnings........................................................... 408.2 291.3
Dividends on preferred stock........................................... 12.1 18.7
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 396.1 $ 272.6
================ =================
DLJ's earnings applicable to common shares as reported................. $ 396.1 $ 272.6
Amortization of cost in excess of net assets acquired in 1985.......... (1.3) (3.1)
The Holding Company's equity in DLJ's earnings......................... (156.8) (107.8)
Minority interest in DLJ............................................... (109.1) (73.4)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 128.9 $ 88.3
================ =================
</TABLE>
F-40
<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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1997, 1996 and 1995 would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As Reported............................................. $ 437.2 $ 10.3 $ 312.8
Pro Forma............................................... $ 426.3 $ 3.3 $ 311.3
</TABLE>
The fair value of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, was estimated as of the date
of grants using the Black-Scholes option pricing model. The option
pricing assumptions for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------------------- --------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield.... 0.48% 0.80% 0.96% 0.86% 1.54% 1.85% 8.00% 8.00% 8.00%
Expected volatility 20.00% 20.00% 20.00% 33.00% 25.00% 25.00% 26.00% 23.00% 23.00%
Risk-free interest
rate............ 5.99% 5.92% 6.83% 5.96% 6.07% 5.86% 5.70% 5.80% 6.00%
Expected life..... 5 years 5 years 5 years 5 years 5 years 5 years 7.6 years 7.43 years 7.43 years
Weighted average
grant-date fair
value per option $12.25 $6.94 $5.90 $22.45 $9.35 $7.36 $4.36 $2.69 $2.24
</TABLE>
F-41
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is 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, 1995........ 6.8 $20.31 - 3.8 $15.46
Granted................ .4 $20.27 9.2 $27.00 1.8 $20.54
Exercised.............. (.1) $20.00 - (.5) $11.20
Expired................ (.1) $20.00 - -
Forfeited.............. (.3) $22.24 - (.3) $16.64
--------------- ------------- ---------------
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................ - - -
Forfeited.............. (.6) $20.21 (.2) $27.00 (.1) $19.32
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
Granted................ 3.2 $41.85 3.2 $61.07 1.1 $36.56
Exercised.............. (1.6) $20.26 (.1) $32.03 (.6) $16.11
Forfeited.............. (.4) $23.43 (.1) $27.51 (.2) $21.28
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 14.1 $35.56 5.3 $22.82
=============== ============= ===============
</TABLE>
F-42
<PAGE>
Information about options outstanding and exercisable at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- ----------------- --------------- ------------------- ----------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 4.8 5.84 $20.94 3.0 $20.41
$28.50 -$45.25 3.1 9.57 $41.84 - -
----------------- -------------------
$18.125 -$45.25 7.9 7.29 $29.05 3.0 $20.41
================= ================= =============== =================== ================
DLJ
----------------------
$27.00 -$35.99 10.9 8.0 $28.05 4.9 $27.58
$36.00 -$50.99 .8 9.3 $40.04 - -
$51.00 -$76.00 2.4 9.8 $67.77 - -
----------------- -------------------
$27.00 -$76.00 14.1 8.4 $35.56 4.9 $27.58
================= ================= ================ =================== =================
Alliance
----------------------
$ 6.0625 -$17.75 1.1 3.86 $13.20 1.0 $13.04
$19.375 -$19.75 .8 7.34 $19.39 .3 $19.39
$19.875 -$21.375 1.1 8.28 $20.13 .6 $20.19
$22.25 -$27.50 1.3 9.81 $23.81 .4 $23.29
$36.9375 -$37.5625 1.0 9.95 $36.95 - -
----------------- -------------------
$ 6.0625 -$37.5625 5.3 7.58 $22.82 2.3 $17.43
================= ================== ============== ====================== =============
</TABLE>
F-43
<PAGE>
INCOME MANAGER(R) ACCUMULATOR(SM)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
-----------------------
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
BT Equity 500 Index BT International Equity Index BT Small Company Index
EQ/Putnam Growth & Income Value Morgan Stanley Emerging Markets MFS Emerging Growth Companies
MFS Research Equity Warburg Pincus Small Company Value
Merrill Lynch Basic Value Equity T. Rowe Price International Stock
T. Rowe Price Equity Income
- ---------------------------------------------------------------------------------------------------------------------------
</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
EQ/Putnam Balanced Securities
Merrill Lynch World Strategy Alliance Money Market
- ---------------------------------------------------------------------------------------------------------------------------
</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, 1996, and prospectus supplements dated May 1, 1998,
December 31 and May 1, 1997. Definitions of special terms used in the SAI are
found in the prospectus.
Copies of the prospectus and supplements are available free of charge by writing
the Processing Office, by calling 1-800-789-7771, toll-free, or by contacting
your agent.
- --------------------------------------------------------------------------------
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, Alliance Intermediate
Government Securities Fund and Alliance High
Yield Fund Yield Information 3
- --------------------------------------------------------------------------------
Part 5 Long-Term Market Trends 4
- --------------------------------------------------------------------------------
Part 6 Financial Statements 6
- --------------------------------------------------------------------------------
Copyright 1998 The Equitable Life Assurance Society of the United States, New
York, New York 10104. All rights reserved. Income Manager is a registered
service mark and Accumulator is a service mark of The Equitable Life Assurance
Society of the United States.
(IM-98-ACC596)
<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/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 HRT or
EQAT, 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 for each Investment Fund was fixed at $1.00 on each
Fund's respective effective date (as shown in the prospectus) 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 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
2
<PAGE>
- --------------------------------------------------------------------------------
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 financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 included in the SAI have been audited by Price Waterhouse LLP.
The financial statements of the Separate Account for the periods ended December
31, 1997 and 1996, and the consolidated financial statements of Equitable Life
at December 31, 1997 and 1996 and for each of the three years ended December 31,
1997 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, ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND AND ALLIANCE HIGH YIELD 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) [superscript: 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 and Alliance High Yield Fund
The Alliance Intermediate Government Securities and Alliance High Yield Funds
calculate 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.
3
<PAGE>
- --------------------------------------------------------------------------------
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities or Alliance High Yield 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 or Alliance High Yield Fund will
vary for each Certificate depending upon the percentage of the Annuity Account
Value allocated to the Alliance Intermediate Government Securities or Alliance
High Yield Fund. To determine the effect of the annual contract fee on the
yield, we start with the total dollar amount 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 Intermediate
Government Securities or Alliance High Yield 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 or
Alliance High Yield 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)
[superscript 365/30] - 1. The yields for the Alliance Intermediate Government
Securities and Alliance High Yield Funds 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 and Alliance High Yield Funds will fluctuate
and not remain constant.
Alliance Money Market Fund, Alliance Intermediate Government Securities Fund and
Alliance High Yield Fund Yield Information
The yields for the Alliance Money Market Fund, Alliance Intermediate Government
Securities Fund and Alliance High Yield Fund 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. The yields for the Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund and Alliance
High Yield Fund 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 yields be compared to the yields 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 5.35% for the
period ended December 31, 1997. The effective yield for that period was 5.49%
The 30-day current yield for the Alliance Intermediate Government Securities
Fund was 8.07% for the period ended December 31, 1997. The effective yield for
that period was 8.38%.
The 30-day current yield for the Alliance High Yield Fund was 16.14% for the
period ended December 31, 1997. The effective yield for that period was 17.39%.
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, Alliance Intermediate Government
Securities and Alliance High Yield Portfolios which reflect only the deduction
of HRT-level expenses.
- --------------------------------------------------------------------------------
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.
4
<PAGE>
- --------------------------------------------------------------------------------
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, 1957
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE TYPESET DOCUMENT:]
Common Stock Inflation
1957 0.89 1.03
1958 1.28 1.05
1959 1.43 1.06
1960 1.44 1.08
1961 1.83 1.09
1962 1.67 1.10
1963 2.05 1.12
1964 2.38 1.13
1965 2.68 1.15
1966 2.41 1.19
1967 2.99 1.23
1968 3.32 1.29
1969 3.04 1.36
1970 3.16 1.44
1971 3.61 1.49
1972 4.30 1.54
1973 3.67 1.67
1974 2.70 1.88
1975 3.70 2.01
1976 4.58 2.11
1977 4.25 2.25
1978 4.53 2.45
1979 5.37 2.78
1980 7.11 3.12
1981 6.76 3.40
1982 8.20 3.54
1983 10.05 3.67
1984 10.68 3.81
1985 14.11 3.96
1986 16.72 4.00
1987 17.60 4.18
1988 20.55 4.36
1989 27.03 4.57
1990 26.17 4.85
1991 34.16 4.99
1992 36.78 5.14
1993 40.46 5.28
1994 40.99 5.42
1995 56.33 5.56
1996 69.33 5.74
1997 92.44 5.85
[WHITE AREA = COMMON STOCK]
[BLACK AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]
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 1997.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK & WHITE LINE GRAPH
IN THE TYPESET DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[BLACK DOTS = INTERMEDIATE-TERM GOVT. BONDS]
[WHITE DOTS = COMMON STOCKS]
[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, 1997 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.
5
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MARKET TRENDS:
ILLUSTRATIVE ANNUAL RATES OF RETURN
- ----------------------------------------------------------------------------------------------------
LONG-TERM INTERMEDIATE- U.S.
FOR THE FOLLOWING PERIODS COMMON LONG-TERM CORPORATE TERM TREASURY CONSUMER
ENDING 12/31/97: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 33.36% 15.85% 12.95% 8.38% 5.26% 1.92%
3 Years 31.15% 14.76% 13.36% 8.93% 5.35% 2.59%
5 Years 20.24% 10.51% 9.22% 6.40% 4.57% 2.64%
10 Years 18.05% 11.32% 10.85% 8.33% 5.44% 3.43%
20 Years 16.65% 10.39% 10.29% 9.51% 7.29% 4.90%
30 Years 12.12% 8.63% 8.86% 8.52% 6.77% 5.34%
40 Years 12.30% 6.71% 7.09% 7.10% 5.85% 4.44%
50 Years 13.12% 5.70% 6.07% 6.04% 4.99% 3.94%
60 Years 12.53% 5.31% 5.54% 5.44% 4.18% 4.11%
Since 12/31/26 10.99% 5.19% 5.71% 5.25% 3.77% 3.17%
Inflation adjusted since 1926 7.58% 1.96% 2.46% 2.02% 0.58% --
- ----------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969-1997, 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 1969-1997; 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 -- FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the Certificates.
6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO.45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1997........................................... FS-3
Statements of Operations for the Year Ended December 31, 1997..................................... FS-6
Statements of Changes in Net Assets for the Years Ended December 31, 1997 and 1996................ FS-9
Notes to Financial Statements..................................................................... FS-14
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1997 and 1996.............................................. F-2
Consolidated Statements of Earnings, Years Ended December 31, 1997, 1996 and 1995.................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended December 31, 1997,
1996 and 1995...................................................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 1997, 1996 and 1995.................. F-5
Notes to Consolidated Financial Statements........................................................... F-6
</TABLE>
FS-1
<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 Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund, T.
Rowe Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, Alliance Equity Index Fund, Merrill Lynch Basic Value
Equity Fund, Alliance Common Stock Fund, MFS Research Fund, Alliance Global
Fund, Alliance International Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock Fund,
Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth Fund, MFS
Emerging Growth Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam
Balanced Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund, separate investment funds of The Equitable Life Assurance Society of the
United States ("Equitable Life") Separate Account No. 45 at December 31, 1997
and 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 owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1997 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
New York, New York
February 10, 1998
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
----------- ------------- ---------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $82,037,124.......... $81,571,923
11,097,635.......... $11,119,574
19,330,287.......... $18,544,101
Receivable (payable) for policy-related
transactions................................... 2,903,327 50,563 662,782
----------- ----------- ------------
Total Assets...................................... 84,475,250 11,170,137 19,206,883
----------- ----------- ------------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 2,910,079 52,140 665,890
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 206,810 55,747 59,654
----------- ----------- ------------
Total Liabilities................................. 3,116,889 107,887 725,544
----------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $81,358,361 $11,062,250 $18,481,339
=========== =========== ============
<CAPTION>
EQUITY SERIES
--------------------------------------------------------------------------
MERRILL
T. ROWE PRICE EQ/PUTNAM ALLIANCE LYNCH
EQUITY GROWTH & ALLIANCE EQUITY BASIC VALUE
EQUITY INCOME VALUE GROWTH & INDEX EQUITY
INCOME FUND FUND INCOME FUND FUND FUND
------------- -------------- ----------- ----------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 18,007,458.......... $18,987,864
14,008,930.......... $14,200,058
88,651,911.......... $94,268,289
99,286.......... $104,008
9,928,247.......... $9,863,914
Receivable (payable) for policy-related
transactions................................... 105,202 186,146 809,151 (8) 34,834
----------- ----------- ----------- --------- ----------
Total Assets...................................... 19,093,066 14,386,204 95,077,440 104,000 9,898,748
----------- ----------- ----------- --------- ----------
LIABILITIES
Payable (receivable) for the Trust shares
purchased...................................... 109,104 189,102 829,693 -- 36,845
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 15,447 11,682 366,973 6,482 7,463
----------- ----------- ----------- --------- ----------
Total Liabilities................................. 124,551 200,784 1,196,666 6,482 44,308
----------- ----------- ----------- --------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS........ $18,968,515 $14,185,420 $93,880,774 $ 97,518 $9,854,440
=========== =========== =========== ========= ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
------------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ -------------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $297,090,529................... $320,541,976
11,939,823................... $11,977,333
38,334,848................... $38,090,450
18,748,095................... $16,610,244
Receivable (payable) for policy-related transactions....... 1,219,096 44,794 646,213 31,494
------------ ----------- ----------- -----------
Total Assets............................................... 321,761,072 12,022,127 38,736,663 16,641,738
------------ ----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ 1,275,113 47,322 83,460 68,383
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 1,176,309 10,019 143,534 90,013
------------ ----------- ----------- -----------
Total Liabilities.......................................... 2,451,422 57,341 226,994 158,396
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $319,309,650 $11,964,786 $38,509,669 $16,483,342
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
T. ROWE MORGAN
PRICE STANLEY ALLIANCE
INTERNATIONAL EMERGING AGGRESSIVE
STOCK MARKETS STOCK
FUND EQUITY FUND FUND
------------- ----------- ------------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 13,205,929................... $12,628,951
2,479,420................... $2,241,138
122,157,062................... $118,305,660
Receivable (payable) for policy-related transactions....... (241,260) 14,961 55,012
----------- ---------- ------------
Total Assets............................................... 12,387,691 2,256,099 118,360,672
----------- ---------- ------------
LIABILITIES
Payable (receivable) for the Trust shares purchased........ (238,550) 15,412 76,530
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................. 9,534 1,594 456,464
----------- ---------- ------------
Total Liabilities.......................................... (229,016) 17,006 532,994
----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $12,616,707 $2,239,093 $117,827,678
=========== ========== ============
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-----------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP GROWTH
COMPANY GROWTH COMPANIES
VALUE FUND FUND FUND
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $25,096,987.................. $24,796,551
16,633,779.................. $16,289,343
12,205,272.................. $11,946,078
Receivable (payable) for policy-related transactions...... 208,290 107,600 73,764
----------- ----------- -----------
Total Assets.............................................. 25,004,841 16,396,943 12,019,842
----------- ----------- -----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 213,483 114,679 76,254
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 19,432 54,205 9,228
----------- ----------- -----------
Total Liabilities......................................... 232,915 168,884 85,482
----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $24,771,926 $16,228,059 $11,934,360
=========== =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES
------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
------------ ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C>
Investments in shares of the Trusts --
at market value (Note 1)
Cost: 20,991,531.................. $21,474,276
5,965,298.................. $6,038,880
64,675,197.................. $66,360,908
2,544,176.................. $2,415,053
Receivable (payable) for policy-related transactions...... 146,316 76,680 120,470 9,748
----------- ---------- ----------- ----------
Total Assets.............................................. 21,620,592 6,115,560 66,481,378 2,424,801
----------- ---------- ----------- ----------
LIABILITIES
Payable (receivable) for the Trust shares purchased....... 149,280 77,927 132,026 10,238
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)................................ 142,854 4,667 366,318 1,768
----------- ---------- ----------- ----------
Total Liabilities......................................... 292,134 82,594 498,344 12,006
----------- ---------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO CONTRACT OWNERS................ $21,328,458 $6,032,966 $65,983,034 $2,412,795
=========== ========== =========== ==========
</TABLE>
- -------------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIXED INCOME SERIES
--------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND(A)
----------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 2,767,636 $ 373,989 $ 654,819
Expenses (Note 3):
Asset based charges ....................................... 445,521 70,280 53,671
----------- --------- -----------
NET INVESTMENT INCOME (LOSS) .............................. 2,322,115 303,709 601,148
----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 59,011 12,754 76,963
Realized gain distribution from the Trusts ................ 5,264 -- 706,360
----------- --------- -----------
Net Realized Gain (Loss) ............................... 64,275 12,754 783,323
----------- --------- -----------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... (197,899) (36,715) --
End of period ............................................. (465,201) 21,939 (786,186)
----------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ......................................... (267,302) 58,654 (786,186)
----------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ (203,027) 71,408 (2,863)
----------- --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $ 2,119,088 $ 375,117 $ 598,285
=========== ========= ===========
<CAPTION>
EQUITY SERIES
---------------------------------------------------------------
T. ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & EQUITY BASIC VALUE
INCOME INCOME INCOME INDEX EQUITY
FUND(A) FUND(A) VALUE FUND FUND(A) FUND(A)
----------- -------- ---------- -------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts .............................. $ 141,756 $ 65,607 $ 522,395 $ 596 $ 49,960
Expenses (Note 3):
Asset based charges ....................................... 62,938 44,334 617,639 409 29,450
---------- ----------- ------------ -------- --------
NET INVESTMENT INCOME (LOSS) .............................. 78,818 21,273 (95,244) 187 20,510
---------- ----------- ------------ -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments ....................... 2,121 963 707,686 1,022 711
Realized gain distribution from the Trusts ................ 52,414 53,683 5,306,878 370 47,068
---------- ----------- ------------ -------- --------
Net Realized Gain (Loss) ............................... 54,535 54,646 6,014,564 1,392 47,779
---------- ----------- ------------ -------- --------
Unrealized appreciation (depreciation) on
investments
Beginning of period ....................................... -- -- 764,236 -- --
End of period ............................................. 980,406 191,128 5,616,378 4,722 (64,333)
---------- ----------- ------------ -------- --------
Change in unrealized appreciation (depreciation)
during the period ......................................... 980,406 191,128 4,852,142 4,722 (64,333)
---------- ----------- ------------ -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ............................................ 1,034,941 245,774 10,866,706 6,114 (16,554)
---------- ----------- ------------ -------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ............................................. $1,113,759 $ 267,047 $ 10,771,462 $ 6,301 $ 3,956
========== =========== ============ ======== ========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
---------------------------------------------------------
ALLIANCE ALLIANCE
COMMON MFS ALLIANCE INTER-
STOCK RESEARCH GLOBAL NATIONAL
FUND FUND(A) FUND FUND
------------ ---------- ------------ -----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,007,250 $ 25,364 $ 662,565 $ 454,446
Expenses (Note 3):
Asset based charges .................................. 2,216,874 40,703 334,193 165,980
----------- -------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (1,209,624) (15,339) 328,372 288,466
----------- -------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 3,442,671 1,227 423,327 259,996
Realized gain distribution from the Trusts ........... 23,990,653 100,696 2,414,538 833,830
----------- -------- ---------- -----------
Net Realized Gain (Loss) .......................... 27,433,324 101,923 2,837,865 1,093,826
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 1,356,454 -- 199,484 31,388
End of period ........................................ 23,451,447 37,510 (244,398) (2,137,851)
----------- -------- ---------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. 22,094,993 37,510 (443,882) (2,169,239)
----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 49,528,317 139,433 2,393,983 (1,075,413)
----------- -------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $48,318,693 $124,094 $2,722,355 $ (786,947)
=========== ======== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING ALLIANCE
NATIONAL MARKETS AGGRESSIVE
STOCK EQUITY STOCK
FUND(A) FUND(B) FUND
---------- --------- ------------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 1,646 $ 6,387 $ 105,375
Expenses (Note 3):
Asset based charges .................................. 47,444 5,153 985,564
--------- --------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (45,798) 1,234 (880,189)
--------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. (53,503) (26,406) 61,253
Realized gain distribution from the Trusts ........... -- -- 9,818,273
--------- --------- -----------
Net Realized Gain (Loss) .......................... (53,503) (26,406) 9,879,526
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- (2,165,186)
End of period ........................................ (576,978) (238,282) (3,851,402)
--------- --------- -----------
Change in unrealized appreciation (depreciation)
during the period ................................. (576,978) (238,282) (1,686,216)
--------- --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... (630,481) (264,688) 8,193,310
--------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $(676,279) $(263,454) $ 7,313,121
========= ========= ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED)
-------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
--------- ---------- -----------
INCOME AND EXPENSES:
<S> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 21,393 $ 773 $ 22,515
Expenses (Note 3):
Asset based charges .................................. 85,830 50,629 38,336
--------- --------- ---------
NET INVESTMENT INCOME (LOSS) ......................... (64,437) (49,856) (15,821)
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 228,992 62,796 52,672
Realized gain distribution from the Trusts ........... 109,076 377,750 274,537
--------- --------- ---------
Net Realized Gain (Loss) .......................... 338,068 440,546 327,209
--------- ---------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. -- -- --
End of period ........................................ (300,436) (344,436) (259,194)
--------- --------- ---------
Change in unrealized appreciation (depreciation)
during the period ................................. (300,436) (344,436) (259,194)
--------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 37,632 96,110 68,015
--------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $ (26,805) $ 46,254 $ 52,194
========= ========= =========
<CAPTION>
ASSET ALLOCATION SERIES
---------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND(A) FUND FUND(A)
---------- ---------- ----------- ----------
INCOME AND EXPENSES:
<S> <C> <C> <C> <C>
Investment Income (Note 2):
Dividends from the Trusts ......................... $ 647,522 $ 69,781 $ 1,260,100 $ 10,682
Expenses (Note 3):
Asset based charges .................................. 165,768 18,233 523,559 7,708
---------- --------- ----------- --------
NET INVESTMENT INCOME (LOSS) ......................... 481,754 51,548 736,541 2,974
---------- --------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 2):
Realized gain (loss) on investments .................. 49,147 (1,203) 187,731 (109)
Realized gain distribution from the Trusts ........... 638,548 46,731 3,432,867 24,328
---------- --------- ----------- --------
Net Realized Gain (Loss) .......................... 687,695 45,528 3,620,598 24,219
---------- --------- ----------- --------
Unrealized appreciation (depreciation) on investments:
Beginning of period .................................. 4,651 -- (158,777) --
End of period ........................................ 482,745 73,582 1,685,711 (129,123)
---------- --------- ----------- --------
Change in unrealized appreciation (depreciation)
during the period ................................. 478,094 73,582 1,844,488 (129,123)
---------- --------- ----------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ....................................... 1,165,789 119,110 5,465,086 (104,904)
---------- --------- ----------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ........................................ $1,647,543 $ 170,658 $ 6,201,627 $(101,930)
========== ========= =========== =========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------
ALLIANCE
MONEY MARKET FUND
------------------------------
1997 1996
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................... $ 2,322,115 $ 791,163
Net realized gain (loss) ................................ 64,275 19,803
Change in unrealized appreciation /(depreciation)
of investments ....................................... (267,302) (165,897)
------------- -------------
Net increase in net assets from operations .............. 2,119,088 645,069
------------- -------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 137,532,670 95,681,367
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 55,819,439 19,687,669
------------- -------------
Total ............................................. 193,352,109 115,369,036
------------- -------------
Benefit & other policy transaction ................... 1,577,365 198,356
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 618,083 514,843
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 144,167,408 87,121,388
------------- -------------
Total ............................................. 146,362,856 87,834,587
------------- -------------
Net increase in net assets from Contract Owner
transactions ........................................ 46,989,253 27,534,449
------------- -------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT 45 (NOTE 5) ......................... (46,770) (17,582)
------------- -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 49,061,571 28,161,936
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 32,296,790 4,134,854
------------- -------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 81,358,361 $ 32,296,790
============= =============
<CAPTION>
FIXED INCOME SERIES:
--------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE HIGH YIELD
GOVERNMENT SECURITIES FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................... $ 303,709 $ 138,808 $ 601,148
Net realized gain (loss) ................................ 12,754 (21,067) 783,323
Change in unrealized appreciation /(depreciation)
of investments ....................................... 58,654 (41,524) (786,186)
------------ ------------ ------------
Net increase in net assets from operations .............. 375,117 76,217 598,285
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................ 5,416,131 1,798,660 13,779,925
Transfers from other Funds and Guaranteed Interest
Account (Note 1) .................................. 3,270,944 8,533,013 22,095,921
------------ ------------ ------------
Total ............................................. 8,687,075 10,331,673 35,875,846
------------ ------------ ------------
Benefit & other policy transaction ................... 189,517 15,968 161,257
Withdrawals and Transfers:
Withdrawal and administrative charges ................ 128,377 77,637 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1) .................................. 1,145,902 8,982,626 17,780,088
------------ ------------ ------------
Total ............................................. 1,463,796 9,076,231 17,986,890
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ........................................ 7,223,279 1,255,442 17,888,956
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ..................... (12,130) (6,709) (5,902)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 7,586,266 1,324,950 18,481,339
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... 3,475,984 2,151,034 --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ......................................... $ 11,062,250 $ 3,475,984 $ 18,481,339
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
------------------------------
T. ROWE EQ/PUTNAM
PRICE EQUITY GROWTH &
INCOME INCOME VALUE
FUND(A) FUND(A)
-------------- --------------
1997 1997
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment income (loss) ............................... $ 78,818 $ 21,273
Net realized gain (loss) ................................... 54,535 54,646
Change in unrealized appreciation / (depreciation)
of investments .......................................... 980,406 191,128
------------ ------------
Net increase in net assets from operations ................. 1,113,759 267,047
------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 13,813,772 10,975,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 4,356,204 3,217,543
------------ ------------
Total ................................................ 18,169,976 14,192,742
------------ ------------
Benefit & other policy transaction ...................... 86,052 58,925
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 40,797 32,578
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 183,349 180,506
------------ ------------
Total ................................................ 310,198 272,009
------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 17,859,778 13,920,733
------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (5,022) (2,360)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 18,968,515 14,185,420
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- --
------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 18,968,515 $ 14,185,420
============ ============
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------
ALLIANCE
ALLIANCE EQUITY MERRILL LYNCH
GROWTH & INCOME INDEX BASIC VALUE
FUND FUND(A) EQUITY FUND(A)
--------------------------- ---------- ---------------
1997 1996 1997 1997
------------ ------------ ---------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ (95,244) $ 64,283 $ 187 $ 20,510
Net realized gain (loss) ................................... 6,014,564 693,777 1,392 47,779
Change in unrealized appreciation / (depreciation)
of investments .......................................... 4,852,142 698,407 4,722 (64,333)
------------ ------------ -------- ------------
Net increase in net assets from operations ................. 10,771,462 1,456,467 6,301 3,956
------------ ------------ -------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 58,696,016 6,251,620 77,031 8,075,199
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 16,269,895 6,040,990 15,328 1,941,071
------------ ------------ -------- ------------
Total ................................................ 74,965,911 12,292,610 92,359 10,016,270
------------ ------------ -------- ------------
Benefit & other policy transaction ...................... 1,455,357 130,199 -- 9,691
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 425,279 31,991 -- 17,792
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 4,907,606 342,494 -- 137,464
------------ ------------ -------- ------------
Total ................................................ 6,788,242 504,684 -- 164,947
------------ ------------ -------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 68,177,669 11,787,926 92,359 9,851,323
------------ ------------ -------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (94,285) (27,565) (1,142 (839)
------------ ------------ -------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 78,854,846 13,216,828 97,518 9,854,440
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,025,928 1,809,100 -- --
------------ ------------ -------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 93,880,774 $ 15,025,928 $ 97,518 $ 9,854,440
============ ============ ======== ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
MFS
ALLIANCE RESEARCH
COMMON STOCK FUND FUND(A)
---------------------------- ------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) ............................... $ (1,209,624) $ (42,865) $ (15,339)
Net realized gain (loss) ................................... 27,433,324 6,011,054 101,923
Change in unrealized appreciation / (depreciation)
of investments .......................................... 22,094,993 1,504,011 37,510
------------- ------------ ------------
Net increase (decrease) in net assets from operations ...... 48,318,693 7,472,200 124,094
------------- ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 175,880,351 36,558,323 9,502,168
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 61,077,537 34,378,499 2,602,553
------------- ------------ ------------
Total ................................................ 236,957,888 70,936,822 12,104,721
------------- ------------ ------------
Benefit & other policy transaction ...................... 4,271,079 427,323 28,630
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 1,459,175 290,642 23,738
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 35,438,036 8,933,676 209,610
------------- ------------ ------------
Total ................................................ 41,168,290 9,651,641 261,978
------------- ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 195,789,598 61,285,181 11,842,743
------------- ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (305,436) (85,006) (2,051)
------------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 243,802,855 68,672,375 11,964,786
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 75,506,795 6,834,420 --
------------- ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 319,309,650 $ 75,506,795 $ 11,964,786
============= ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------------
ALLIANCE ALLIANCE
GLOBAL FUND INTERNATIONAL FUND
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ 328,372 $ 88,313 $ 288,466 $ 53,333
Net realized gain (loss) ................................... 2,837,865 543,216 1,093,826 234,294
Change in unrealized appreciation / (depreciation)
of investments .......................................... (443,882) 184,372 (2,169,239) 16,354
------------ ------------ ------------ -----------
Net increase (decrease) in net assets from operations ...... 2,722,355 815,901 (786,947) 303,981
------------ ------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 20,384,580 9,199,245 9,574,522 3,782,377
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 7,792,945 6,255,073 18,180,472 5,791,839
------------ ------------ ------------ -----------
Total ................................................ 28,177,525 15,454,318 27,754,994 9,574,216
------------ ------------ ------------ -----------
Benefit & other policy transaction ...................... 621,118 70,774 341,327 38,451
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 155,169 36,757 97,083 75,353
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1) ................................ 6,961,429 1,836,433 18,593,662 1,979,003
------------ ------------ ------------ -----------
Total ................................................ 7,737,716 1,943,964 19,032,072 2,092,807
------------ ------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ............................................ 20,439,809 13,510,354 8,722,922 7,481,409
------------ ------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (28,799) (18,054) (36,637) (11,874)
------------ ------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 23,133,365 14,308,201 7,899,338 7,773,516
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 15,376,304 1,068,103 8,584,004 810,488
------------ ------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 38,509,669 $ 15,376,304 $ 16,483,342 $ 8,584,004
============ ============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------
T. ROWE MORGAN
PRICE STANLEY
INTER- EMERGING
NATIONAL MARKETS ALLIANCE
STOCK EQUITY AGGRESSIVE STOCK
FUND(A) FUND(B) FUND
------------- ----------- --------------------------------
1997 1997 1997 1996
------------- ----------- -------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ...................................... $ (45,798) $ 1,234 $ (880,189) $ (121,400)
Net realized gain (loss) ................................... (53,503) (26,406) 9,879,526 4,080,335
Change in unrealized appreciation / (depreciation)
of investments .......................................... (576,978) (238,282) (1,686,216) (1,995,216)
------------ ----------- ------------- ------------
Net increase (decrease) in net assets from operations ...... (676,279) (263,454) 7,313,121 1,963,719
------------ ----------- ------------- ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 9,658,570 1,617,148 66,019,813 22,776,845
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 5,113,170 889,247 17,726,363 20,452,746
------------ ----------- ------------- ------------
Total ................................................ 14,771,740 2,506,395 83,746,176 43,229,591
------------ ----------- ------------- ------------
Benefit & other policy transaction ...................... 37,224 -- 1,854,804 245,070
Withdrawals and Transfers:
Withdrawal and administrative charges ................... 22,024 394 482,491 90,356
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 1,416,476 2,488 11,669,668 7,099,325
------------ ----------- ------------- ------------
Total ................................................ 1,475,724 2,882 14,006,963 7,434,751
------------ ----------- ------------- ------------
Net increase in net assets from Contract Owner
transactions ............................................ 13,296,016 2,503,513 69,739,213 35,794,840
------------ ----------- ------------- ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (3,030) (966) (111,908) (33,503)
------------ ----------- ------------- ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 12,616,707 2,239,093 76,940,426 37,725,056
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- 40,887,252 3,162,196
------------ ----------- ------------- ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 12,616,707 $ 2,239,093 $ 117,827,678 $ 40,887,252
============ =========== ============= ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------
WARBURG MFS
PINCUS SMALL ALLIANCE EMERGING
COMPANY SMALL CAP GROWTH
VALUE GROWTH COMPANIES
FUND(A) FUND(A) FUND(A)
------------ ------------- ----------------
1997 1997 1997
------------ ------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ...................................... $ (64,437) $ (49,856) $ (15,821)
Net realized gain (loss) ................................... 338,068 440,546 327,209
Change in unrealized appreciation / (depreciation)
of investments .......................................... (300,436) (344,436) (259,194)
------------ ------------ ------------
Net increase (decrease) in net assets from operations ...... (26,805) 46,254 52,194
------------ ------------ ------------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ........................................... 17,791,841 12,116,331 9,607,211
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ............................ 11,695,862 5,602,864 3,864,604
------------ ------------ ------------
Total ................................................ 29,487,703 17,719,195 13,471,815
------------ ------------ ------------
Benefit & other policy transaction ...................... 134,692 20,842 45,537
Withdrawals and Transfers:
Withdrawal and administrative charges ...................... 23,284 8,570 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ....................... 4,520,417 1,504,600 1,527,808
------------ ------------ ------------
Total ................................................ 4,678,393 1,534,012 1,587,690
------------ ------------ ------------
Net increase in net assets from Contract Owner
transactions ............................................ 24,809,310 16,185,183 11,884,125
------------ ------------ ------------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5) ........................... (10,579) (3,378) (1,959)
------------ ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ 24,771,926 16,228,059 11,934,360
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ -- -- --
------------ ------------ ------------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ............................................ $ 24,771,926 $ 16,228,059 $ 11,934,360
============ ============ ============
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on November 20, 1997.
See Notes to Financial Statements.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------
ALLIANCE EQ/PUTNAM
CONSERVATIVE BALANCED
INVESTORS FUND FUND(A)
--------------------------- ----------- -
1997 1996 1997
------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 481,754 $ 193,429 $ 51,548
Net realized gain (loss) ............................. 687,695 154,966 45,528
Change in unrealized appreciation / (depreciation)
of investments .................................... 478,094 (12,221) 73,582
----------- ----------- -----------
Net increase (decrease) in net assets from operations 1,647,543 336,174 170,658
------------ ----------- -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 10,862,780 3,977,495 4,294,496
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 3,151,066 2,837,790 1,721,220
------------ ----------- -----------
Total .......................................... 14,013,846 6,815,285 6,015,716
------------ ----------- -----------
Benefit & other policy transaction ................ 567,547 60,271 17,533
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 138,461 100,314 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 1,428,179 814,338 120,099
------------ ----------- -----------
Total .......................................... 2,134,187 974,923 152,925
------------ ----------- -----------
Net increase in net assets from Contract Owner
transactions ...................................... 11,879,659 5,840,362 5,862,791
------------ ----------- -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (57,026) (12,633) (483)
------------ ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 13,470,176 6,163,903 6,032,966
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 7,858,282 1,694,379 --
------------ ----------- -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 21,328,458 $ 7,858,282 $ 6,032,966
============ =========== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------
ALLIANCE MERRILL LYNCH
GROWTH WORLD STRATEGY
INVESTORS FUND FUND(A)
---------------------------- --------------
1997 1996 1997
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ................................ $ 736,541 $ 218,025 $ 2,974
Net realized gain (loss) ............................. 3,620,598 1,601,901 24,219
Change in unrealized appreciation / (depreciation)
of investments .................................... 1,844,488 (197,988) (129,123)
------------ ------------ -----------
Net increase (decrease) in net assets from operations 6,201,627 1,621,938 (101,930)
------------ ------------ -----------
FROM CONTRACT OWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions ..................................... 32,084,069 11,004,121 2,043,811
Transfers from other Funds and Guaranteed
Interest Account (Note 1) ...................... 7,981,423 9,331,901 561,601
------------ ------------ -----------
Total .......................................... 40,065,492 20,336,022 2,605,412
------------ ------------ -----------
Benefit & other policy transaction ................ 1,014,211 206,468 3,514
Withdrawals and Transfers:
Withdrawal and administrative charges ............. 421,582 228,021 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1) ................. 2,744,848 1,177,040 84,455
------------ ------------ -----------
Total .......................................... 4,180,641 1,611,529 90,566
------------ ------------ -----------
Net increase in net assets from Contract Owner
transactions ...................................... 35,884,851 18,724,493 2,514,846
------------ ------------ -----------
NET DECREASE (INCREASE) IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) ... (111,839) (32,214) (121)
------------ ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 41,974,639 20,314,217 2,412,795
NET ASSETS, BEGINNING OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... 24,008,395 3,694,178 --
------------ ------------ -----------
NET ASSETS, END OF PERIOD ATTRIBUTABLE TO
CONTRACT OWNERS ...................................... $ 65,983,034 $ 24,008,395 $ 2,412,795
============ ============ ===========
</TABLE>
- -------------------------
(a) Commenced operations on May 1, 1997.
See Notes to Financial Statements.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
1940 Act"). The Account consists of 22 investment funds (Funds): Alliance
Money Market Fund, Alliance Intermediate Government Securities Fund,
Alliance High Yield Fund, T. Rowe Price Equity Income Fund, EQ/Putnam
Growth & Income Value Fund, Alliance Growth & Income Fund, Alliance Equity
Index Fund, Merrill Lynch Basic Value Equity Fund, Alliance Common Stock
Fund, MFS Research Fund, Alliance Global Fund, Alliance International
Fund, T. Rowe Price International Stock Fund, Morgan Stanley Emerging
Markets Equity Fund, Alliance Aggressive Stock Fund, Warburg Pincus Small
Company Value Fund, Alliance Small Cap Growth Fund, MFS Emerging Growth
Companies Fund, Alliance Conservative Investors Fund, EQ/Putnam Balanced
Fund, Alliance Growth Investors Fund and Merrill Lynch World Strategy
Fund. The assets in each Fund are invested in shares of a corresponding
portfolio (Portfolio) of a mutual fund, Class IA and IB shares of The
Hudson River Trust (HRT) or Class IB shares of EQ Advisors Trust (EQAT)
(collectively known as the Trusts). Class IB shares are offered by the
Funds at net asset value and are subject to distribution fees imposed
under a distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act. Class IA shares of HRT continue to be purchased by contracts in-force
prior to May 1, 1997. The Trusts are open-end, diversified management
investment companies that sell its shares to 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 is also available
for purchase by certain types of qualified plans. 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 less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth 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.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 charges for mortality and expense
risks at an annual rate of 0.90% of daily net assets. In addition, asset
based administrative charges are also charged to the account at an annual
rate of 0.25% of daily net assets. The charges may be retained in the
Account by Equitable Life and participate in the net investment results of
the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.15% of daily net assets. Trust shares are
valued at their net asset value with investment advisory or management
fees, the 12b-1 fee, and other expenses of the Trust, in effect, passed on
to the Account and reflected in the accumulation unit values of the
Contracts.
4. Contributions, Transfers and Charges:
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ -------------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
------------------------------------------
<S> <C> <C>
Class A Net Issued........................................... -- 1,128
Net Redeemed......................................... (374) --
Class B Net Issued........................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
------------------------------------------------
Class A Net Issued........................................... 161 92
Class B Net Issued........................................... 345 --
ALLIANCE HIGH YIELD FUND
------------------------------------
Class A Net Issued........................................... 98 --
Class B Net Issued........................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,565 --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A)
------------------------------------------------
Class B Net Issued........................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
----------------------------------------------
Class A Net Issued........................................... 2,377 905
Class B Net Issued........................................... 1,829 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Continued):
Net accumulation units issued and redeemed during the periods indicated
were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-----------------------------------------
ALLIANCE EQUITY INDEX FUND (A) (IN THOUSANDS)
<S> <C> <C>
Class B Net Issued............................................ 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
-----------------------------------------
Class B Net Issued............................................ 849 --
ALLIANCE COMMON STOCK FUND
--------------------------
Class A Net Issued............................................ 620 439
Class B Net Issued............................................ 519 --
MFS RESEARCH FUND (A)
---------------------
Class B Net Issued............................................ 1,039 --
ALLIANCE GLOBAL FUND
---------------------
Class A Net Issued............................................ 444 561
Class B Net Issued............................................ 308 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Class A Net Issued............................................ 438 643
Class B Net Issued............................................ 285 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (A)
------------------------------------------
Class B Net Issued............................................ 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
-----------------------------------------------
Class B Net Issued............................................ 282 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Contributions, Transfers and Charges (Concluded):
Accumulation units issued and redeemed during the periods indicated were:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------------- ----------------
ALLIANCE AGGRESSIVE STOCK FUND (IN THOUSANDS)
------------------------------
<S> <C> <C>
Class A Net Issued....................................... 641 562
Class B Net Issued....................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
-------------------------------------------
Class B Net Issued....................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND
------------------------------
Class A Net Issued....................................... 208 --
Class B Net Issued....................................... 1,084 --
MFS EMERGING GROWTH COMPANIES FUND (A)
--------------------------------------
Class B Net Issued....................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
------------------------------------
Class A Net Issued....................................... 356 354
Class B Net Issued....................................... 295 --
EQ/PUTNAM BALANCED FUND (A)
---------------------------
Class B Net Issued....................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
------------------------------
Class A Net Issued....................................... 681 758
Class B Net Issued....................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
------------------------------------
Class B Net Issued....................................... 232 --
</TABLE>
-----------------------
(a) Commenced Operations on May 1, 1997.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. 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 contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
INVESTMENT FUND 1997 1996
------------------------------ ----------------------------
<S> <C> <C>
Alliance Money Market Fund..................................... $(240,000) $(125,000)
Alliance Intermediate Government Securities Fund............... (60,000) (25,000)
Alliance High Yield Fund(1).................................... 10,000 --
T. Rowe Price Equity Income Fund(1)............................ -- --
EQ/Putnam Growth & Income Value Fund(1)........................ -- --
Alliance Growth & Income Fund.................................. (250,000) (60,000)
Alliance Equity Index Fund..................................... 5,000 --
Merrill Lynch Basic Value Equity Fund(1)....................... -- --
Alliance Common Stock Fund..................................... (840,000) (223,000)
MFS Research Fund(1)........................................... -- --
Alliance Global Fund........................................... (185,000) (52,000)
Alliance International Fund.................................... (120,000) (35,000)
T. Rowe Price International Stock Fund(1)...................... -- --
Morgan Stanley Emerging Markets Equity Fund(2)................. -- --
Alliance Aggressive Stock Fund................................. (435,000) (110,000)
Warburg Pincus Small Company Value Fund(1)..................... -- --
Alliance Small Cap Growth Fund(1).............................. 10,000 --
MFS Emerging Growth Companies Fund(1).......................... -- --
Alliance Conservative Investors Fund........................... (87,000) (45,000)
EQ/Putnam Balanced Fund(1)..................................... -- --
Alliance Growth Investors Fund................................. (185,000) (105,000)
Merrill Lynch World Strategy Fund(1)........................... -- --
</TABLE>
----------------------
(1) Commenced operations on May 1, 1997.
(2) Commenced operations on November 20, 1997.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996
ALLIANCE MONEY MARKET FUND ----------------------------- --------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period....................... $24.81 $23.83
Class A Unit value, end of period............................. $25.85 $24.81
Class B Unit value, beginning of period (c)................... $25.17 --
Class B Unit value, end of period (c)......................... $25.85 --
Number of units outstanding, end of period (000's):
Class A.................................................... 928 1,302
Class B.................................................... 1,972 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A Unit value, beginning of period....................... $13.77 $13.42
Class A Unit value, end of period............................. $14.60 $13.77
Class B Unit value, beginning of period (c)................... $13.88 --
Class B Unit value, end of period (c)......................... $14.58 --
Number of units outstanding, end of period (000's):
Class A.................................................... 413 252
Class B.................................................... 345 --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A Unit value, beginning of period....................... $26.95 --
Class A Unit value, end of period............................. $30.73 --
Class B Unit value, beginning of period....................... $26.91 --
Class B Unit value, end of period............................. $30.63 --
Number of units outstanding, end of period (000's):
Class A.................................................... 98 --
Class B.................................................... 505 --
T. ROWE PRICE EQUITY INCOME FUND (A)
- ------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.12 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,565 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996
EQ/PUTNAM GROWTH & INCOME VALUE FUND (A) ------------------------------ ---------------------------
- --------------------------------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.53 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,230 --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A Unit value, beginning of period....................... $14.23 $11.99
Class A Unit value, end of period............................. $17.83 $14.23
Class B Unit value, beginning of period (c)................... $14.67 --
Class B Unit value, end of period (c)......................... $17.80 --
Number of units outstanding, end of period (000's):
Class A.................................................... 3,433 1,056
Class B.................................................... 1,829 --
ALLIANCE EQUITY INDEX FUND (A)
- ------------------------------
Class A Unit value, beginning of period....................... $17.62 --
Class A Unit value, end of period............................. $21.41 --
Class B Unit value, beginning of period....................... $17.62 --
Class B Unit value, end of period............................. $21.38 --
Number of units outstanding, end of period (000's):
Class A.................................................... -- --
Class B.................................................... 5 --
MERRILL LYNCH BASIC VALUE EQUITY FUND (A)
- -----------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.61 --
Number of units outstanding, end of period (000's):
Class B.................................................... 849 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on August 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
ALLIANCE COMMON STOCK FUND ------------------------- ------------------------
- --------------------------
<S> <C> <C>
Class A Unit value, beginning of period........................... $152.96 $124.52
Class A Unit value, end of period................................. $195.37 $152.96
Class B Unit value, beginning of period (c)....................... $153.35 --
Class B Unit value, end of period (c)............................. $194.74 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,114 494
Class B........................................................ 519 --
MFS RESEARCH FUND (A)
- ---------------------
Class B Unit value, beginning of period........................... $10.00 --
Class B Unit value, end of period................................. $11.52 --
Number of units outstanding, end of period (000's):
Class B........................................................ 1,039 --
ALLIANCE GLOBAL FUND
- --------------------
Class A Unit value, beginning of period........................... $25.25 $22.29
Class A Unit value, end of period................................. $27.85 $25.25
Class B Unit value, beginning of period (c)....................... $24.87 --
Class B Unit value, end of period (c)............................. $27.76 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,074 609
Class B........................................................ 308 --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A Unit value, beginning of period........................... $11.98 $11.03
Class A Unit value, end of period................................. $11.48 $11.98
Class B Unit value, beginning of period (c)....................... $11.86 --
Class B Unit value, end of period (c)............................. $11.46 --
Number of units outstanding, end of period (000's):
Class A........................................................ 1,151 717
Class B........................................................ 285 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Continued):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
T. ROWE PRICE INTERNATIONAL STOCK FUND (A) --------------------------- ------------------------
- -----------------------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 9.77 --
Number of units outstanding, end of period (000's):
Class B.................................................... 1,291 --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (B)
- -----------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $ 7.95 --
Number of units outstanding, end of period (000's):
Class B.................................................... 282 --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A Unit value, beginning of period....................... $65.94 $54.59
Class A Unit value, end of period............................. $72.23 $65.94
Class B Unit value, beginning of period (c)................... $62.84 --
Class B Unit value, end of period (c)......................... $72.00 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,261 620
Class B.................................................... 369 --
WARBURG PINCUS SMALL COMPANY VALUE FUND (A)
- -------------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.82 --
Number of units outstanding, end of period (000's):
Class B.................................................... 2,096 --
ALLIANCE SMALL CAP GROWTH FUND (A)
- ----------------------------------
Class A Unit value, beginning of period....................... $10.00 --
Class A Unit value, end of period............................. $12.57 --
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.55 --
Number of units outstanding, end of period (000's):
Class A.................................................... 208 --
Class B.................................................... 1,084 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1997
6. Accumulation Unit Values (Concluded):
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
MFS EMERGING GROWTH FUND (A) --------------------------- ------------------------
- ----------------------------
<S> <C> <C>
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $12.15 --
Number of units outstanding, end of period (000's):
Class B.................................................... 982 --
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A Unit value, beginning of period....................... $17.21 $16.55
Class A Unit value, end of period............................. $19.26 $17.21
Class B Unit value, beginning of period (c)................... $17.33 --
Class B Unit value, end of period (c)......................... $19.23 --
Number of units outstanding, end of period (000's):
Class A.................................................... 813 457
Class B.................................................... 295 --
EQ/PUTMAN BALANCED FUND (A)
- ---------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $11.36 --
Number of units outstanding, end of period (000's):
Class B.................................................... 531 --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A Unit value, beginning of period....................... $26.26 $23.59
Class A Unit value, end of period............................. $30.31 $26.26
Class B Unit value, beginning of period (c)................... $26.23 --
Class B Unit value, end of period (c)......................... $30.22 --
Number of units outstanding, end of period (000's):
Class A.................................................... 1,596 914
Class B.................................................... 581 --
MERRILL LYNCH WORLD STRATEGY FUND (A)
- -------------------------------------
Class B Unit value, beginning of period....................... $10.00 --
Class B Unit value, end of period............................. $10.39 --
Number of units outstanding, end of period (000's):
Class B.................................................... 232 --
</TABLE>
- -------------------------
(a) Commenced Operations on May 1, 1997.
(b) Commenced Operations on November 20, 1997.
(c) Units were made available for sale on May 1, 1997.
FS-23
<PAGE>
February 10, 1998
Report of Independent Accountants
To the Board of Directors and Shareholders 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 and for loan impairments in 1995.
/s/ Price Waterhouse, LLP
- ---------------------------
Price Waterhouse LLP
New York, New York
February 10, 1998
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 19,630.9 $ 18,077.0
Mortgage loans on real estate............................................. 2,611.4 3,133.0
Equity real estate........................................................ 2,749.2 3,297.5
Policy loans.............................................................. 2,422.9 2,196.1
Other equity investments.................................................. 951.5 860.6
Investment in and loans to affiliates..................................... 731.1 685.0
Other invested assets..................................................... 624.7 25.4
----------------- -----------------
Total investments..................................................... 29,721.7 28,274.6
Cash and cash equivalents................................................... 300.5 538.8
Deferred policy acquisition costs........................................... 3,236.6 3,104.9
Amounts due from discontinued operations.................................... 572.8 996.2
Other assets................................................................ 2,685.2 2,552.2
Closed Block assets......................................................... 8,566.6 8,495.0
Separate Accounts assets.................................................... 36,538.7 29,646.1
----------------- -----------------
Total Assets................................................................ $ 81,622.1 $ 73,607.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,579.5 $ 21,865.6
Future policy benefits and other policyholder's liabilities................. 4,553.8 4,416.6
Short-term and long-term debt............................................... 1,991.2 1,766.9
Other liabilities........................................................... 3,257.1 2,785.1
Closed Block liabilities.................................................... 9,073.7 9,091.3
Separate Accounts liabilities............................................... 36,306.3 29,598.3
----------------- -----------------
Total liabilities..................................................... 76,761.6 69,523.8
----------------- -----------------
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........................................................... 1,235.9 798.7
Net unrealized investment gains............................................. 533.6 189.9
Minimum pension liability................................................... (17.3) (12.9)
----------------- -----------------
Total shareholder's equity............................................ 4,860.5 4,084.0
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 81,622.1 $ 73,607.8
================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 950.6 $ 874.0 $ 788.2
Premiums...................................................... 601.5 597.6 606.8
Net investment income......................................... 2,282.8 2,203.6 2,088.2
Investment (losses) gains, net................................ (45.2) (9.8) 5.3
Commissions, fees and other income............................ 1,227.2 1,081.8 897.1
Contribution from the Closed Block............................ 102.5 125.0 143.2
----------------- ----------------- -----------------
Total revenues.......................................... 5,119.4 4,872.2 4,528.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,266.2 1,270.2 1,248.3
Policyholders' benefits....................................... 978.6 1,317.7 1,008.6
Other operating costs and expenses............................ 2,203.9 2,075.7 1,775.8
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,448.7 4,663.6 4,032.7
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 670.7 208.6 496.1
Federal income taxes.......................................... 91.5 9.7 120.5
Minority interest in net income of consolidated subsidiaries.. 54.8 81.7 62.8
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 524.4 117.2 312.8
Discontinued operations, net of Federal income taxes.......... (87.2) (83.8) -
Cumulative effect of accounting change, net of Federal
income taxes................................................ - (23.1) -
----------------- ----------------- -----------------
Net Earnings.................................................. $ 437.2 $ 10.3 $ 312.8
================= ================= =================
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(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 and end of year..... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year.......................... 798.7 788.4 475.6
Net earnings.................................................. 437.2 10.3 312.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,235.9 798.7 788.4
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year... 189.9 396.5 (220.5)
Change in unrealized investment gains (losses)................ 343.7 (206.6) 617.0
----------------- ----------------- -----------------
Net unrealized investment gains, end of year.................. 533.6 189.9 396.5
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (12.9) (35.1) (2.7)
Change in minimum pension liability........................... (4.4) 22.2 (32.4)
-----------------
----------------- -----------------
Minimum pension liability, end of year........................ (17.3) (12.9) (35.1)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 437.2 $ 10.3 $ 312.8
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Interest credited to policyholders' account balances........ 1,266.2 1,270.2 1,248.3
Universal life and investment-type product
policy fee income......................................... (950.6) (874.0) (788.2)
Investment losses (gains)................................... 45.2 9.8 (5.3)
Change in Federal income tax payable........................ (74.4) (197.1) 221.6
Other, net.................................................. 169.4 330.2 80.5
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 893.0 549.4 1,069.7
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,702.9 2,275.1 1,897.4
Sales....................................................... 10,385.9 8,964.3 8,867.1
Purchases................................................... (13,205.4) (12,559.6) (11,675.5)
(Increase) decrease in short-term investments............... (555.0) 450.3 (99.3)
Decrease in loans to discontinued operations................ 420.1 1,017.0 1,226.9
Sale of subsidiaries........................................ 261.0 - -
Other, net.................................................. (612.6) (281.0) (413.4)
----------------- ----------------- -----------------
Net cash used by investing activities......................... (603.1) (133.9) (196.8)
----------------- ----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................. 1,281.7 1,925.4 2,586.5
Withdrawals............................................... (1,886.8) (2,385.2) (2,657.1)
Net increase (decrease) in short-term financings............ 419.9 (.3) (16.4)
Additions to long-term debt................................. 32.0 - 599.7
Repayments of long-term debt................................ (196.4) (124.8) (40.7)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (83.9) - (1,215.4)
Other, net.................................................. (94.7) (66.5) (48.4)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (528.2) (651.4) (791.8)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (238.3) (235.9) 81.1
Cash and cash equivalents, beginning of year.................. 538.8 774.7 693.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 300.5 $ 538.8 $ 774.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 217.1 $ 109.9 $ 89.6
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 170.0 $ (10.0) $ (82.7)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and, prior to
December 31, 1996, its wholly owned life insurance subsidiary, Equitable
Variable Life Insurance Company ("EVLICO"). Effective January 1, 1997,
EVLICO was merged into Equitable Life, which continues to conduct the
Company's insurance business. Equitable Life's investment management
business, which comprises the Investment Services segment, is conducted
principally by Alliance Capital Management L.P. ("Alliance") 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 58.7% at December 31, 1997 (54.3% 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") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and, through
June 10, 1997, Equitable Real Estate Investment Management, Inc.
("EREIM"), a real estate investment management subsidiary which was sold
(see Note 5); 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.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued operations (see Note
7).
The years "1997," "1996" and "1995" refer to the years ended December
31, 1997, 1996 and 1995, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1997 presentation.
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.
F-6
<PAGE>
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. No reallocation, transfer, borrowing
or lending of assets can be made between the Closed Block and other
portions of Equitable Life's General Account, any of its Separate
Accounts or any affiliate of Equitable Life without the approval of the
New York Superintendent of Insurance (the "Superintendent"). Closed
Block assets and liabilities are carried on the same basis as similar
assets and liabilities held in the General Account. The excess of Closed
Block liabilities over Closed Block assets represents the expected
future post-tax contribution from the Closed Block which would be
recognized in income over the period the policies and contracts in the
Closed Block remain in force.
Discontinued Operations
Discontinued operations consist of the business of the former Guaranteed
Interest Contract ("GIC") segment which includes the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and the GIC
lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and, during the 1997 and 1996 fourth quarter
reviews, the allowance for future losses was increased. Management
believes the allowance for future losses at December 31, 1997 is
adequate to provide for all future losses; however, the determination of
the allowance continues to involve numerous estimates and subjective
judgments regarding the expected performance of Discontinued Operations
Investment Assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of the discontinued operations
differ from management's current best estimates and assumptions
underlying the allowance for future losses, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management's previous
assumptions, periodic adjustments to the allowance are likely to result
(see Note 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 SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating
Contracts". (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. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to The Equitable'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 for production of income. Real estate
which management has committed to disposing of by sale or abandonment is
classified as real estate held for sale. Valuation allowances on real
estate held for sale continue to be computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
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 vacated in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impaired loans
within SFAS No. 114's scope are to be 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 adoption of
this statement did not have a material effect on the level of the
allowances for possible losses or on the Company's consolidated
statements of earnings and shareholder's equity.
F-7
<PAGE>
New Accounting Pronouncements
In January 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits," which revises current note disclosure
requirements for employers' pension and other retiree benefits. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company will adopt the provisions of SFAS No. 132 in the 1998
consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP
97-3 provides guidance for assessments related to insurance activities
and requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information
about operating segments in annual and interim financial statements
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be
reported on the basis used by management for evaluating segment
performance and for deciding how to allocate resources to segments. This
statement is effective for fiscal years beginning after December 15,
1997 and need not be applied to interim reporting in the initial year of
adoption. Restatement of comparative information for earlier periods is
required. Management is currently reviewing its definition of business
segments in light of the requirements of SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires an enterprise to classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of a statement of financial position. This
statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company will adopt
the provisions of SFAS No. 130 in its 1998 consolidated financial
statements.
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.
Implementation of SFAS No. 125 did not have nor is SFAS No. 127 expected
to have a material impact on the Company's consolidated financial
statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
F-8
<PAGE>
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains 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 discontinued operations,
participating group annuity contracts and deferred policy acquisition
costs ("DAC") related to universal life and investment-type products and
participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
F-9
<PAGE>
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, 1997, the expected investment yield, excluding
policy loans, generally ranged from 7.53% grading to 7.92% over a 20
year period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
F-10
<PAGE>
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 of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its 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.
F-11
<PAGE>
Claim reserves and associated liabilities for individual DI and major
medical policies were $886.7 million and $869.4 million at December 31,
1997 and 1996, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 190.2 $ 189.0 $ 176.0
Incurred benefits related to prior years........... 2.1 69.1 67.8
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 192.3 $ 258.1 $ 243.8
================= ================ =================
Benefits paid related to current year.............. $ 28.8 $ 32.6 $ 37.0
Benefits paid related to prior years............... 146.2 153.3 137.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 175.0 $ 185.9 $ 174.8
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1997, participating policies, including those in the
Closed Block, represent approximately 21.2% ($50.2 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
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 1997, 1996 and 1995, investment results of
such Separate Accounts were $3,411.1 million, $2,970.6 million and
$1,963.2 million, respectively.
F-12
<PAGE>
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the opinion, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the
exercise price. See Note 21 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
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, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,230.3 $ 785.0 $ 74.5 $ 14,940.8
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 673.0 6.8 .1 679.7
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
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......................... $ 362.0 $ 49.3 $ 17.7 $ 393.6
================= ================= ================ =================
</TABLE>
F-13
<PAGE>
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 on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1997 and 1996, securities
without a readily ascertainable market value having an amortized cost of
$3,759.2 million and $3,915.7 million, respectively, had estimated fair
values of $3,903.9 million and $4,024.6 million, respectively.
The contractual maturity of bonds at December 31, 1997 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 149.9 $ 151.3
Due in years two through five.......................................... 2,962.8 3,025.2
Due in years six through ten........................................... 6,863.9 7,093.0
Due after ten years.................................................... 6,952.3 7,502.7
Mortgage-backed securities............................................. 1,702.8 1,725.0
---------------- -----------------
Total.................................................................. $ 18,631.7 $ 19,497.2
================ =================
</TABLE>
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,
1997, approximately 17.85% of the $18,610.6 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.
Fixed maturity investments with restructured or modified terms are not
material.
F-14
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 137.1 $ 325.3 $ 284.9
SFAS No. 121 release............................... - (152.4) -
Additions charged to income........................ 334.6 125.0 136.0
Deductions for writedowns and
asset dispositions............................... (87.2) (160.8) (95.6)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 55.8 $ 50.4 $ 65.5
Equity real estate............................... 328.7 86.7 259.8
----------------- ---------------- -----------------
Total.............................................. $ 384.5 $ 137.1 $ 325.3
================= ================ =================
</TABLE>
At December 31, 1997, 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 $12.6 million
of fixed maturities and $.9 million of mortgage loans on real estate.
At December 31, 1997 and 1996, 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 $23.4 million (0.9% of total
mortgage loans on real estate) and $12.4 million (0.4% 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 $183.4
million and $388.3 million at December 31, 1997 and 1996, 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 $17.2 million, $35.5 million and $52.1 million in
1997, 1996 and 1995, respectively. Gross interest income on these loans
included in net investment income aggregated $12.7 million, $28.2
million and $37.4 million in 1997, 1996 and 1995, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 196.7 $ 340.0
Impaired mortgage loans without provision for losses............... 3.6 122.3
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 200.3 462.3
Provision for losses............................................... (51.8) (46.4)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 148.5 $ 415.9
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
F-15
<PAGE>
During 1997, 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $246.9 million, $552.1 million
and $429.0 million. Interest income recognized on these impaired
mortgage loans totaled $15.2 million, $38.8 million and $27.9 million
($2.3 million, $17.9 million and $13.4 million recognized on a cash
basis) for 1997, 1996 and 1995, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1997 and 1996, the carrying value of equity real estate
held for sale amounted to $1,023.5 million and $345.6 million,
respectively. For 1997, 1996 and 1995, respectively, real estate of
$152.0 million, $58.7 million and $35.3 million was acquired in
satisfaction of debt. At December 31, 1997 and 1996, the Company owned
$693.3 million and $771.7 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 $541.1
million and $587.5 million at December 31, 1997 and 1996, respectively.
Depreciation expense on real estate totaled $74.9 million, $91.8 million
and $121.7 million for 1997, 1996 and 1995, respectively.
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(29 and 34 individual ventures as of December 31, 1997 and 1996,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 1,700.9 $ 1,883.7
Investments in securities, generally at estimated fair value........... 1,374.8 2,430.6
Cash and cash equivalents.............................................. 105.4 98.0
Other assets........................................................... 584.9 427.0
---------------- -----------------
Total Assets........................................................... $ 3,766.0 $ 4,839.3
================ =================
Borrowed funds - third party........................................... $ 493.4 $ 1,574.3
Borrowed funds - the Company........................................... 31.2 137.9
Other liabilities...................................................... 284.0 415.8
---------------- -----------------
Total liabilities...................................................... 808.6 2,128.0
---------------- -----------------
Partners' capital...................................................... 2,957.4 2,711.3
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 3,766.0 $ 4,839.3
================ =================
Equity in partners' capital included above............................. $ 568.5 $ 806.8
Equity in limited partnership interests not included above............. 331.8 201.8
Other.................................................................. 4.3 9.8
---------------- -----------------
Carrying Value......................................................... $ 904.6 $ 1,018.4
================ =================
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 310.5 $ 348.9 $ 463.5
Revenues of other limited partnership interests.... 506.3 386.1 242.3
Interest expense - third party..................... (91.8) (111.0) (135.3)
Interest expense - the Company..................... (7.2) (30.0) (41.0)
Other expenses..................................... (263.6) (282.5) (397.7)
----------------- ---------------- -----------------
Net Earnings....................................... $ 454.2 $ 311.5 $ 131.8
================= ================ =================
Equity in net earnings included above.............. $ 76.7 $ 73.9 $ 49.1
Equity in net earnings of limited partnerships
interests not included above..................... 69.5 35.8 44.8
Other.............................................. (.9) .9 1.0
-----------------
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 145.3 $ 110.6 $ 94.9
================= ================ =================
</TABLE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,459.4 $ 1,307.4 $ 1,151.1
Mortgage loans on real estate...................... 260.8 303.0 329.0
Equity real estate................................. 390.4 442.4 560.4
Other equity investments........................... 156.9 122.0 76.9
Policy loans....................................... 177.0 160.3 144.4
Other investment income............................ 181.7 217.4 273.0
----------------- ---------------- -----------------
Gross investment income.......................... 2,626.2 2,552.5 2,534.8
----------------- ---------------- -----------------
Investment expenses.............................. 343.4 348.9 446.6
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,282.8 $ 2,203.6 $ 2,088.2
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 88.1 $ 60.5 $ 119.9
Mortgage loans on real estate...................... (11.2) (27.3) (40.2)
Equity real estate................................. (391.3) (79.7) (86.6)
Other equity investments........................... 14.1 18.9 12.8
Sale of subsidiaries............................... 252.1 - -
Issuance and sales of Alliance Units............... - 20.6 -
Other.............................................. 3.0 (2.8) (.6)
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (45.2) $ (9.8) $ 5.3
================= ================ =================
</TABLE>
F-17
<PAGE>
Writedowns of fixed maturities amounted to $11.7 million, $29.9 million
and $46.7 million for 1997, 1996 and 1995, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million and $23.7 million for 1997 and 1996,
respectively. In the fourth quarter of 1997, the Company reclassified
$1,095.4 million depreciated cost of equity real estate from real estate
held for the production of income to real estate held for sale.
Additions to valuation allowances of $227.6 million were recorded upon
these transfers. Additionally in the fourth quarter, $132.3 million of
writedowns on real estate held for production of income were recorded.
For 1997, 1996 and 1995, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $9,789.7
million, $8,353.5 million and $8,206.0 million. Gross gains of $166.0
million, $154.2 million and $211.4 million and gross losses of $108.8
million, $92.7 million and $64.2 million, respectively, were realized on
these sales. The change in unrealized investment gains (losses) related
to fixed maturities classified as available for sale for 1997, 1996 and
1995 amounted to $513.4 million, $(258.0) million and $1,077.2 million,
respectively.
For 1997, 1996 and 1995, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $137.5 million, $136.7
million and $131.2 million, respectively.
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note maturing in eight years and bearing interest at the rate of
7.4%, subject to certain adjustments. Equitable Life recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE will continue to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively, the businesses sold reported combined revenues of $91.6
million, $226.1 million and $245.6 million and combined net earnings of
$10.7 million, $30.7 million and $27.9 million. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 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 to 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. The Company recognized an investment gain
of $20.6 million as a result of the issuance of Alliance Units in this
transaction. On June 30, 1997, Alliance reduced the recorded value of
goodwill and contracts associated with Alliance's acquisition of
Cursitor by $120.9 million. This charge reflected Alliance's view that
Cursitor's continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1997, the Company's ownership of Alliance Units was approximately 56.9%.
F-18
<PAGE>
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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 189.9 $ 396.5 $ (220.5)
Changes in unrealized investment gains (losses).... 543.3 (297.6) 1,198.9
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... 53.2 - (78.1)
DAC............................................ (89.0) 42.3 (216.8)
Deferred Federal income taxes.................. (163.8) 48.7 (287.0)
----------------- ---------------- -----------------
Balance, End of Year............................... $ 533.6 $ 189.9 $ 396.5
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 871.2 $ 357.8 $ 615.9
Other equity investments....................... 33.7 31.6 31.1
Other, principally Closed Block................ 80.9 53.1 93.1
----------------- ---------------- -----------------
Total........................................ 985.8 442.5 740.1
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (19.0) (72.2) (72.2)
DAC.......................................... (141.0) (52.0) (94.3)
Deferred Federal income taxes................ (292.2) (128.4) (177.1)
----------------- ---------------- -----------------
Total.............................................. $ 533.6 $ 189.9 $ 396.5
================= ================ =================
</TABLE>
6) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,059.4 and $3,820.7)........................................... $ 4,231.0 $ 3,889.5
Mortgage loans on real estate........................................ 1,341.6 1,380.7
Policy loans......................................................... 1,700.2 1,765.9
Cash and other invested assets....................................... 282.7 336.1
DAC.................................................................. 775.2 876.5
Other assets......................................................... 235.9 246.3
----------------- -----------------
Total Assets......................................................... $ 8,566.6 $ 8,495.0
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 8,993.2 $ 8,999.7
Other liabilities.................................................... 80.5 91.6
----------------- -----------------
Total Liabilities.................................................... $ 9,073.7 $ 9,091.3
================= =================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 687.1 $ 724.8 $ 753.4
Investment income (net of investment
expenses of $27.0, $27.3 and $26.7).............. 574.9 546.6 538.9
Investment losses, net............................. (42.4) (5.5) (20.2)
----------------- ---------------- -----------------
Total revenues............................... 1,219.6 1,265.9 1,272.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,066.7 1,106.3 1,077.6
Other operating costs and expenses................. 50.4 34.6 51.3
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,117.1 1,140.9 1,128.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 102.5 $ 125.0 $ 143.2
================= ================ =================
</TABLE>
At December 31, 1997 and 1996, problem mortgage loans on real estate had
an amortized cost of $8.1 million and $4.3 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $70.5 million and $114.2 million,
respectively. At December 31, 1996, the restructured mortgage loans on
real estate amount included $.7 million 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 109.1 $ 128.1
Impaired mortgage loans without provision for losses................... .6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 109.7 128.7
Provision for losses................................................... (17.4) (12.9)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 92.3 $ 115.8
================ =================
</TABLE>
During 1997, 1996 and 1995, the Closed Block's average recorded
investment in impaired mortgage loans was $110.2 million, $153.8 million
and $146.9 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $9.4 million, $10.9 million and $5.9
million ($4.1 million, $4.7 million and $1.3 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
Valuation allowances amounted to $18.5 million and $13.8 million on
mortgage loans on real estate and $16.8 million and $3.7 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million, $12.8 million and $16.8 million for 1997, 1996 and 1995,
respectively and writedowns of equity real estate subsequent to the
adoption of SFAS No. 121 amounted to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in the fourth
quarter, $28.8 million of writedowns on real estate held for production
of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-20
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 655.5 $ 1,111.1
Equity real estate................................................... 655.6 925.6
Other equity investments............................................. 209.3 300.5
Short-term investments............................................... 102.0 63.2
Other invested assets................................................ 41.9 50.9
----------------- -----------------
Total investments.................................................. 1,664.3 2,451.3
Cash and cash equivalents............................................ 106.8 42.6
Other assets......................................................... 253.9 242.9
----------------- -----------------
Total Assets......................................................... $ 2,025.0 $ 2,736.8
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,048.3 $ 1,335.9
Allowance for future losses.......................................... 259.2 262.0
Amounts due to continuing operations................................. 572.8 996.2
Other liabilities.................................................... 144.7 142.7
----------------- -----------------
Total Liabilities.................................................... $ 2,025.0 $ 2,736.8
================= =================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $97.3, $127.5 and $153.1)............ $ 188.6 $ 245.4 $ 323.6
Investment losses, net............................. (173.7) (18.9) (22.9)
Policy fees, premiums and other income............. .2 .2 .7
----------------- ---------------- -----------------
Total revenues..................................... 15.1 226.7 301.4
Benefits and other deductions...................... 169.5 250.4 326.5
Losses charged to allowance for future losses...... (154.4) (23.7) (25.1)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (134.1) (129.0) -
Federal income tax benefit......................... 46.9 45.2 -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (87.2) $ (83.8) $ -
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses, and
adjusts the allowance, if appropriate. Additionally, as part of the
Company's annual planning process which takes place in the fourth
quarter of each year, investment and benefit cash flow projections are
prepared. These updated assumptions and estimates resulted in the need
to strengthen the allowance in 1997 and 1996, respectively.
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in the fourth quarter, $92.5 million of writedown on real
estate held for production of income were recognized.
Benefits and other deductions includes $53.3 million, $114.3 million and
$154.6 million of interest expense related to amounts borrowed from
continuing operations in 1997, 1996 and 1995, respectively.
F-21
<PAGE>
Valuation allowances amounted to $28.4 million and $9.0 million on
mortgage loans on real estate and $88.4 million and $20.4 million on
equity real estate at December 31, 1997 and 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1997 and 1996, problem mortgage loans on real estate had
amortized costs of $11.0 million and $7.9 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $109.4 million and $208.1 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,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 101.8 $ 83.5
Impaired mortgage loans without provision for losses................... .2 15.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 102.0 98.5
Provision for losses................................................... (27.3) (8.8)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 74.7 $ 89.7
================ =================
</TABLE>
During 1997, 1996 and 1995, the discontinued operations' average
recorded investment in impaired mortgage loans was $89.2 million, $134.8
million and $177.4 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $6.6 million, $10.1 million and
$4.5 million ($5.3 million, $7.5 million and $.4 million recognized on a
cash basis) for 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, discontinued operations had carrying
values of $156.2 million and $263.0 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,
--------------------------------------
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 422.2 $ 174.1
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.6
Other.............................................................. .3 .5
----------------- -----------------
Total Equitable Life........................................... 599.4 599.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.87% - 12.00% due through 2006.................... 951.1 968.6
----------------- -----------------
Alliance:
Other.............................................................. 18.5 24.7
----------------- -----------------
Total long-term debt................................................. 1,569.0 1,592.8
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,991.2 $ 1,766.9
================= =================
</TABLE>
F-22
<PAGE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in June 2000.
The interest rates are based on external indices dependent on the type
of borrowing and at December 31, 1997 range from 5.88% to 8.50%. There
were no borrowings outstanding under this bank credit facility at
December 31, 1997.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1997, $50.0 million was outstanding under this program.
During 1996, Alliance entered into a $250.0 million five-year revolving
credit facility with a group of banks. Under the facility, the interest
rate, at the option of Alliance, is a floating rate generally based upon
a defined prime rate, a rate related to the London Interbank Offered
Rate ("LIBOR") or the Federal funds rate. A facility fee is payable on
the total facility. The revolving credit facility will be used to
provide back-up liquidity for Alliance's $250.0 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. At December 31, 1997,
Alliance had $72.0 million in commercial paper outstanding and there
were no borrowings under the revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
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. 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 $1,164.0 million and $1,406.4 million at December 31, 1997
and 1996, respectively, as collateral for certain long-term debt.
At December 31, 1997, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1998 and the succeeding
four years are $565.8 million, $201.4 million, $8.6 million, $1.7
million and $1.8 million, respectively, and $790.6 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 186.5 $ 97.9 $ (11.7)
Deferred......................................... (95.0) (88.2) 132.2
----------------- ---------------- -----------------
Total.............................................. $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
F-23
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 234.7 $ 73.0 $ 173.7
Non-taxable minority interest...................... (38.0) (28.6) (22.0)
Adjustment of tax audit reserves................... (81.7) 6.9 4.1
Equity in unconsolidated subsidiaries.............. (45.1) (32.3) (19.4)
Other.............................................. 21.6 (9.3) (15.9)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 91.5 $ 9.7 $ 120.5
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 257.9 $ - $ 259.2 $ -
Other.................................. 30.7 - - 1.8
DAC, reserves and reinsurance.......... - 222.8 - 166.0
Investments............................ - 405.7 - 328.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 288.6 $ 628.5 $ 259.2 $ 496.4
=============== ================ =============== ===============
</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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ 46.2 $ (156.2) $ 63.3
Investments........................................ (113.8) 78.6 13.0
Compensation and related benefits.................. 3.7 22.3 30.8
Other.............................................. (31.1) (32.9) 25.1
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................................ $ (95.0) $ (88.2) $ 132.2
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the 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.
F-24
<PAGE>
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. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 448.6 $ 461.4 $ 474.2
Reinsurance assumed................................ 198.3 177.5 171.3
Reinsurance ceded.................................. (45.4) (41.3) (38.7)
----------------- ---------------- -----------------
Premiums........................................... $ 601.5 $ 597.6 $ 606.8
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 61.0 $ 48.2 $ 44.0
================= ================ =================
Policyholders' Benefits Ceded...................... $ 70.6 $ 54.1 $ 48.9
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 36.4 $ 32.3 $ 28.5
================= ================ =================
</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 $1.6 million,
$2.4 million and $260.6 million for 1997, 1996 and 1995, respectively.
Ceded death and disability benefits totaled $4.3 million, $21.2 million
and $188.1 million for 1997, 1996 and 1995, respectively. Insurance
liabilities ceded totaled $593.8 million and $652.4 million at December
31, 1997 and 1996, 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 benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 32.5 $ 33.8 $ 30.0
Interest cost on projected benefit obligations..... 128.2 120.8 122.0
Actual return on assets............................ (307.6) (181.4) (309.2)
Net amortization and deferrals..................... 166.6 43.4 155.6
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 19.7 $ 16.6 $ (1.6)
================= ================ =================
</TABLE>
F-25
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Actuarial present value of obligations:
Vested............................................................... $ 1,702.6 $ 1,672.2
Non-vested........................................................... 3.9 10.1
---------------- -----------------
Accumulated Benefit Obligation......................................... $ 1,706.5 $ 1,682.3
================ =================
Plan assets at fair value.............................................. $ 1,867.4 $ 1,626.0
Projected benefit obligations.......................................... 1,801.3 1,765.5
---------------- -----------------
Projected benefit obligations (in excess of) or less than plan assets.. 66.1 (139.5)
Unrecognized prior service cost........................................ (9.9) (17.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 95.0 280.0
Unrecognized net asset at transition................................... 3.1 4.7
Additional minimum liability........................................... - (19.3)
---------------- -----------------
Prepaid Pension Cost.................................................. $ 154.3 $ 108.0
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.25% and 4.07%, respectively, at December 31, 1997 and
7.5% and 4.25%, respectively, at December 31, 1996. As of January 1,
1997 and 1996, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
The Company recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $17.3 million and $12.9 million,
net of Federal income taxes, at December 31, 1997 and 1996,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $33.2 million,
$34.7 million and $36.4 million for 1997, 1996 and 1995, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1997, 1996 and 1995, the Company made
estimated postretirement benefits payments of $18.7 million, $18.9
million and $31.1 million, respectively.
F-26
<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>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.5 $ 5.3 $ 4.0
Interest cost on accumulated postretirement
benefits obligation.............................. 34.7 34.6 34.7
Net amortization and deferrals..................... 1.9 2.4 (2.3)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 41.1 $ 42.3 $ 36.4
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees............................................................. $ 388.5 $ 381.8
Fully eligible active plan participants.............................. 45.7 50.7
Other active plan participants....................................... 56.6 60.7
---------------- -----------------
490.8 493.2
Unrecognized prior service cost........................................ 40.3 50.5
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (140.6) (150.5)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 390.5 $ 393.2
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and costs to the Company of providing these
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 8.75% in 1997,
gradually declining to 2.75% in the year 2009 and in 1996 was 9.5%,
gradually declining to 3.5% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.50% at December 31, 1997 and 1996, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1997
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, 1997 and 1996, respectively, was $1,353.4 million and
$649.9 million. The average unexpired terms at December 31, 1997 ranged
from 1.5 to 3.8 years. At December 31, 1997, the cost of terminating
outstanding matched swaps in a loss position was $10.9 million and the
unrealized gain on outstanding matched swaps in a gain position was
$38.9 million. The Company has no intention of terminating these
contracts prior to maturity. During 1996 and 1995, net gains of $.2
million and $1.4 million, respectively, were recorded in connection with
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
F-27
<PAGE>
December 31, 1997 of contracts purchased and sold were $7,250.0 million
and $875.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $48.5 million and is being amortized ratably over
the contract periods ranging from 1 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1997 and 1996.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
F-28
<PAGE>
Fair values 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 carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,611.4 $ 2,822.8 $ 3,133.0 $ 3,394.6
Other limited partnership interests.... 509.4 509.4 467.0 467.0
Policy loans........................... 2,422.9 2,493.9 2,196.1 2,221.6
Policyholders' account balances -
investment contracts................. 12,611.0 12,714.0 12,908.7 12,992.2
Long-term debt......................... 1,569.0 1,531.5 1,592.8 1,557.7
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,341.6 1,420.7 1,380.7 1,425.6
Other equity investments............... 86.3 86.3 105.0 105.0
Policy loans........................... 1,700.2 1,784.2 1,765.9 1,798.0
SCNILC liability....................... 27.6 30.3 30.6 34.9
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 655.5 779.9 1,111.1 1,220.3
Fixed maturities....................... 38.7 38.7 42.5 42.5
Other equity investments............... 209.3 209.3 300.5 300.5
Guaranteed interest contracts.......... 37.0 34.0 290.7 300.5
Long-term debt......................... 102.0 102.1 102.1 102.2
</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 $202.6 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $362.1 million at December 31, 1997, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $47.4 million of letters of credit outstanding
at December 31, 1997.
F-29
<PAGE>
14) LITIGATION
Equitable Life recently agreed to settle, subject to court approval,
previously disclosed cases brought by persons insured under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life (the "Policies") in New York (Golomb et al. v. The
Equitable Life Assurance Society of the United States), Pennsylvania
(Malvin et al. v. The Equitable Life Assurance Society of the United
States), Texas (Bowler et al. v. The Equitable Life Assurance Society of
the United States), Florida (Bachman v. The Equitable Life Assurance
Society of the United States) and California (Fletcher v. The Equitable
Life Assurance Society of the United States). Plaintiffs in these cases
claimed that Equitable Life's method for determining premium increases
breached the terms of certain forms of the Policies and was
misrepresented. Plaintiffs in Bowler and Fletcher also claimed that
Equitable Life misrepresented to policyholders in Texas and California,
respectively, that premium increases had been approved by insurance
departments in those states and determined annual rate increases in a
manner that discriminated against policyholders in those states in
violation of the terms of the Policies, representations to policyholders
and/or state law. The New York trial court dismissed the Golomb action
with prejudice and plaintiffs appealed. In Bowler and Fletcher,
Equitable Life denied the material allegations of the complaints and
filed motions for summary judgment which have been fully briefed. The
Malvin action was stayed indefinitely pending the outcome of proceedings
in Golomb and in Fletcher the magistrate concluded that the case should
be remanded to California state court and Equitable Life appealed that
determination to the district judge. On December 23, 1997, Equitable
Life entered into a settlement agreement, subject to court approval,
which would result in the dismissal with prejudice of each of the five
pending actions and the resolution of all similar claims on a nationwide
basis.
The settlement agreement provides for the creation of a nationwide class
consisting of all persons holding, and paying premiums on, the Policies
at any time since January 1, 1988. An amended complaint will be filed in
the federal district court in Tampa, Florida (where the Florida action
is pending), that would assert claims of the kind previously made in the
cases described above on a nationwide basis, on behalf of policyholders
in the nationwide class, which consists of approximately 127,000 former
and current policyholders. If the settlement is approved, Equitable Life
would pay $14,166,000 in exchange for release of all claims for past
damages on claims of the type described in the five pending actions and
the amended complaint. Costs of administering the settlement and any
attorneys' fees awarded by the court to plaintiffs' counsel would be
deducted from this fund before distribution of the balance to the class.
In addition to this payment, Equitable Life will provide future relief
to current holders of certain forms of the Policies in the form of an
agreement to be embodied in the court's judgment, restricting the
premium increases Equitable Life can seek on these Policies in the
future. The parties estimate the present value of these restrictions at
$23,333,000, before deduction of any attorneys' fees that may be awarded
by the court. The estimate is based on assumptions about future events
that cannot be predicted with certainty and accordingly the actual value
of the future relief may differ. The parties to the settlement shortly
will be asking the court to approve preliminarily the settlement and
settlement class and to permit distribution of notice of the settlement
to policyholders, establish procedures for objections, an opportunity to
opt out of the settlements as it affects past damages, and a court
hearing on whether the settlement should be finally approved. Equitable
Life cannot predict whether the settlement will be approved or, if it is
not approved, the outcome of the pending litigations. As noted,
proceedings in Malvin were stayed indefinitely; proceedings in the other
actions have been stayed or deferred to accommodate the settlement
approval process.
A number of lawsuits have 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,
alleged 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, Equitable
Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues
for certain limited purposes, including the defense of litigation) and
The Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. Among
litigations pending against Equitable Life, EVLICO and EOC of the type
referred to in this paragraph are the litigations described in the
following seven paragraphs.
F-30
<PAGE>
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. 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 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. In June 1996, the Court
issued a decision and order dismissing with prejudice plaintiffs' causes
of action for fraud, constructive fraud, breach of fiduciary duty,
negligence, and unjust enrichment, and dismissing without prejudice
plaintiffs' 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. In April 1997, plaintiffs noticed an
appeal from the court's June 1996 order. Subsequently, Equitable Life
and EOC noticed a cross-appeal from so much of the June 1996 order that
denied their motion to dismiss. Briefing on the appeals is scheduled to
begin on February 23, 1998. In June 1997, plaintiffs filed their
memorandum of law and affidavits in support of their motion for class
certification. That memorandum states that plaintiffs seek to certify a
class solely on their breach of contract claims, and not on their
negligent misrepresentation claim. Plaintiffs' class certification
motion has been fully briefed by the parties and is sub judice. In
August 1997, Equitable Life and EOC moved for summary judgment
dismissing plaintiffs' remaining claims of breach of contract and
negligent misrepresentation. Defendants' summary judgment motion has
been fully briefed by the parties. On January 5, 1998, plaintiffs filed
a note of issue (placing the case on the trial calendar).
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 originally was brought by an
individual who purchased a whole life policy from Equitable Life in
1989. In September 1997, with leave of the court, plaintiff filed a
second amended petition naming six additional policyholder plaintiffs
and three new sales agent defendants. The sole named individual
defendant in the original petition is also named as a defendant in the
second amended petition. Plaintiffs purport to represent a class
consisting of all persons who purchased whole life or universal life
insurance policies from Equitable Life from January 1, 1981 through July
22, 1992. Plaintiffs allege improper sales practices based on
allegations of misrepresentations concerning one or more of the
following: the number of years that premiums would need to be paid; a
policy's suitability as an investment vehicle; and the extent to which a
policy was a proper replacement policy. Plaintiffs seek damages,
including punitive damages, in an unspecified amount. In October 1997,
Equitable Life filed (i) exceptions to the second amended petition,
asserting deficiencies in pleading of venue and vagueness; and (ii) a
motion to strike certain allegations. On January 23, 1998, the court
heard argument on Equitable Life's exceptions and motion to strike.
Those motions are sub judice. Motion practice regarding discovery
continues.
On July 26, 1996, an action entitled Michael Bradley v. Equitable
Variable Life Insurance Company was commenced in New York state court,
Kings County. 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. EVLICO answered the complaint,
denying the material allegations. In September 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 in Cole in
January 1997. Plaintiff then moved for certification of a nationwide
class consisting of all persons or entities who, since January 1, 1980,
were sold one or more life insurance products based on
misrepresentations as to the number of years that the annual premium
would need to be paid, and/or who were allegedly induced to purchase
additional policies from EVLICO using the cash value accumulated in
existing policies. Defendants have opposed this motion. Discovery and
briefing regarding plaintiff's motion for class certification are
ongoing.
F-31
<PAGE>
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 in 1988. The complaint puts
in 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 alleges 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. In May
1997, plaintiff served a motion for class certification. In July 1997,
the parties submitted to the Court a joint scheduling report, joint
scheduling order and a confidentiality stipulation and order. The Court
signed the latter stipulation, and the others remain sub judice. Further
briefing on plaintiff's class certification motion will await entry of a
scheduling order and further class certification discovery, which has
commenced and is on-going. In January 1998, the judge assigned to the
case recused himself, and the case was reassigned. Defendants are to
serve their answer in February 1998.
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 amended complaint alleges that Equitable Life's and EVLICO's
agents were trained not to 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. Equitable Life and EVLICO have
answered the amended complaint, denying the material allegations and
asserting certain affirmative defenses. Motion practice regarding
discovery continues.
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. Plaintiff
filed an amended complaint in April 1997. In July 1997, Equitable Life
served a motion to dismiss the amended complaint or, in the alternative,
for summary judgment. On September 12, 1997, plaintiff moved for class
certification. This motion is scheduled for hearing on February 18,
1998.
On September 11, 1997, an action entitled Pamela L. and James A. Luther,
individually and as representatives of all people similarly situated v.
The Equitable Life Assurance Society of the United States, The Equitable
Companies Incorporated, and Casey Cammack, individually and as agent for
The Equitable Life Assurance Society of the United States and The
Equitable Companies Incorporated, was filed in Texas state court. The
action was brought by holders of a whole life policy and the beneficiary
under that policy. Plaintiffs purport to represent a nationwide class of
persons having an ownership or beneficial interest in whole and
universal life policies issued by Equitable Life from January 1, 1982
through December 31, 1996. Also included in the purported class are
persons having an ownership interest in variable annuities purchased
from Equitable Life from January 1, 1992 to the present. The complaint
puts in issue the allegations that uniform sales presentations,
illustrations, and materials that Equitable Life agents used
misrepresented the stated number of years that premiums would need to be
paid and misrepresented the extent to which the policies at issue were
F-32
<PAGE>
proper replacement policies. Plaintiffs seek compensatory damages,
attorneys' fees and expenses. In October 1997, Equitable Life served a
general denial of the allegations against it. The same day, the Holding
Company entered a special appearance contesting the court's jurisdiction
over it. In November 1997, Equitable Life filed a plea in abatement,
which, under Texas law, stayed further proceedings in the case because
plaintiffs had not served a demand letter. Plaintiffs served a demand
letter upon Equitable Life and the Holding Company, the response to
which is due 60 days thereafter. 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, Dillon, Franze, Chaviano and
Luther litigations should not have a material adverse effect on the
financial position of the Company. The Company's management cannot make
an estimate of loss, if any, or predict whether or not any such
litigation will have a material adverse effect on the Company's results
of operations in any particular period.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of The Equitable from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States, alleges, among other things, that Equitable Life
discriminated on the basis of race against African-American applicants
and potential applicants in hiring individuals as sales agents.
Plaintiffs seek a declaratory judgment and affirmative and negative
injunctive relief, including the payment of back-pay, pension and other
compensation. Although the outcome of any litigation cannot be predicted
with certainty, the Company's management believes that the ultimate
resolution of this matter should not have a material adverse effect on
the financial position of the Company. The Company's management cannot
make an estimate of loss, if any, or predict whether or not such matter
will have a material adverse effect on the Company's results of
operations in any particular period.
The U.S. Department of Labor ("DOL") is conducting an investigation of
Equitable Life's management of 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 retains EREIM as advisor. Equitable Life agreed to indemnify the
purchaser of EREIM (which Equitable Life sold in June 1997) with respect
to any fines, penalties and rebates to clients in connection with this
investigation. In early 1995, the DOL commenced a national investigation
of commingled real estate funds with pension investors, including PPF.
The investigation 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, the Company's management believes
that the ultimate resolution of this matter should not have a material
adverse effect on the financial position of the Company. The Company's
management cannot make an estimate of loss, if any, or predict whether
or not this investigation will have a material adverse effect on the
Company's results of operations in any particular period.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which sought 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, sought an
unspecified amount of damages, costs, attorneys' fees and punitive
damages. The principal allegations are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that 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 alleged 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
F-33
<PAGE>
New York granted the defendants' motion to dismiss all counts of the
Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996,
the court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for
the Second Circuit issued an order granting defendants' motion to strike
and dismissing plaintiffs' appeal of the First Decision. 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 (i)
the Fund failed to hedge against the risks of investing in foreign
securities despite representations that it would do so, (ii) the Fund
did not properly disclose that it planned to invest in mortgage-backed
derivative securities and (iii) two advertisements used by the Fund
misrepresented the risks of investing in the Fund. On July 15, 1997, the
District Court denied plaintiffs' motion for leave to file an amended
complaint and ordered that the case be dismissed ("Second Decision").
The plaintiffs have appealed the Second Decision to the United States
Court of Appeals for the Second Circuit. 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 U. S. 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 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 that 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 U.S. 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. On October 10, 1997, DLJSC and
F-34
<PAGE>
others were named as defendants in a new adversary proceeding in the
Bankruptcy Court brought by the NGC Settlement Trust, an entity created
by the NGC plan of reorganization to deal with asbestos-related claims.
The Trust's allegations are substantially similar to the claims in the
State Court action. In court papers dated October 16, 1997, the State
Court plaintiff indicated that he would intervene in the Trust's
adversary proceeding. On January 21, 1998, the Bankruptcy Court ruled
that the State Court plaintiff's claims were not barred by the NGC plan
of reorganization insofar as they alleged nondisclosure of certain cost
reductions announced by NGC in October 1993. The Texas State Court
action, which 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 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 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. On
February 26, 1997, the parties agreed to a settlement of these actions,
subject to the District Court's approval, which was granted on July 31,
1997. The settlement is also subject to approval by the U.S. Bankruptcy
Court for the Eastern District of Louisiana of proposed modifications to
a confirmed plan of reorganization for Harrah's Jazz Company and
Harrah's Jazz Finance Corp., and the satisfaction or waiver of all
conditions to the effectiveness of the plan, as provided in the plan.
There can be no assurance of the Bankruptcy Court's approval of the
modifications to the plan of reorganization, or that the conditions to
the effectiveness of the plan will be satisfied or waived. In the
opinion of DLJ's management, the settlement, if approved, will not have
a material adverse effect on DLJ's results of operations or on its
consolidated financial condition.
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 1998 and the succeeding four years are $93.5 million, $84.4
million, $70.2 million, $56.4 million, $47.0 million and $489.3 million
thereafter. Minimum future sub-lease rental income on these
noncancelable leases for 1998 and the succeeding four years are $7.3
million, $5.9 million, $3.8 million, $2.4 million, $.8 million and $2.9
million thereafter.
At December 31, 1997, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $247.0 million, $238.1 million, $218.7
million, $197.9 million, $169.1 million and $813.0 million thereafter.
F-35
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 721.5 $ 704.8 $ 628.4
Commissions........................................ 409.6 329.5 314.3
Short-term debt interest expense................... 31.7 8.0 11.4
Long-term debt interest expense.................... 121.2 137.3 108.1
Amortization of policy acquisition costs........... 287.3 405.2 317.8
Capitalization of policy acquisition costs......... (508.0) (391.9) (391.0)
Rent expense, net of sub-lease income.............. 101.8 113.7 109.3
Cursitor intangible assets writedown............... 120.9 - -
Other.............................................. 917.9 769.1 677.5
----------------- ---------------- -----------------
Total.............................................. $ 2,203.9 $ 2,075.7 $ 1,775.8
================= ================ =================
</TABLE>
During 1997, 1996 and 1995, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $42.4 million, $24.4 million and $32.0 million,
respectively. The amounts paid during 1997, associated with cost
reduction programs, totaled $22.8 million. At December 31, 1997, the
liabilities associated with cost reduction programs amounted to $62.0
million. The 1997 cost reduction program include costs related to
employee termination and exit costs. The 1996 cost reduction program
included restructuring costs related to the consolidation of insurance
operations' service centers. The 1995 cost reduction program included
relocation expenses, including the accelerated amortization of building
improvements associated with the relocation of the home office.
Amortization of DAC in 1996 included a $145.0 million writeoff of DAC
related to DI contracts.
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 financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1997, 1996 and 1995, statutory net
loss totaled $351.7 million, $351.1 million and $352.4 million,
respectively. No amounts are expected to be available for dividends from
Equitable Life to the Holding Company in 1998.
At December 31, 1997, the Insurance Group, in accordance with various
government and state regulations, had $19.7 million of securities
deposited with such government or state agencies.
F-36
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group's
statutory change in surplus and capital stock and statutory surplus and
capital stock determined in accordance with accounting practices
prescribed by the New York Insurance Department with net earnings and
equity on a GAAP basis.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net change in statutory surplus and
capital stock.................................... $ 203.6 $ 56.0 $ 78.1
Change in asset valuation reserves................. 147.1 (48.4) 365.7
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 350.7 7.6 443.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (31.1) (298.5) (66.0)
DAC.............................................. 220.7 (13.3) 73.2
Deferred Federal income taxes.................... 103.1 108.0 (158.1)
Valuation of investments......................... 46.8 289.8 189.1
Valuation of investment subsidiary............... (555.8) (117.7) (188.6)
Limited risk reinsurance......................... 82.3 92.5 416.9
Issuance of surplus notes........................ - - (538.9)
Postretirement benefits.......................... (3.1) 28.9 (26.7)
Other, net....................................... 30.3 12.4 115.1
GAAP adjustments of Closed Block................. 3.6 (9.8) 15.7
GAAP adjustments of discontinued operations...... 189.7 (89.6) 37.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 437.2 $ 10.3 $ 312.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,462.5 $ 2,258.9 $ 2,202.9
Asset valuation reserves........................... 1,444.6 1,297.5 1,345.9
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,907.1 3,556.4 3,548.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,336.1) (1,305.0) (1,006.5)
DAC.............................................. 3,236.6 3,104.9 3,075.8
Deferred Federal income taxes.................... (370.8) (306.1) (452.0)
Valuation of investments......................... 783.5 286.8 417.7
Valuation of investment subsidiary............... (1,338.6) (782.8) (665.1)
Limited risk reinsurance......................... (254.2) (336.5) (429.0)
Issuance of surplus notes........................ (539.0) (539.0) (538.9)
Postretirement benefits.......................... (317.5) (314.4) (343.3)
Other, net....................................... 203.7 126.3 4.4
GAAP adjustments of Closed Block................. 814.3 783.7 830.8
GAAP adjustments of discontinued operations...... 71.5 (190.3) (184.6)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,860.5 $ 4,084.0 $ 4,258.1
================= ================ =================
</TABLE>
F-37
<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.
Insurance Operations 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.
Investment Services 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 $81.9
million, $127.5 million and $124.1 million for 1997, 1996 and 1995,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the GIC Segment of
$5.1 million, $15.7 million and $14.7 million for 1997, 1996 and 1995,
respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,684.2 $ 3,770.6 $ 3,614.6
Investment services................................ 1,455.1 1,126.1 949.1
Consolidation/elimination.......................... (19.9) (24.5) (34.9)
----------------- ---------------- -----------------
Total.............................................. $ 5,119.4 $ 4,872.2 $ 4,528.8
================= ================ =================
Earnings (loss) from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change
Insurance operations............................... $ 250.3 $ (36.6) $ 303.1
Investment services................................ 485.7 311.9 224.0
Consolidation/elimination.......................... - .2 (3.1)
----------------- ---------------- -----------------
Subtotal..................................... 736.0 275.5 524.0
Corporate interest expense......................... (65.3) (66.9) (27.9)
----------------- ---------------- -----------------
Total.............................................. $ 670.7 $ 208.6 $ 496.1
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance operations................................................... $ 68,305.9 $ 60,464.9
Investment services.................................................... 13,719.8 13,542.5
Consolidation/elimination.............................................. (403.6) (399.6)
---------------- -----------------
Total.................................................................. $ 81,622.1 $ 73,607.8
================ =================
</TABLE>
F-38
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1997 and 1996, are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
1996
Total Revenues................ $ 1,176.5 $ 1,199.4 $ 1,198.4 $ 1,297.9
================= ================= ================== ==================
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)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million. 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 and
reserve strengthenings on DI business of $113.7 million, Pension Par of
$47.5 million and Discontinued Operations of $83.8 million.
20) INVESTMENT IN DLJ
At December 31, 1997, the Company's ownership of DLJ interest was
approximately 34.4%. 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-39
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 16,535.7 $ 15,728.1
Securities purchased under resale agreements........................... 22,628.8 20,598.7
Broker-dealer related receivables...................................... 28,159.3 16,858.8
Other assets........................................................... 3,182.0 2,318.1
---------------- -----------------
Total Assets........................................................... $ 70,505.8 $ 55,503.7
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 36,006.7 $ 29,378.3
Broker-dealer related payables......................................... 25,706.1 19,409.7
Short-term and long-term debt.......................................... 3,670.6 2,704.5
Other liabilities...................................................... 2,860.9 2,164.0
---------------- -----------------
Total liabilities...................................................... 68,244.3 53,656.5
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,061.5 1,647.2
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 70,505.8 $ 55,503.7
================ =================
DLJ's equity as reported............................................... $ 2,061.5 $ 1,647.2
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.5 23.9
The Holding Company's equity ownership in DLJ.......................... (740.2) (590.2)
Minority interest in DLJ............................................... (729.3) (588.6)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 615.5 $ 492.3
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 2,356.8 $ 1,818.2
Net investment income.................................................. 1,652.1 1,074.2
Dealer, trading and investment gains, net.............................. 631.6 598.4
---------------- -----------------
Total revenues......................................................... 4,640.5 3,490.8
Total expenses including income taxes.................................. 4,232.3 3,199.5
---------------- -----------------
Net earnings........................................................... 408.2 291.3
Dividends on preferred stock........................................... 12.1 18.7
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 396.1 $ 272.6
================ =================
DLJ's earnings applicable to common shares as reported................. $ 396.1 $ 272.6
Amortization of cost in excess of net assets acquired in 1985.......... (1.3) (3.1)
The Holding Company's equity in DLJ's earnings......................... (156.8) (107.8)
Minority interest in DLJ............................................... (109.1) (73.4)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 128.9 $ 88.3
================ =================
</TABLE>
F-40
<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 has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1997, 1996 and 1995 would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As Reported............................................. $ 437.2 $ 10.3 $ 312.8
Pro Forma............................................... $ 426.3 $ 3.3 $ 311.3
</TABLE>
The fair value of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, was estimated as of the date
of grants using the Black-Scholes option pricing model. The option
pricing assumptions for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------------------- --------- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield.... 0.48% 0.80% 0.96% 0.86% 1.54% 1.85% 8.00% 8.00% 8.00%
Expected volatility 20.00% 20.00% 20.00% 33.00% 25.00% 25.00% 26.00% 23.00% 23.00%
Risk-free interest
rate............ 5.99% 5.92% 6.83% 5.96% 6.07% 5.86% 5.70% 5.80% 6.00%
Expected life..... 5 years 5 years 5 years 5 years 5 years 5 years 7.6 years 7.43 years 7.43 years
Weighted average
grant-date fair
value per option $12.25 $6.94 $5.90 $22.45 $9.35 $7.36 $4.36 $2.69 $2.24
</TABLE>
F-41
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is 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, 1995........ 6.8 $20.31 - 3.8 $15.46
Granted................ .4 $20.27 9.2 $27.00 1.8 $20.54
Exercised.............. (.1) $20.00 - (.5) $11.20
Expired................ (.1) $20.00 - -
Forfeited.............. (.3) $22.24 - (.3) $16.64
--------------- ------------- ---------------
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................ - - -
Forfeited.............. (.6) $20.21 (.2) $27.00 (.1) $19.32
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
Granted................ 3.2 $41.85 3.2 $61.07 1.1 $36.56
Exercised.............. (1.6) $20.26 (.1) $32.03 (.6) $16.11
Forfeited.............. (.4) $23.43 (.1) $27.51 (.2) $21.28
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 14.1 $35.56 5.3 $22.82
=============== ============= ===============
</TABLE>
F-42
<PAGE>
Information about options outstanding and exercisable at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- ----------------- --------------- ------------------- ----------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 4.8 5.84 $20.94 3.0 $20.41
$28.50 -$45.25 3.1 9.57 $41.84 - -
----------------- -------------------
$18.125 -$45.25 7.9 7.29 $29.05 3.0 $20.41
================= ================= =============== =================== ================
DLJ
----------------------
$27.00 -$35.99 10.9 8.0 $28.05 4.9 $27.58
$36.00 -$50.99 .8 9.3 $40.04 - -
$51.00 -$76.00 2.4 9.8 $67.77 - -
----------------- -------------------
$27.00 -$76.00 14.1 8.4 $35.56 4.9 $27.58
================= ================= ================ =================== =================
Alliance
----------------------
$ 6.0625 -$17.75 1.1 3.86 $13.20 1.0 $13.04
$19.375 -$19.75 .8 7.34 $19.39 .3 $19.39
$19.875 -$21.375 1.1 8.28 $20.13 .6 $20.19
$22.25 -$27.50 1.3 9.81 $23.81 .4 $23.29
$36.9375 -$37.5625 1.0 9.95 $36.95 - -
----------------- -------------------
$ 6.0625 -$37.5625 5.3 7.58 $22.82 2.3 $17.43
================= ================== ============== ====================== =============
</TABLE>
F-43
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements included in Part B.
1. Separate Account No. 45:
- Report of Independent Accountants - Price Waterhouse LLP;
- Statements of Assets and Liabilities for the Year Ended
December 31, 1997;
- Statements of Operations for the Year Ended December 31, 1997;
- Statements of Changes in Net Assets for the Years Ended December
31, 1997 and 1996; and
- Notes to Financial Statements.
2. The Equitable Life Assurance Society of the United States:
- Report of Independent Accountants - Price Waterhouse LLP;
- Consolidated Balance Sheets as of December 31, 1997 and
1996;
- Consolidated Statements of Earnings for Years Ended
December 31, 1997, 1996 and 1995;
- Consolidated Statements of Equity for Years Ended
December 31, 1997, 1996 and 1995;
- Consolidated Statements of Cash Flows for Years Ended
December 31, 1997, 1996 and 1995; and
- Notes to Consolidated Financial Statements.
(b) Exhibits.
The following exhibits are filed herewith:
1. Resolutions of the Board of Directors of The Equitable Life
Assurance Society of the United States ("Equitable")
authorizing the establishment of the Registrant, previously refiled
with this Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
2. Not applicable.
3. (a) Form of Distribution Agreement among Equitable
Distributors, Inc., Separate Account No. 45 and Equitable
Life Assurance Society of the United States, previously refiled
electronically with this Registration Statement on Form N-4
(File No. 33-83750) on February 27, 1998.
(b) Distribution and Servicing Agreement among Equico Securities,
Inc. (now EQ Financial Consultants, Inc.), The Equitable Life
Assurance Society of the United States and Equitable Variable
Life Insurance Company, dated as of May 1, 1994, incorporated
herein by reference to Exhibit 3(c) to the Registration
Statement on Form N-4 (File No. 2-30070) on February 14, 1995.
(c) Letter of Agreement for Distribution Agreement among The
Equitable Life Assurance Society of the United States and EQ
Financial Consultants, Inc., dated April 20, 1998.
(d) Form of Sales Agreement among Equitable
Distributors, Inc., as Distributor, a Broker-
Dealer (to be named) and a General Agent (to be
named), previously refiled electronically with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(e) Form of The Hudson River Trust Sales Agreement by
and among Equico Securities, Inc., The Equitable
Life Assurance Society of the United States,
Equitable Distributors, Inc. and Separate Account
No. 45 of The Equitable Life Assurance Society of
the United States, previously refiled electronically with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
C-1
<PAGE>
4. (a) Form of group annuity contract no. 1050-94IC, previously
refiled electronically with this Registration Statement on
Form N-4 (File No. 33-83750) on February 27, 1998.
(b) Forms of group annuity certificate nos. 94ICA and
94ICB, previously refiled electronically with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(c) Forms of endorsement nos. 94ENIRAI, 94ENNQI and
94ENMVAI to contract no. 1050-94IC and data pages
nos. 94ICA/BIM and 94ICA/BMVA, previously refiled
electronically with this Registration Statement on Form N-4
(File No. 33-83750) on February 27, 1998.
(d) Forms of data pages no. 94ICA/BIM (IRA) and (NQ),
previously refiled electronically with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(e) Form of endorsement no. 95ENLCAI to contract no. 1050-94IC and
data pages no. 94ICA/BLCA, previously refiled electronically
with this Registration Statement on Form N-4 (File No. 33-83750)
on February 27, 1998.
(f) Forms of data pages for Rollover IRA, IRA Assured
Payment Option, IRA Assured Payment Option Plus,
Accumulator, Assured Growth Plan, Assured Growth
Plan (Flexible Income Program), Assured Payment
Plan (Period Certain) and Assured Payment Plan
(Life with a Period Certain), previously filed with
this Registration Statement No. 33-83750 on August
31, 1995.
(g) Forms of data pages for Rollover IRA, IRA Assured
Payment Option Plus and Accumulator, previously
filed with this Registration Statement No. 33-83750
on April 23, 1996.
(h) Form of Guaranteed Minimum Income Benefit
Endorsement to Contract Form No. 10-50-94IC and the
Certificates under the Contract, previously filed
with this Registration Statement No. 33-83750 on
April 23, 1996.
(i) Form of data pages for Accumulator and Rollover
IRA, previously filed with this Registration
Statement No. 33-83750 on October 15, 1996.
(j) Forms of data pages for Accumulator and Rollover
IRA, previously filed with this Registration Statement
No. 33-83750 on April 30, 1997.
(k) Forms of data pages for Accumulator and Rollover IRA, previously
filed with this Registration Statement No. 33-83750 on
December 31, 1997.
(l) Form of endorsement No. 98Roth to Contract Form No. 1050-94IC
and the Certificates under the Contract, previously
filed with this Registration Statement No. 33-83750 on
December 31, 1997.
(m) Form of data pages No. 94ICB and 94ICBMVA for Equitable
Accumulator (IRA) Certificates, previously filed with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(n) Form of data pages No. 94ICB and 94ICBMVA for Equitable
Accumulator (NQ) Certificates, previously filed with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(o) Form of data pages No. 94ICB and 94ICBMVA for Equitable
Accumulator (QP) Certificates, previously filed with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(p) Form of data pages No. 94ICB, 94ICBMVA and 94ICBLCA for Assured
Payment Option Certificates, previously filed with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(q) Form of data pages No. 94ICB, 94ICBMVA and 94ICBLCA for APO Plus
Certificates, previously filed with this Registration Statement
on Form N-4 (File No. 33-83750) on February 27, 1998.
(r) Form of Endorsement applicable to Defined Benefit Qualified Plan
Certificates No. 98ENDQPI.
(s) Form of Endorsement applicable to Non-Qualified Certificates No.
98ENJONQI, previously filed with this Registration Statement on
Form N-4 (File No. 33-83750) on February 27, 1998.
(t) Form of Endorsement applicable to Charitable Remainder Trusts
No. 97ENCRTI, previously filed with this Registration Statement
on Form N-4 (File No. 33-83750) on February 27, 1998.
(u) Form of Guaranteed Interest Account endorsement no. 98ENGAIAII,
and data pages 94ICA/B, incorporated herein by reference to
Exhibit No. 4(r) to the Registration Statement on Form N-4 (File
No. 333-05593) filed on May 1, 1998.
5. (a) Forms of application used with the IRA, NQ and Fixed
Annuity Markets, previously refiled electronically with this
Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(b) Form of Enrollment Form/Application for Equitable Accumulator
(IRA, NQ and QP), incorporated herein by reference to Exhibit
No. 5(e) to the Registration Statement on Form N-4 (File No.
333-05593) filed on May 1, 1998.
C-2
<PAGE>
(b) Forms of Enrollment Form/Application for Rollover
IRA, Choice Income Plan and Accumulator, previously
filed with this Registration Statement No. 33-83750
on April 23, 1996.
(c) Forms of Enrollment Form/Application for Accumulator and
Rollover IRA, previously filed with this Registration
Statement No. 33-83750 on April 30, 1997.
(d) Forms of Enrollment Form/Application for Accumulator and
Rollover IRA, previously filed with this Registration Statement
No. 33-83750 on December 31, 1997.
(e) Form of Enrollment Form/Application No. 126737 (5/98) for
Equitable Accumulator (IRA, NQ and QP), previously filed with
this Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
6. (a) Restated Charter of Equitable, as amended January 1,
1997, previously filed with this Registration Statement
No. 33-83750 on March 6, 1997.
(b) By-Laws of Equitable, as amended November 21, 1996,
previously filed with this Registration Statement
No. 33-83750 on March 6, 1997.
7. Not applicable.
8. Form of Participation Agreement among EQ Advisors Trust,
Equitable, Equitable Distributors, Inc. and EQ Financial
Consultants, Inc., incorporated by reference to the
Registration Statement of EQ Advisors Trust on Form N-1A.
(File Nos. 333-17217 and 811-07953).
9. Opinion and Consent of Mary P. Breen, Esq.,
Vice President and Associate General Counsel of Equitable,
as to the legality of the securities registered under this
Registration Statement No. 33-83750, previously filed with
this Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
10. (a) Consent of Price Waterhouse LLP.
(b) Powers of Attorney.
11. Not applicable.
12. Not applicable.
13. (a) Formulae for Determining Money Market Fund Yield for a
Seven-Day Period for the INCOME MANAGER, previously refiled with
this Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(b) Formulae for Determining Cumulative and Annualized
Rates of Return for the INCOME MANAGER, previously refiled with
this Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
(c) Formulae for Determining Standardized Performance
Value and Annualized Average Performance Ratio for
INCOME MANAGER Certificates, previously refiled with
this Registration Statement on Form N-4 (File No. 33-83750) on
February 27, 1998.
C-3
<PAGE>
Item 25: Directors and Officers of Equitable.
Set forth below is information regarding the directors and
principal officers of Equitable. Equitable's address is 1290
Avenue of the Americas, New York, New York 10104. The business
address of the persons whose names are preceded by an asterisk
is that of Equitable.
POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH
BUSINESS ADDRESS EQUITABLE
- ---------------- ---------
DIRECTORS
Francoise Colloc'h Director
AXA - UAP
23, Avenue Matignon
75008 Paris, France
Henri de Castries Director
AXA - UAP
23, Avenue Matignon
75008 Paris, France
Joseph L. Dionne Director
The McGraw-Hill Companies
1221 Avenue of the Americas
New York, NY 10020
Denis Duverne Director
AXA-UAP
23, Avenue Matignon
75008 Paris, France
William T. Esrey Director
Sprint Corporation
P.O. Box 11315
Kansas City, MO 64112
Jean-Rene Fourtou Director
Rhone-Poulenc S.A.
25 Quai Paul Doumer
92408 Courbevoie Cedex,
France
Norman C. Francis Director
Xavier University of Louisiana
7325 Palmetto Street
New Orleans, LA 70125
C-4
<PAGE>
POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH
BUSINESS ADDRESS EQUITABLE
- ---------------- ---------
Donald J. Greene Director
LeBouef, Lamb, Greene & MacRae
125 West 55th Street
New York, NY 10019-4513
John T. Hartley Director
Harris Corporation
1025 NASA Boulevard
Melbourne, FL 32919
John H.F. Haskell, Jr. Director
SBC Warburg Dillion, Read Inc.
535 Madison Avenue
New York, NY 10028
Mary R. (Nina) Henderson Director
Bestfoods Grocery
BESTFOODS
International Plaza
700 Sylvan Avenue
Englewood Cliffs, NJ 07632-9976
W. Edwin Jarmain Director
Jarmain Group Inc.
121 King Street West
Suite 2525
Toronto, Ontario M5H 3T9,
Canada
G. Donald Johnston, Jr. Director
184-400 Ocean Road
John's Island
Vero Beach, FL 32963
George T. Lowy Director
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
C-5
<PAGE>
POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH
BUSINESS ADDRESS EQUITABLE
- ---------------- ---------
Didier Pineau-Valencienne Director
Schneider S.A.
64-70 Avenue Jean-Baptiste Clement
92646 Boulogne-Billancourt Cedex
France
George J. Sella, Jr. Director
P.O. Box 397
Newton, NJ 07860
Dave H. Williams Director
Alliance Capital Management
Corporation
1345 Avenue of the Americas
New York, NY 10105
OFFICER-DIRECTORS
*Michael Hegarty President, Chief Operating Officer and
Director
*Edward D. Miller Chairman of the Board, Chief Executive
Officer and Director
*Stanley B. Tulin Vice Chairman of the Board, Chief
Financial Officer and Director
OTHER OFFICERS
*Leon Billis Executive Vice President and Chief
Information Officer
*Harvey Blitz Senior Vice President and Deputy
Chief Financial Officer
*Kevin R. Byrne Senior Vice President and Treasurer
*Alvin H. Fenichel Senior Vice President and
Controller
C-6
<PAGE>
NAME AND PRINCIPAL OFFICES WITH
BUSINESS ADDRESS EQUITABLE
- ---------------- ---------
*Paul J. Flora Senior Vice President and Auditor
*Robert E. Garber Executive Vice President and General
Counsel
*Jerome S. Golden Executive Vice President
*James D. Goodwin Vice President
*Edward J. Hayes Senior Vice President
*Mark A. Hug Senior Vice President
*Donald R. Kaplan Vice President and Chief Compliance
Officer and Associate General Counsel
*Michael S. Martin Senior Vice President and Chief Marketing
Officer
*Douglas Menkes Senior Vice President and
Corporate Actuary
*Peter D. Noris Executive Vice President and Chief
Investment Officer
*Anthony C. Pasquale Senior Vice President
*Pauline Sherman Vice President, Secretary and Associate
General Counsel
*Samuel B. Shlesinger Senior Vice President
*Richard V. Silver Senior Vice President and Deputy
General Counsel
*Jose Suquet Senior Executive Vice President and Chief
Distribution Officer
*Naomi Weinstein Vice President
*Maureen K. Wolfson Vice President
C-7
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Insurance
Company or Registrant
Separate Account No. 45 of The Equitable Life Assurance Society of
the United States (the "Separate Account") is a separate account of Equitable.
Equitable, a New York stock life insurance company, is a wholly owned
subsidiary of The Equitable Companies Incorporated (the "Holding Company"), a
publicly traded company.
The largest stockholder of the Holding Company is AXA-UAP which as of
December 31, 1997. Beneficially owned approximately 58.7% of the Holding
Company's outstanding common stock . AXA-UAP is able to exercise significant
influence over the operations and capital structure of the Holding Company and
its subsidiaries, including Equitable. AXA-UAP, a French company, is the holding
company for an international group of insurance and related financial services
companies.
C-8
<PAGE>
ORGANIZATION CHART OF EQUITABLE'S AFFILIATES
The Equitable Companies Incorporated (l991) (Delaware)
Donaldson, Lufkin & Jenrette, Inc. (1993) (Delaware) (41.8%) (See
Addendum B(1) for subsidiaries)
The Equitable Life Assurance Society of the United States (1859)
(New York) (a)(b)
The Equitable of Colorado, Inc. (l983) (Colorado)
EVLICO, INC. (1995) (Delaware)
EVLICO East Ridge, Inc. (1995) (California)
GP/EQ Southwest, Inc. (1995) (Texas) (5.885%)
Franconom, Inc. (1985) (Pennsylvania)
Frontier Trust Company (1987) (North Dakota)
Gateway Center Buildings, Garage, and Apartment Hotel, Inc.
(inactive) (pre-l970) (Pennsylvania)
Equitable Deal Flow Fund, L.P.
Equitable Managed Assets (Delaware)
EREIM LP Associates (99%)
EML Associates, L.P. (19.8%)
Alliance Capital Management L.P. (2.7% limited partnership
interest)
ACMC, Inc. (1991) (Delaware)(s)
Alliance Capital Management L.P. (1988) (Delaware)
(39.6% limited partnership interest)
EVCO, Inc. (1991) (New Jersey)
EVSA, Inc. (1992) (Pennsylvania)
Prime Property Funding, Inc. (1993) (Delaware)
Wil Gro, Inc. (1992) (Pennsylvania)
Equitable Underwriting and Sales Agency (Bahamas) Limited (1993)
(Bahamas)
(a) Registered Broker/Dealer (b) Registered Investment Advisor
C-9
<PAGE>
The Equitable Companies Incorporated (cont.)
Donaldson Lufkin & Jenrette, Inc.
The Equitable Life Assurance Society of the United States (cont.)
Fox Run Inc. (1994) (Massachusetts)
STCS, Inc. (1992) (Delaware)
CCMI Corporation (1994) (Maryland)
FTM Corporation (1994) (Maryland)
HVM Corporation (1994) (Maryland)
Equitable BJVS, Inc. (1992) (California)
Equitable Rowes Wharf, Inc. (1995) (Massachusetts)
GP/EQ Southwest, Inc. (1995) (Texas) (94.132%)
Camelback JVS, Inc. (1995) (Arizona)
ELAS Realty, Inc. (1996) (Delaware)
100 Federal Street Realty Corporation (Massachusetts)
Equitable Structured Settlement Corporation (1996) (Delaware)
Prime Property Funding II, Inc. (1997) (Delaware)
Sarasota Prime Hotels, Inc. (1997) (Florida)
ECLL, Inc. (1997) (Michigan)
Equitable Holdings, LLC (1997) (New York) (into which Equitable
Holding Corporation was merged in 1997)
EQ Financial Consultants, Inc. (formerly Equico Securities,
Inc.) (l97l) (Delaware) (a) (b)
ELAS Securities Acquisition Corp. (l980) (Delaware)
100 Federal Street Funding Corporation (Massachusetts)
EquiSource of New York, Inc. (1986) (New York) (See
Addendum A for subsidiaries)
Equitable Casualty Insurance Company (l986) (Vermont)
EREIM LP Corp. (1986) (Delaware)
EREIM LP Associates (1%)
EML Associates (.02%)
Six-Pac G.P., Inc. (1990) (Georgia)
(a) Registered Broker/Dealer (b) Registered Investment Advisor
C-10
<PAGE>
The Equitable Companies Incorporated (cont.)
Donaldson Lufkin & Jenrette, Inc.
The Equitable Life Assurance Society of the United States (cont.)
Equitable Holdings, LLC (cont.)
Equitable Distributors, Inc. (1988) (Delaware) (a)
Equitable JVS, Inc. (1988) (Delaware)
Astor/Broadway Acquisition Corp. (1990) (New York)
Astor Times Square Corp. (1990) (New York)
PC Landmark, Inc. (1990) (Texas)
Equitable JVS II, Inc. (1994) (Maryland)
EJSVS, Inc. (1995) (New Jersey)
Donaldson, Lufkin & Jenrette, Inc. (1985 by EIC; 1993 by EQ and
EHLLC) (Delaware) (34.4%) (See Addendum B(1) for
subsidiaries)
JMR Realty Services, Inc. (1994) (Delaware)
Equitable Investment Corporation (l97l) (New York)
Stelas North Carolina Limited Partnership (50% limited
partnership interest) (l984)
Equitable JV Holding Corporation (1989) (Delaware)
Alliance Capital Management Corporation (l991) (Delaware) (b)
(See Addendum B(2) for subsidiaries)
Equitable Capital Management Corporation (l985) (Delaware) (b)
Alliance Capital Management L.P. (1988) (Delaware)
(14.6% limited partnership interest)
EQ Services, Inc. (1992) (Delaware)
EREIM Managers Corp. (1986) (Delaware)
ML/EQ Real Estate Portfolio, L.P.
EML Associates, L.P. (80%)
(a) Registered Broker/Dealer (b) Registered Investment Advisor
C-11
<PAGE>
ORGANIZATION CHART OF EQUITABLE'S AFFILIATES
ADDENDUM A - SUBSIDIARY
OF EQUITABLE HOLDINGS, LLC
HAVING MORE THAN FIVE SUBSIDIARIES
-----------------------------------
EquiSource of New York, Inc. (formerly Traditional Equinet Business Corporation
of New York) has the following subsidiaries that are brokerage companies to
make available to Equitable Agents within each state traditional (non-equity)
products and services not manufactured by Equitable:
EquiSource of Alabama, Inc. (1986) (Alabama)
EquiSource of Arizona, Inc. (1986) (Arizona)
EquiSource of Arkansas, Inc. (1987) (Arkansas)
EquiSource Insurance Agency of California, Inc. (1987) (California)
EquiSource of Colorado, Inc. (1986) (Colorado)
EquiSource of Delaware, Inc. (1986) (Delaware)
EquiSource of Hawaii, Inc. (1987) (Hawaii)
EquiSource of Maine, Inc. (1987) (Maine)
EquiSource Insurance Agency of Massachusetts, Inc. (1988) (Massachusetts)
EquiSource of Montana, Inc. (1986) (Montana)
EquiSource of Nevada, Inc. (1986) (Nevada)
EquiSource of New Mexico, Inc. (1987) (New Mexico)
EquiSource of Pennsylvania, Inc. (1986) (Pennsylvania)
EquiSource Insurance Agency of Utah, Inc. (1986) (Utah)
EquiSource of Washington, Inc. (1987) (Washington)
EquiSource of Wyoming, Inc. (1986) (Wyoming)
C-12
<PAGE>
ORGANIZATION CHART OF EQUITABLE'S AFFILIATES
ADDENDUM B - INVESTMENT SUBSIDIARIES
HAVING MORE THAN FIVE SUBSIDIARIES
-----------------------------------
Donaldson, Lufkin & Jenrette, Inc. has the following subsidiaries, and
approximately 150 other subsidiaries, most of which are special purpose
subsidiaries (the number fluctuates according to business needs):
Donaldson, Lufkin & Jenrette, Securities Corporation
(1985) (Delaware) (a) (b)
Wood, Struthers & Winthrop Management Corp. (1985)
(Delaware) (b)
Autranet, Inc. (1985) (Delaware) (a)
DLJ Real Estate, Inc.
DLJ Capital Corporation (b)
DLJ Mortgage Capital, Inc. (1988) (Delaware)
Column Financial, Inc. (1993) (Delaware) (50%)
Alliance Capital Management Corporation (as general partner) (b)has the
following subsidiaries:
Alliance Capital Management L.P. (1988) (Delaware) (b)
Alliance Capital Management Corporation of Delaware,
Inc. (Delaware)
Alliance Fund Services, Inc. (Delaware) (a)
Alliance Fund Distributors, Inc. (Delaware) (a)
Alliance Capital Oceanic Corp. (Delaware)
Alliance Capital Management Australia Pty. Ltd.
(Australia)
Meiji - Alliance Capital Corp. (Delaware) (50%)
Alliance Capital (Luxembourg) S.A. (99.98%)
Alliance Eastern Europe Inc. (Delaware)
Alliance Barra Research Institute, Inc. (Delaware)
(50%)
Alliance Capital Management Canada, Inc. (Canada)
(99.99%)
Alliance Capital Management (Brazil) Llda
Alliance Capital Global Derivatives Corp.
(Delaware)
Alliance International Fund Services S.A.
(Luxembourg)
Alliance Capital Management (India) Ltd. (Delaware)
Alliance Capital Mauritius Ltd.
Alliance Corporate Finance Group, Incorporated
(Delaware)
Equitable Capital Diversified Holdings, L.P. I
Equitable Capital Diversified Holdings, L.P. II
Curisitor Alliance L.L.C. (Delaware)
Curisitor Holdings Limited (UK)
Alliance Capital Management (Japan), Inc.
Alliance Capital Management (Asia) Ltd.
Alliance Capital Management (Turkey), Ltd.
Cursitor Alliance Management Limited (UK)
(a) Registered Broker/Dealer (b) Registered Investment Advisor
C-13
<PAGE>
AXA-UAP GROUP CHART
The information listed below is dated as of December 31, 1997; percentages
shown represent voting power. The name of the owner is noted when AXA-UAP
indirectly controls the company.
AXA-UAP INSURANCE AND REINSURANCE BUSINESS HOLDING
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
AXA Assurances Iard France 100% by AXA France Assurance
AXA Assurances Vie France 100% by AXA France Assurance
AXA Courtage Iard France 97.4% by AXA France Assurance
and UAP Iard
AXA Courtage Vie France 100% by AXA France Assurance
Alpha Assurances Vie France 100% by AXA France Assurance
AXA Direct France 100%
Direct Assurances Iard France 100% by AXA Direct
Direct Assurance Vie France 100% by AXA Direct
AXA Tellit Versicherung Germany 50% owned by AXA Direct and
50% by CKAG
Axiva France 100% by AXA France Assurance
Juridica France 88.4% by UAP Iard, 10.9% by
AXA France Assurance
AXA Assistance France France 100% by AXA Assistance SA
Monvoisin Assurances France 99.9% by different companies
and Mutuals
Societe Beaujon France 100%
Lor Finance France 100%
Jour Finance France 100% by AXA Conseil Iard and
by AXA Assurances Iard
Financiere 45 France 99.8%
Mofipar France 100%
Compagnie Auxiliaire pour le France 99.8% by Societe Beaujon
Commerce and l'Industrie
C.F.G.A. France 99.96% owned by Mutuals and
Finaxa
AXA Global Risks France 100% owned by AXA France
Assurance, UAP Iard and
Mutuals
Argovie France 100% by Axiva and SCA Argos
C-14
<PAGE>
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
Astral Finance France 99.33% by AXA Courtage Vie
Argos France N.S.
AXA France Assurance France 100%
UAP Incendie Accidents France 100% by AXA France
Assurance
UAP Vie France 100% by AXA France
Assurance
UAP Collectives France 50% by AXA Assurances
Iard, 3.3% by AXA Conseil
Iard and 46.6% UAP Vie
Thema Vie France 30% by Axiva, 11.9% by
UAP Collectives, 10.9% by
UAP Iard and 46.8% by UAP Vie.
La Reunion Francaise France 49% by UAP Iard and 51% by
AXA Global Risks
UAP Assistance France 52% by UAP Incendie-Accidents
and 48% by UAP Vie
UAP International France 50.1% by AXA-UAP and 49.9% by
AXA Global Risks
Sofinad France 100%
AXA-Colonia Konzern AG (AXA-
CKAG) Germany 39.7% by Vinci BV, 25.6% by
Kolnische Verwaltungs and
5.5% by AXA-UAP
Finaxa Belgium Belgium 100%
AXA Belgium Belgium 27.1% by AXA-UAP and 72.6%
by Finaxa Belgium
De Kortrijske Verzekering Belgium 99.8% by AXA Belgium
Juris Belgium 100% owned by Finaxa Belgium
Royale Vendome Belgium 49% by AXA-UAP and 20.2% by
AXA Global Risks
Royale Belge Belgium 51.2% by Royale Vendome and
9.5% by different companies
of the Group
Royale Belge 1994 Belgium 97.9% by Royale Belge and 2%
by UAB
UAB Belgium 99.9% by Royale Belge
Ardenne Prevoyante Belgium 99.4% by Royale Belge
GB Lex Belgium 55% by Royale Belge, 25% by
Royale Belge 1994, 10% by
Juridica and 10% by AXA
Conseil Assurance
Royale Belge Re Belgium 99.9% by Royale Belge
Parcolvi Belgium 100% by Vinci Belgium
Vinci Belgium Belgium 99.5% by Vinci BV
Finaxa Luxembourg Luxembourg 100%
AXA Assurance IARD Luxembourg Luxembourg 99.9%
AXA Assurance Vie Luxembourg Luxembourg 99.9%
Royale UAP Luxembourg 100% by Royale Belge
Paneurolife Luxembourg 90% by different companies of
the AXA-UAP Group
Paneurore Luxembourg 90% by different companies of
the AXA-UAP Group
Crealux Luxembourg 100% by Royale Belge
Futur Re Luxembourg 100% by AXA Global Risks
General Re-CKAG Luxembourg 37.8% by AXA-CKAG and 12.1%
by Colonia Nordstern
Versicherung
Royale Belge Investissements Luxembourg 100% by Royale Belge
AXA Aurora Spain 30% owned by AXA-UAP and 40%
by UAP International
Aurora Polar SA de Seguros y Spain 99.4% owned by AXA Aurora
Reaseguros
Aurora Vida SA de Seguros y Spain 90% owned by Aurora Polar and
Reaseguros 5% by AXA-UAP
AXA Gestion de Seguros y Spain 99.1% owned by AXA Aurora
Reaseguros
Hilo Direct Seguros Spain 71.4% by AXA Aurora
Ayuda Legal Spain 59% owned by Aurora Polar,
29% by AXA Gestion and 12%
by Aurora Vida
UAP Iberica Spain 100% by UAP International
General Europea (GESA) Spain 100% by Societe Generale
d'Assistance
AXA Assicurazioni Italy 100%
Eurovita Italy 30% owned by AXA Assicurazioni
Gruppo UAP Italia (GUI) Italy 97% by UAP International and
3% by UAP Vie
UAP Italiana Italy 96% by AXA-UAP and 4% by GUI
UAP Vita Italy 62.2% by GUI and 37.8% by UAP
Vie
Allsecures Assicurazioni Italy 90% by GUI and 10% by UAP
Italiana
Allsecures Vita Italy 92.9% by GUI and 7% by AXA-UAP
Centurion Assicurazioni Italy 100% by GUI
AXA Equity & Law plc U.K. 100%
AXA Equity & Law Life U.K. 100% by SLPH
Assurance Society
AXA Insurance U.K. 100% owned by SLPH
AXA Global Risks U.K. 51% owned by AXA Global
Risks (France) and 49% by
AXA Courtage IARD
Sun Life and Provincial U.K. 71.6% by AXA-UAP and AXA
Holdings (SLPH) Equity & Law Plc
Sun Life Corporation Plc U.K. 100% by AXA Sun Life Holding
Sun Life Assurance U.K. 100% by AXA Sun Life Holding
UAP Provincial Insurance U.K. 100% by SLPH
English & Scottish U.K. 100% by AXA UK
Servco U.K. 100% by AXA Sun Life Holding
AXA Sun Life U.K. 100% by AXA Sun Life Holding
AXA Leven The Nether- 100% by AXA Equity & Law Life
lands Assurance Society
UAP Nieuw Rotterdam The Nether- 51% by Royale Belge, 38.9% by
Holding BV lands Gelderland BV and 4.1% by
AXA-UAP
UNIROBE Groep BV The Nether- 100% by UAP Nieuw Rotterdam
lands Holding BV
UAP Nieuw Rotterdam Verzkerigen The Nether- 100% by UAP Nieuw Rotterdam
lands Holding BV
UAP Nieuw Rotterdam Schade The Nether- 100% by UAP Nieuw Rotterdam
lands Verzekerigen
UAP Nieuw Rotterdam Leven The Nether- 100% by UAP Nieuw Rotterdam
lands Verzekerigen
UAP Nieuw Rotterdam Zorg The Nether- 100% by UAP Nieuw Rotterdam
lands Schade
Societe Generale d'Assistance The Nether- 51% by UAP Incendie-Accidents,
lands 29% by UAP Vie and 20% by
AXA-UAP
Gelderland BV The Nether- 100% by UAP Vie
lands
Royale Belge International The Nether- 100% by Royale Belge
lands Investissements
Vinci BV The Nether- 94.8% by AXA-UAP and 5.2% by
lands Parcolvi
AXA Portugal Companhia de Portugal 43.1% by different companies
Serguros SA of the AXA-UAP Group
AXA Portugal Companhia de Portugal 95.1% by UAP Vie and 7.5% UAP
Serguros de Vida SA International
Union UAP Switzerland 99.9% by UAP International
Union UAP Vie Switzerland 95% by UAP International
AXA Oyak Hayat Sigorta Turkey 60% owned by AXA-UAP
Oyak Sigorta Turkey 11% owned by AXA-UAP
Al Amane Assurances Morocco 52% by UAP International
AXA Canada Inc. Canada 100%
AXA Boreal Insurance Inc. Canada 100% owned by Gestion Fracapar
Inc
AXA Assurances Inc Canada 100% owned by AXA Canada Inc
C-15
<PAGE>
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
AXA Insurance Inc Canada 100% owned by AXA Canada Inc.
and AXA Assurance Inc
Anglo Canada General Insurance Canada 100% owned by AXA Canada Inc.
Cy
AXA Pacific Insurance Cy Canada 100% by AXA Boreal Insurance
Inc
AXA Boreal Assurances Canada 100% by AXA Boreal Insurance
Agricoles Inc Inc
AXA Life Insurance Japan 100%
Dongbu AXA Life Korea 50%
Insurance Co. Ltd.
Sime AXA Berhad Malaysia 30% owned by AXA-UAP and
AXA Reassurance
AXA Investment Holdings Pte Ltd Singapore 100%
AXA Insurance Singapore 100% owned by AXA Investment
Holdings Pte Ltd
AXA Insurance Hong Kong 100% owned by AXA Investment
Holdings Pte Ltd
AXA Life Insurance Hong Kong 100%
PT Asuransi AXA Indonesia Indonesia 80%
The Equitable Companies U.S.A. 58.7% of which AXA-UAP owns
Incorporated 42.0%, Financiere 45, 3.2%,
Lorfinance 6.4%, AXA Equity
& Law Life Association Society
4.1% and AXA Reassurance 3.0%
The Equitable Life Assurance U.S.A. 100% owned by The Equitable
Society of the United States Companies Incorporated
(ELAS)
National Mutual Holdings Ltd Australia 51% between AXA-UAP, 42.1%
and AXA Equity & Law Life
Assurance Society 8.9%
The National Mutual Life Australia 100% owned by National Mutual
Association of Australasia Ltd Holdings Ltd
National Mutual International Australia 100% owned by National Mutual
Pty Ltd Holdings Ltd
National Mutual (Bermuda) Ltd Australia 100% owned by National Mutual
International Pty Ltd
National Mutual Asia Ltd Australia 41% owned by National Mutual
Holdings Ltd, 20% by Datura
Ltd and 13% by National Mutual
Life Association of
Australasia
Australian Casualty & Life Ltd Australia 100% owned by National Mutual
Holdings Ltd
National Mutual Health Australia 100% owned by National Mutual
Insurance Pty Ltd Holdings Ltd
C-16
<PAGE>
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
AXA Reassurance France 100% owned by AXA-UAP, AXA
Assurances Iard and AXA Global
Risks
AXA Re Finance France 79% owned by AXA Reassurance
AXA Cessions France 100%
AXA Re Asia Singapore 100% owned by AXA Reassurance
AXA Re U.K. Plc U.K. 100% owned by AXA Re U.K.
Holding
AXA Re U.K. Holding U.K. 100% owned by AXA Reassurance
AXA Re U.S.A. U.S.A. 100% owned by AXA America
AXA America U.S.A. 100% owned by AXA Reassurance
AXA Space U.S.A. 80% owned by AXA America
AXA Re Life U.S.A. 100% owned by AXA America
C.G.R.M. Monaco 100% owned by AXA Reassurance
C-17
<PAGE>
AXA-UAP FINANCIAL BUSINESS
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
Compagnie Financiere de Paris France 97.2% (100% with Mutuals)
(C.F.P.)
AXA Banque France 98.7% owned by C.F.P.
AXA Credit France 65% owned by C.F.P.
AXA Gestion Interessement France 100% owned by AXA Investment
Managers
Sofapi France 100% owned by C.F.P.
Soffim France 100% owned by C.F.P.
Societe de Placements France 98.8% with Mutuals
Selectionnes S.P.S.
Presence et Initiative France 100% with Mutuals
Vamopar France 100% owned by Societe Beaujon
Financiere Mermoz France 100%
AXA Investment Managers France 100% by some AXA-UAP Group
companies
AXA Asset Management France 100% owned by AXA Investment
Partenaires Managers
AXA Investment Managers Paris France 100% owned by AXA Investment
Managers
AXA Asset Management France 99.6% owned by AXA Investment
Distribution Managers
UAP Gestione Financiere France 99.9 by AXA-UAP
Assurinvestissements France 50% by UAP Vie, 30% UAP
Collectives, 20% UAP
Incendie-Accidents
Banque Worms France 51% by CFP and 49% by
three UAP insurance companies
Colonia Bausbykasse Germany 97.8% by AXA-CKAG
Banque Ippa Belgium 99.9% by Royale Belge
Banque Bruxelles Lambert Belgium 9.3% by Royale Belge, 3.1%
Royale Belge 1994, 0.2% by
AXA Belgium
AXA Equity & Law Home Loans U.K. 100% owned by AXA Equity & Law
Plc
AXA Equity & Law Commercial U.K. 100% owned by AXA Equity & Law
Loans Plc Loans
Sun Life Asset Management U.K. 66.7% owned by SLPH and 33.4%
by AXA Asset Management Ltd.
C-18
<PAGE>
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
Alliance Capital Management U.S.A. 57.9% held by ELAS
Donaldson Lufkin & Jenrette U.S.A. 76.2% owned by Equitable
Holdings LLC and ELAS
National Mutual Funds Australia 100% owned by National
Management (Global) Ltd Mutual Holdings Ltd
National Mutual Funds USA 100% by National Mutual Funds
Management North America Management (Global) Ltd.
Holding Inc.
Cogefin Luxembourg 100% owned by AXA Belgium
ORIA France 100% owned by AXA Millesimes
AXA Oeuvres d'Art France 100% by Mutuals
AXA Cantenac Brown France 100%
AXA Suduiraut France 99.6% owned by AXA-UAP and
Societe Beaujon
C-19
<PAGE>
AXA-UAP REAL ESTATE BUSINESS
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
Prebail France 100% owned by AXA Immobilier
Axamur France 100% by different companies
and Mutuals
Parimmo France 100% by different companies
and Mutuals
S.G.C.I. France 100% by different companies
and Mutuals
Transaxim France 100% owned by S.G.C.I. and
C.P.P.
Compagnie Parisienne de France 100% owned by S.G.C.I.
Participations (C.P.P.)
Monte Scopeto France 100% owned by C.P.P.
Matipierre France 100% by different companies
Securimo France 87.12% by different companies
and Mutuals
Paris Orleans France 100% by different companies
AXA Courtage Iard
Colisee Bureaux France 100% by different companies
and Mutuals
Colisee Premiere France 100% by different companies
and Mutuals
Colisee Laffitte France 100% by Colisee Bureaux
Fonciere Carnot Laforge France 100% by Colisee Premiere
Parc Camoin France 100% by Colisee Premiere
Delta Point du Jour France 100% owned by Matipierre
Paroi Nord de l'Arche France 100% owned by Matipierre
Falival France 100% owned by AXA Reassurance
Compagnie du Gaz d'Avignon France 100% owned by AXA Assurances
Iard
Ahorro Familiar France 44% owned by AXA Assurances
Iard, 1% by AXA Aurora Polar
and 1% by AXA Seguros
Fonciere du Val d'Oise France 100% owned by C.P.P.
Sodarec France 100% owned by C.P.P.
C-20
<PAGE>
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
Centrexpo France 99.3% owned by C.P.P.
Fonciere de la Ville du Bois France 99.6% owned by Centrexpo
Colisee Seine France 100% owned by different
companies
Translot France 100% owned by SGCI
Colisee Alpha France 100% owned by Colisee Bureaux
Colisee Silly France 100% owned by Colisee Bureaux
S.N.C. Dumont d'Urville France 100% owned by Colisee Premiere
Colisee Federation France 100% by SGCI
Colisee Saint Georges France 100% by SGCI
Drouot Industrie France 50% by SGCI and 50% by Axamur
Colisee Vauban France 99.6% by Matipierre
Fonciere Colisee France 100% by Matipierre and other
companies of the AXA-UAP Group
AXA Pierre S.C.I. France 97.6% owned by different
companies and Mutuals
AXA Millesimes France 85.4% owned by AXA-UAP and the
Mutuals
Chateau Suduirault France 100% owned by AXA Millesimes
Diznoko Hungary 95% owned by AXA Millesimes
Compagnie Fonciere Matignon France 100% by different companies
and Mutuals
Fidei France 20.7% owned by C.F.P. and
10.8% by Axamur
Fonciere Saint Sebastien France 99.9% by UAP Vie
Fonciere Vendome France 91% by different companies of
the Group
La Holding Vendome France 99.9% by AXA Global Risks
10, boulevard Haussmann France 69% by La Fonciere Vendome and
31% by AXA Conseil Iard
37-39 Le Peletier France 100% by AXA Courage Iard
Ugici France 100% by different companies of
the AXA-UAP Group of which
93.1% by UAP Vie
Ugicomi France 100% by different companies of
the AXA-UAP Group of which
63.8% by UAP Vie
Ugif France 100% by different companies of
the AXA-UAP Group of which
59.6% by UAP Vie and 32.6%
by UAP Collectives
Ugil France 93.9% by different companies
of the AXA-UAP Group of which
65.8% by UAP Vie
Ugipar France 100% by different companies
of the AXA-UAP Group of which
39.4% by UAP Vie, 35.4% by AXA
Courtage Iard and 20.8% by UAP
Collectives
AXA Immobiller France 100% by AXA UAP
Quinta do Noval Vinhos S.A. Portugal 99.6% owned by AXA Millesimes
C-21
<PAGE>
OTHER AXA-UAP BUSINESS
COMPANY COUNTRY VOTING POWER
- ------- ------- ------------
A.N.F. France 95.4% owned by Finaxa
Lucia France 20.6% owned by AXA Assurances
Iard and 8.6% by Mutuals
Schneider S.A. France 10.4%
C-22
<PAGE>
ORGANIZATION CHART OF EQUITABLE'S AFFILIATES
NOTES
1. The year of formation or acquisition and state or country of
incorporation of each affiliate is shown.
2. The chart omits certain relatively inactive special purpose real estate
subsidiaries, partnerships, and joint ventures formed to operate or
develop a single real estate property or a group of related properties,
and certain inactive name-holding corporations.
3. All ownership interests on the chart are 100% common stock ownership
except: (a) The Equitable Companies Incorporated's 41.8% interest in
Donaldson, Lufkin & Jenrette, Inc. and Equitable Holdings, LLC's
34.4% interest in same; (b) as noted for certain partnership interests;
(c) Equitable Life's ACMC, Inc.'s and Equitable Capital Management
Corporation's limited partnership interests in Alliance Capital
Management L.P.; and (d) as noted for certain subsidiaries of Alliance
Capital Management Corp. of Delaware, Inc.
4. The operational status of the entities shown as having been formed or
authorized but "not yet fully operational" should be checked with the
appropriate operating areas, especially for those that are start-up
situations.
5. The following entities are not included in this chart because, while
they have an affiliation with The Equitable, their relationship is not
the ongoing equity-based form of control and ownership that is
characteristic of the affiliations on the chart, and, in the case of the
first two entities, they are under the direction of at least a majority
of "outside" trustees:
The Hudson River Trust
EQ Advisors Trust
Separate Accounts
6. This chart was last revised on April 1, 1998.
C-23
<PAGE>
Item 27. Number of Contractowners
As of March 31, 1998, there were 15,016 owners of qualified and
non-qualified contracts offered by the registrant under this Registration
Statement (File No. 33-83750).
Item 28. Indemnification
Indemnification of Principal Underwriter
To the extent permitted by law of the State of New York and subject
to all applicable requirements thereof, Equitable Distributors, Inc. has
undertaken to indemnify each of its directors and officers who is made or
threatened to be made a party to any action or proceeding, whether civil or
criminal, by reason of the fact the director or officer, or his or her
testator or intestate, is or was a director or officer of Equitable
Distributors, Inc.
Undertaking
Insofar as indemnification for liability arising under the Securities
Act of 1933 ("Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriters
(a) Equitable Distributors, Inc., an indirect wholly-owned subsidiary
of Equitable, is the principal underwriter for Separate Account No. 45. The
principal business address of Equitable Distributors, Inc. is 1290 Avenue of
the Americas, NY, NY 10104.
(b) Set forth below is certain information regarding the directors
and principal officers of Equitable Distributors, Inc. The business address of
the persons whose names are preceded by an asterisk is that of Equitable
Distributors, Inc.
C-24
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
- ---------------- ----------------
Michael S. Martin Chairman of the Board,
Chief Executive Officer and Director
Michael F. McNelis President, Chief Operating Officer and
Director
Martin J. Telles Executive Vice president and Chief
Marketing Officer
Derry E. Bishop Executive Vice President and Director
Harvey E. Blitz Executive Vice President and Director
Thomas J. Duddy, Jr. Executive Vice President
Fred A. Folco Executive Vice President
(c) The information under "Distribution of the Certificates" in the
Prospectus forming a part of this Registration Statement is incorporated
herein by reference.
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by Equitable at 1290 Avenue of the Americas, New York,
C-25
<PAGE>
New York 10104, 135 West 50th Street, New York, NY 10020, and 200 Plaza Drive,
Secaucus, NJ 07096. The policies files will be kept at Vantage Computer System,
Inc., 301 W. 11th Street, Kansas City, Mo. 64105.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration
statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement
are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted;
(b) to include either (1) as part of any application to purchase
a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional
Information, or (2) a postcard or similar written
communication affixed to or included in the prospectus that
the applicant can remove to send for a Statement of
Additional Information;
(c) to deliver any Statement of Additional Information and any
financial statements required to be made available under
this Form promptly upon written or oral request.
Equitable represents that the fees and charges deducted under the Certificates
described in this Registration Statement, in the aggregate, in each case, are
reasonable in relation to the services rendered, the expenses to be incurred,
and the risks assumed by Equitable under the respective Certificates. Equitable
bases its representation on its assessment of all of the facts and
circumstances, including such relevant factors as: the nature and extent of
such services, expenses and risks, the need for Equitable to earn a profit, the
degree to which the Certificates include innovative features, and regulatory
standards for the grant of exemptive relief under the Investment Company Act of
1940 used prior to October 1996, including the range of industry practice. This
representation applies to all certificates sold pursuant to this Registration
Statement, including those sold on the terms specifically described in the
prospectuses contained herein, or any variations therein, based on supplements,
endorsements, data pages, or riders to any certificate or prospectus, or
otherwise.
C-26
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registation Statement and
has caused this amendment to the Registration Statement to be signed on its
behalf, in the City and State of New York, on this 1st day of May, 1998.
SEPARATE ACCOUNT No. 45 OF
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
(Registrant)
By: The Equitable Life Assurance
Society of the United States
By: /s/ Jerome S. Golden
---------------------------------
Jerome S. Golden
Executive Vice President,
Product Management Group,
The Equitable Life Assurance
Society of the United States
C-27
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Depositor certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this amendment to the
Registration Statement caused this amendment to the Registration Statement to be
signed on its behalf, in the City and State of New York, on this 1st day of
May, 1998.
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
(Depositor)
By: /s/ Jerome S. Golden
---------------------------------
Jerome S. Golden
Executive Vice President,
Product Management Group,
The Equitable Life Assurance
Society of the United States
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, this registration statement or amendment thereto has been signed by
the following persons in the capacities and on the date indicated:
PRINCIPAL EXECUTIVE OFFICERS:
Edward D. Miller Chairman of the Board, Chief Executive Officer
and Director
Michael Hegarty President, Chief Operating Officer and Director
PRINCIPAL FINANCIAL OFFICER:
Stanley B. Tulin Vice Chairman of the Board, Chief Financial
Officer and Director
PRINCIPAL ACCOUNTING OFFICER:
/s/ Alvin H. Fenichel Senior Vice President and Controller
- ---------------------------
Alvin H. Fenichel
May 1, 1998
DIRECTORS:
Francoise Colloc'h Donald J. Greene George T. Lowy
Henri de Castries John T. Hartley Edward D. Miller
Joseph L. Dionne John H.F. Haskell, Jr. Didier Pineau-Valencienne
Denis Duverne Michael Hegarty George J. Sella, Jr.
William T. Esrey Mary R. (Nina) Henderson Stanley B. Tulin
Jean-Rene Fourtou W. Edwin Jarmain Dave H. Williams
Norman C. Francis G. Donald Johnston, Jr.
By: /s/ Jerome S. Golden
------------------------
Jerome S. Golden
Attorney-in-Fact
May 1, 1998
C-28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TAG VALUE
- ----------- ---------
<S> <C> <C>
3(c) Letter of Agreement for Distribution Agreement among The EX-99.3c DIST AGREE
Equitable Life Assurance Society of the United States and EQ
Financial Consultants, Inc., dated April 20, 1998.
4(r) Form of Endorsement applicable to Defined
Benefit Qualified Plan Certificates
No. 98ENDQPI. EX-99.4r ENDORSE
10(a) Consent of Price Waterhouse LLP EX-99.10a CONSENT
(b) Powers of Attorney EX-99.10b POW ATTY
</TABLE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
1290 Avenue of the Americas
New York, New York 10104
April 20, 1998
EQ FINANCIAL CONSULTANTS, INC.
1290 Avenue of the Americas
New York, New York 10104
Re: Separate Account No. 45
This letter will confirm our agreement that, beginning May 1, 1998, EQ
Financial, Inc. will act as broker-dealer in connection with the distribution of
Accumulator (NQ), Accumulator (IRA), and Accumulator (QP) products allocated to
Separate Account No. 45, pursuant to and in accordance with the terms and
conditions of that certain Distribution and Servicing Agreement dated as of May
1, 1994 among EQ Financial, Inc. (formerly known as Equico Securities, Inc.) and
The Equitable Life Assurance Society of the United States, on its own behalf and
as successor by merger to Equitable Variable Life Insurance Company.
Very truly yours,
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES for itself and as
depositor on behalf of its Separate
Account No. 45
By: /s/ Jose S. Suquet
-----------------------------------
Jose S. Suquet
Senior Executive Vice President
and Chief Distribution Officer
Agreed to:
EQ FINANCIAL CONSULTANTS, INC.
By: /s/ Michael F. McNelis
-------------------------------
Michael F. McNelis
President
ENDORSEMENT
APPLICABLE TO DEFINED BENEFIT
QUALIFIED PLAN CERTIFICATES
When issued with this Endorsement, this Certificate is a "Qualified Plan
Certificate" which is issued to a trustee of a trust forming part of a plan
which is qualified under Section 401(a) of the Code. All provisions of the
Certificate and other endorsements apply except as expressly modified by this
Endorsement.
EMPLOYER (SECTION 1.13): "Employer" means any Employer that has adopted a Plan
qualified under Section 401(a) of the Code. The Employer with reference to this
Certificate is named in the Data pages.
OWNER (SECTION 1.17): "Owner" means the trustee of a trust for a Plan. The Owner
with reference to this Certificate is named in the Data pages.
PLAN (SECTION 1.18): "Plan" means a defined benefit plan adopted by the Employer
that is intended to meet the requirements for qualification under Section 401(a)
of the Code. The Plan with reference to the Certificate is named in the Data
pages.
1. LIMITS ON CONTRIBUTIONS (SECTION 3.02):
No Contributions shall be accepted from any employee. The Employer
shall contribute to the Certificate such amounts and at such times as
shall be determined by the Plan's trustee. Restrictions, if any, on the
dollar amount or number of Contributions are stated in the Data pages.
2. TERMINATION (SECTION 5.02):
This Certificate will also terminate if,
(d) The Owner directs us to pay out the Cash Value under this
Certificate.
(e) The Owner directs us to convert the Certificate to a Rollover
IRA according to our rules in effect at the time. However, the
converted Certificate will be issued with the same Contract
Date as this Certificate.
3. DEATH BENEFIT (SECTION 6.01)
The beneficiary described in Section 6.02 shall be the Owner of this
Certificate. After the death of the Annuitant but before the death
benefit is paid, the Owner may instruct us in writing in a form we
accept to make the death benefit payable to the Annuitant's beneficiary
under the Plan.
<PAGE>
4. ANNUITY COMMENCEMENT DATE (SECTION 7.03):
Any distribution option under this Certificate must meet any minimum
distribution requirements under Section 401(a)(9) of the Code which
apply after the "Required Beginning Date" which is April 1st following
the calendar year which is generally the later of the year in which the
Annuitant (i) attains age 70 1/2 or (ii) retires from service of the
employer sponsoring the Plan.
5. ASSIGNMENTS, NONTRANSFERABILITY, NONFORFEITABILITY (SECTION 9.05):
This Certificate and any amounts payable pursuant to this Certificate
may not be assigned, pledged, transferred or encumbered except as
permitted under applicable law. The above restriction does not apply to
a change authorized by a qualified domestic relations order defined in
Section 414(p) of the Code.
6. OWNER'S RESPONSIBILITY:
We will make no payment under this Certificate without instructions
from the Owner in a form we accept and we will be fully discharged from
any liability with respect thereto to the extent such payments are made
pursuant to such instructions.
7. PLAN QUALIFICATION:
A "Qualified Plan" is a plan that meets the requirements for
qualification under Section 401(a) of the Code. The Owner is to provide
a determination letter from the Internal Revenue Service that the Plan
is qualified under Section 401(a) of the Code, or an attorney's opinion
that the Plan is qualifiable under Section 401(a) of the Code, and if
at any time the Plan is no longer a Qualified Plan, the Owner is to
give us prompt written notice thereof.
If the Owner gives notice that the Plan is no longer a Qualified Plan,
then upon at least thirty days advance written notice to the Owner, we
will terminate the Certificate under Section 5.02.
NEW YORK,
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
/s/Edward D. Miller
- ------------------------------------
Chairman and Chief Executive Officer
/s/Pauline Sherman
- -------------------------------------------------------
Vice President, Secretary and Associate General Counsel
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in each Statement of Additional Information
constituting part of this Post-Effective Amendment No. 9 to the Registration
Statement No. 33-83750 on Form N-4 (the "Registration Statement") of (1) our
report dated February 10, 1998 relating to the financial statements of Separate
Account No. 45 of The Equitable Life Assurance Society of the United States for
the year ended December 31, 1997, and (2) our report dated February 10, 1998
relating to the consolidated financial statements of The Equitable Life
Assurance Society of the United States for the year ended December 31, 1997,
which reports appear in such Statement of Additional Information, and to the
incorporation by reference of our reports into the Prospectus which constitutes
part of this Registration Statement. We also consent to the incorporation by
reference of our report on the Consolidated Financial Statement Schedules dated
February 10, 1998 which appears on page F-54 of such Annual Report on Form 10-K.
We also consent to the references to us under the headings "Custodian and
Independent Accountants" in each Statement of Additional Information and
"Independent Accountants" in the Prospectus.
/s/ Price Waterhouse LLP
- ---------------------------
Price Waterhouse LLP
New York, New York
April 27, 1998
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 20th day of February, 1998
/s/ Francoise Colloc'h
----------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 2nd day of March, 1998
/s/ Henri de Castries
---------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ Joseph L. Dionne
--------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ Denis Duverne
-----------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ William T. Esrey
--------------------
William T. Esrey
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 23th day of February, 1998
/s/ Jean-Rene Fourtou
---------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ Norman C. Francis
---------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ Donald J. Greene
--------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ John T. Hartley
-------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ John H.F. Haskell, Jr.
--------------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 26th day of January, 1998
/s/ Michael Hegarty
-------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ Mary R. (Nina) Henderson
----------------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 29th day of January, 1998
/s/ W. Edwin Jarmain
--------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 2nd day of February, 1998
/s/ G. Donald Johnston, Jr.
---------------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ George T. Lowy
------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ Edward D. Miller
--------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 17th day of February, 1998
/s/ Didier Pineau-Valencienne
-----------------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 4th day of February, 1998
/s/ George J. Sella Jr.
-----------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ Stanley B. Tulin
--------------------
59838
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officer or
director of The Equitable Life Assurance Society of the United States (the
"Company"), a New York stock life insurance company, hereby constitutes and
appoints Jerome S. Golden, Judy A. Faucett, Mark A. Hug, James D. Goodwin,
Pauline Sherman, Michael F. McNelis, Naomi J. Weinstein, Maureen K. Wolfson,
Mildred Oliver, Mary P. Breen and each of them (with full power to each of them
to act alone), his or her true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him or her and on his or her behalf and in
his or her name, place and stead, to execute and file any of the documents
referred to below relating to registrations under the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940 with
respect to any insurance or annuity contracts or other agreements providing for
allocation of amounts to Separate Accounts of the Company, and related units or
interests in Separate Accounts: registration statements on any form or forms
under the Securities Act of 1933 and the Investment Company Act of 1940 and
annual reports on any form or forms under the Securities Exchange Act of 1934,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his, her or their substitutes being empowered
to act with or without the others, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every act
and thing requisite and necessary or appropriate with respect thereto to be done
in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
this 19th day of February, 1998
/s/ Dave H. Williams
--------------------
59838
