SUPPLEMENT TO
INCOME MANAGER(R) ROLLOVER IRA
PROSPECTUS DATED DECEMBER 31, 1997
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This prospectus supplement describes the baseBUILDER(SM) Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit (Plan A) offered to
issue ages 76 or older under the INCOME MANAGER Prospectus for Rollover IRA.
Capitalized terms in this supplement have the same meaning as in the prospectus.
A different version of the Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit (Plan A) than the versions discussed on page
21 of the prospectus under "baseBUILDER Benefits" is available for issue ages 76
or older. The charge for this benefit is still 0.45% of the Guaranteed Minimum
Death Benefit in effect on a Processing Date. The versions of the baseBUILDER
Benefit 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 Death Benefit applicable to the combined benefit is as
follows:
4% to Age 85 Benefit - On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the portion of the initial contribution allocated to
the Investment Funds. Thereafter, the Guaranteed Minimum Death Benefit is
credited with interest at 4% (3% for amounts in the Alliance Money Market
and Alliance Intermediate Government Securities Funds, except as indicated
below) on each Contract Date anniversary through age 85 (or at your death,
if earlier), and 0% thereafter, and is adjusted for any subsequent
contributions and transfers into the Investment Funds and transfers and
withdrawals from such Funds. The Guaranteed Minimum Death Benefit interest
rate applicable to amounts in the Alliance Money Market Fund under the
Special Dollar Cost Averaging program will be 4%.
The Guaranteed Minimum Income Benefit discussed on page 22 of the prospectus may
be exercised only within 30 days following the 7th or later Contract Date
anniversary, but in no event later than your age 90.
The period certain will be 90 less your age at election.
The Guaranteed Minimum Income Benefit benefit base described on page 34 of the
prospectus is as follows:
The Guaranteed Minimum Income Benefit benefit base is equal to the initial
contribution allocated to the Investment Funds on the Contract Date.
Thereafter, the Guaranteed Minimum Income Benefit benefit base is credited
with interest at 4% (3% for amounts in the Alliance Money Market and
Alliance Intermediate Government Securities Funds, except as indicated
below) on each Contract Date anniversary through age 85, and 0% thereafter,
and is adjusted for any subsequent contributions and transfers into the
Investment Funds and transfers and withdrawals from such Funds. The
Guaranteed Minimum Income Benefit benefit base interest rate applicable to
amounts in the Alliance Money Market Fund under the Special Dollar Cost
Averaging program will be 4%. The Guaranteed Minimum Income Benefit benefit
base will also be reduced by any withdrawal charge remaining on the
Transaction Date that you exercise your Guaranteed Minimum Income Benefit.
- --------------------------------------------------------------------------------
Income Manager is a registered service mark and baseBUILDER is a
service mark of The Equitable Life Assurance Society of the United States.
SUPPLEMENT DATED DECEMBER 31, 1997
IM-95-04SUPP1(1/98)
<PAGE>
DECEMBER 31, 1997
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
PROFILE OF INCOME MANAGER(R) ROLLOVER IRA
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
This Profile is a summary of some of the more important points that you should
know and consider before purchasing a Certificate. The Certificate is more fully
described in the prospectus which accompanies this Profile. Please read the
prospectus carefully.
1. THE ANNUITY CERTIFICATE. The Rollover IRA Certificate is a deferred
individual retirement annuity (IRA, which can be either TRADITIONAL IRAS or ROTH
IRAS) issued by Equitable Life. It is designed to provide for the accumulation
of retirement savings and for income through the investment, during an
accumulation phase, of rollover contributions, direct transfers from other
individual retirement arrangements and additional IRA contributions. You may
invest in Investment Funds where your Certificate's value may vary up or down
depending upon investment performance. You may also invest in Guarantee Periods
(also called GIROS) that when held to maturity provide guaranteed interest rates
that we have set and a guarantee of principal. If you make any transfers or
withdrawals, the GIROs' investment value may increase or decrease until maturity
due to interest rate changes. Earnings accumulate under your Certificate on a
tax-deferred basis until amounts are distributed. All amounts distributed are
subject to income tax.
The Investment Funds offer a potential for better returns than the interest
rates guaranteed under GIROs, but the Investment Funds involve risk and you can
lose money. You may make transfers among the Investment Funds and GIROs. The
value of GIROs prior to their maturity fluctuates and you can lose money on
premature transfers or withdrawals.
The Certificate provides a number of distribution methods during the
accumulation phase and for converting to annuity income, which include the
ASSURED PAYMENT OPTION, APO PLUS and other annuity benefits.
The Assured Payment Option may also be elected if you desire to start receiving
a form of lifetime income immediately. When you elect the Assured Payment
Option, your Certificate's value will be reduced to provide for guaranteed
lifetime income. You may also elect APO Plus whereby a portion of your money is
invested under the Assured Payment Option, and the remaining amount is allocated
to the Alliance Common Stock Fund or the Alliance Equity Index Fund, as you
select. Every three years during the fixed period of the Assured Payment Option,
a portion of your money in the selected Investment Fund is applied to increase
the guaranteed payments under the Assured Payment Option. The amount accumulated
under your Certificate during the accumulation phase will affect the amount of
distribution or annuity benefits you will receive.
---------------------
Income Manager is a registered service mark and baseBUILDER is a service
mark of The Equitable Life Assurance Society of the United States.
IM-95-04Pros(1/98) Catalog No. 12734
1
<PAGE>
2. ANNUITY PAYMENTS. You can have your Certificate's value applied to any of the
following ANNUITY BENEFITS: (1) Life Annuity - payments for your life; (2) Life
Annuity - Period Certain - payments for your life, but with payments continuing
to the beneficiary for the balance of the 5, 10, 15 or 20 years (as you select)
if you die before the end of the selected period; (3) Life Annuity - Refund
Certain - payments for your life, with payments continuing to the beneficiary
after your death until any remaining amount applied to this option runs out; and
(4) Period Certain Annuity - payments for a specified period of time, usually 5,
10, 15 or 20 years, with no life contingencies. Options (2) and (3) are also
available as a Joint and Survivor Annuity - payments for your life, and after
your death, continuation of payments to the survivor for life. Annuity Benefits
(other than the Refund Certain which is only available on a fixed basis) are
available as a fixed annuity, or as a variable annuity, where the dollar amount
of your payments will depend upon the investment performance of the Investment
Funds. Once you begin receiving income annuity payments, you cannot change your
annuity benefit.
3. PURCHASE. You can purchase a Certificate by rolling over or transferring at
least $5,000 or more from one or more individual retirement arrangements. Under
a Traditional IRA Certificate you may add additional amounts of $1,000 or more
at any time (subject to certain restrictions). Regular contributions under a
Traditional IRA 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.
Subject to certain age restrictions, you may purchase the baseBUILDER(SM)
guaranteed benefits in the form of a Combined Guaranteed Minimum Death Benefit
and Guaranteed Minimum Income Benefit (Plan A). If you do not elect the combined
benefit, the Guaranteed Minimum Death Benefit is provided under the Certificate
at a lower charge (Plan B). Both benefits are discussed below.
4. INVESTMENT OPTIONS. You may invest in any or all of the following Investment
Funds, which invest in shares of corresponding portfolios of The Hudson River
Trust (HR TRUST) and EQ Advisors Trust (EQ TRUST). The portfolios are described
in the prospectuses for HR Trust and EQ Trust.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
EQUITY SERIES:
- --------------------------------------------------------------------------------------------------------------
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 Morgan Stanley Emerging Markets MFS Emerging Growth Companies
Value Equity Warburg Pincus Small Company
MFS Research T. Rowe Price International Value
Merrill Lynch Basic Value Equity 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>
2
<PAGE>
You may also invest in one or more GIROs currently maturing in years 1999
through 2008. Under the Assured Payment Option and APO Plus, GIROs currently
maturing in years 2009 through 2012 are also available. The GIRO maturing on
February 15, 2013 will become available under the Assured Payment Option and APO
Plus on January 2, 1998.
5. EXPENSES. The Certificate has expenses as follows: There is an annual charge
expressed as a percentage of the Guaranteed Minimum Death Benefit. For Plan A
the percentage is equal to 0.45% for the 6% to Age 80 Benefit; and 0.30% for the
6% to Age 70 Benefit. For Plan B the percentage is equal to 0.20%. As a
percentage of assets in the Investment Funds, a daily charge is deducted for
mortality and expense risks at an annual rate of 0.90%; and a daily charge is
deducted for administration expenses at an annual rate of 0.25%.
The charges for the portfolios of HR Trust range from 0.63% to 1.33% of the
average daily net assets of HR Trust portfolios, depending upon HR Trust
portfolios selected. The charges for the portfolios of EQ Trust range from 0.55%
to 1.75% of the average daily net assets of EQ Trust portfolios, depending upon
the EQ Trust portfolios selected. The amounts for HR Trust are based on restated
values during 1996 (as well as an expense cap for the Alliance Small Cap Growth
portfolio), and the amounts for EQ Trust are based on a current expense cap. The
12b-1 fees for the portfolios of HR Trust and EQ Trust are 0.25% of the average
daily net assets of HR Trust and EQ Trust, respectively. Charges for state
premium and other applicable taxes may also apply at the time you elect to start
receiving annuity payments.
A withdrawal charge is imposed as a percentage of each contribution withdrawn in
excess of a free corridor amount, or if the Certificate is surrendered. The free
corridor amount for withdrawals is 15% of the Certificate's value at the
beginning of the year, except that under the Assured Payment Option and APO Plus
it is 10%. The withdrawal charge does not apply under certain of the
distribution methods available under the Certificate. When applicable, the
withdrawal charge is determined in accordance with the table below, based on the
year a contribution is withdrawn. The year in which we receive your contribution
is "Year 1."
<TABLE>
<CAPTION>
Year of Contribution Withdrawal
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
The following chart is designed to help you understand the charges in the
Certificate. The "Total Annual Charges" column shows the combined total of the
Certificate charges deducted as a percentage of assets in the Investment Funds
and the portfolio charges, as shown in the first two columns. The last two
columns show you two examples of the charges, in dollars, that you would pay
under a Certificate, and include the Guaranteed Minimum Death Benefit based
charge for the optional Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit equal to 0.45%. The examples assume that you invested
$1,000 in a Certificate which earns 5% annually and that you withdraw your
money: (1) at the end of the year 1, and (2) at the end of year 10. For year 1,
the Total Annual Charges are assessed as well as the withdrawal charge. For year
10, the example shows the aggregate of all the annual charges assessed for the
10 years, but there is no withdrawal charge. No charges for state premium and
other applicable taxes are assumed in the examples.
3
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
Total Annual
TOTAL ANNUAL TOTAL ANNUAL TOTAL Expenses at End of:
CERTIFICATE PORTFOLIO ANNUAL (1) (2)
INVESTMENT FUND CHARGES CHARGES CHARGES 1 Year 10 Years
<S> <C> <C> <C> <C> <C>
Alliance Conservative 1.15% 0.80% 1.95% $89.74 $275.75
Investors
Alliance Growth Investors 1.15% 0.84% 1.99% $90.14 $279.80
Alliance Growth & Income 1.15% 0.85% 2.00% $90.24 $280.80
Alliance Common Stock 1.15% 0.66% 1.81% $88.35 $261.52
Alliance Global 1.15% 0.98% 2.13% $91.53 $293.80
Alliance International 1.15% 1.33% 2.48% $95.01 $328.00
Alliance Aggressive Stock 1.15% 0.83% 1.98% $90.04 $278.79
Alliance Small Cap Growth 1.15% 1.20% 2.35% $93.72 $315.43
Alliance Money Market 1.15% 0.64% 1.79% $88.15 $259.45
Alliance Intermediate
Government Securities 1.15% 0.84% 1.99% $90.14 $279.80
Alliance High Yield 1.15% 0.91% 2.06% $90.84 $286.83
UNDER APO PLUS
Alliance Common Stock 1.15% 0.66% 1.81% $88.35 $233.84
Alliance Equity Index 1.15% 0.63% 1.78% $88.05 $230.74
BT Equity 500 Index 1.15% 0.55% 1.70% $87.26 $250.17
BT Small Company Index 1.15% 0.60% 1.75% $87.75 $255.35
BT International Equity Index 1.15% 0.80% 1.95% $89.74 $275.75
MFS Emerging Growth Companies
1.15% 0.85% 2.00% $90.24 $288.87
MFS Research 1.15% 0.85% 2.00% $90.24 $288.87
Merrill Lynch Basic Value
Equity
1.15% 0.85% 2.00% $90.24 $288.87
Merrill Lynch World Strategy 1.15% 1.20% 2.35% $93.72 $323.50
Morgan Stanley Emerging
Markets Equity 1.15% 1.75% 2.90% $99.19 $375.62
EQ/Putnam Balanced 1.15% 0.90% 2.05% $90.74 $293.88
EQ/Putnam Growth & Income
Value 1.15% 0.85% 2.00% $90.24 $288.87
T. Rowe Price Equity Income 1.15% 0.85% 2.00% $90.24 $288.87
T. Rowe Price International
Stock 1.15% 1.20% 2.35% $93.72 $323.50
Warburg Pincus Small Company
Value 1.15% 1.00% 2.15% $91.73 $303.84
</TABLE>
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.
4
<PAGE>
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.
7. ACCESS TO YOUR MONEY. During the accumulation phase, you also may receive
distributions under a Certificate through the following WITHDRAWAL OPTIONS: (1)
Lump Sum Withdrawals of at least $1,000 may be taken at any time. Lump Sum
Withdrawals are also available under the Distribution Options. (2) Substantially
Equal Payment Withdrawals (if you are less than age 59 1/2), paid monthly,
quarterly or annually based on life expectancy; (3) Systematic Withdrawals (if
you are age 59 1/2 to 70), paid monthly, quarterly or annually, subject to
certain restrictions, including a maximum percentage of your Certificate's
value; and (4) only under Traditional IRA Certificates, Minimum Distribution
Withdrawals (after you are age 70 1/2), which pays the minimum amount necessary
to meet minimum distribution requirements in the Internal Revenue Code. You also
have access to your Certificate's value by surrendering the Certificate. All or
a portion of certain withdrawals may be subject to a withdrawal charge to the
extent that the withdrawal exceeds the free corridor amount. A free corridor
amount does not apply to a surrender. Withdrawals and surrenders are subject to
income tax and may be subject to a tax penalty.
8. PERFORMANCE. During the accumulation phase, your Certificate's value in the
Investment Funds may vary up or down depending upon the investment performance
of the Investment Funds you have selected. Past performance is not a guarantee
of future results.
9. DEATH BENEFIT. If you die before amounts are applied under an annuity
benefit, the named beneficiary will be paid a death benefit. The death benefit
(except in New York) is equal to (1) your Certificate's value in the Investment
Funds, or if greater, the Guaranteed Minimum Death Benefit, and (2) the amount
of the death benefit provided with respect to GIROs.
The Guaranteed Minimum Death Benefit is a "6% to Age 80 Benefit." We add
interest to the initial amount at 6% (3% for amounts in the Alliance Money
Market and Alliance Intermediate Government Securities Funds) through age
80 (or at your death, if earlier). The 6% interest rate will still apply
for amounts in the Alliance Money Market Fund under the Special Dollar
Cost Averaging program discussed below.
If you elect Plan A and are between the ages of 20 through 65, you may
instead elect a 6% to Age 70 Benefit, for a lower charge.
The death benefit with respect to the GIROs is equal to the amounts in the
GIROs, or if greater, the amounts in the GIROs reflecting guaranteed interest,
but not reflecting any increase due to interest rate changes.
The death benefit applicable to Certificates issued in New York is equal to the
amounts in the Investment Funds and the GIROs, or if greater, the Guaranteed
Minimum Death Benefit.
5
<PAGE>
The Guaranteed Minimum Death Benefit is reset each year through age 80 to
your Certificate's value, if it is higher than the prior year's Guaranteed
Minimum Death Benefit. The Guaranteed Minimum Death Benefit at your death
will never be less than the amounts in the Investment Funds, plus the
amounts in the GIROs reflecting guaranteed interest, but not reflecting
any increase due to interest rate changes.
10. OTHER INFORMATION.
BASEBUILDER BENEFIT (PLAN A). The baseBUILDER (available for ages 20 through 75
at issue of the Certificates) is an optional benefit that combines the
Guaranteed Minimum Income Benefit and the Guaranteed Minimum Death Benefit. A
baseBUILDER benefit (which is different from the one described below) may be
available for annuitant issue ages 76 and older. The baseBUILDER benefit is
currently not available in New York.
Income Benefit -- The Guaranteed Minimum Income Benefit, as part of the
baseBUILDER, provides a minimum amount of guaranteed lifetime income for
your future. When you are ready to convert (at specified future times)
your Certificate's value to the Assured Payment Option, the amount of
lifetime income that will be provided will be the greater of (i) your
Guaranteed Minimum Income Benefit or (ii) your Certificate's current value
applied at current annuity purchase factors. Investment performance is not
guaranteed. The Guaranteed Minimum Income Benefit provides a safety net
for your future.
Death Benefit -- As part of the baseBUILDER a Guaranteed Minimum Death
Benefit is provided which is the 6% to Age 80 Benefit or the 6% to Age 70
Benefit, both of which are described in "Death Benefit" above.
FREE LOOK. You can examine the Certificate for a period of 10 days after you
receive it, and return it to us for a refund. The free look period is longer in
some states.
Your refund will equal your Certificate's value, reflecting any investment gain
or loss, in the Investment Funds, and any increase or decrease in the value of
any amounts held in the GIROs, through the date we receive your Certificate.
Some states or Federal income tax regulations may require that we calculate the
refund differently. 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 registered
representative.
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.
6
<PAGE>
DOLLAR COST AVERAGING. Special Dollar Cost Averaging -- You can elect when you
apply for your Certificate to allocate your contribution to the Alliance Money
Market Fund and have it transferred from the Alliance Money Market Fund into the
other Investment Funds on a monthly basis over the first twelve months, during
which time the mortality and expense risks and administration charges will not
be deducted from the Alliance Money Market Fund. General Dollar Cost Averaging
- -- You can elect at any time to put money into the Alliance Money Market Fund
and have a dollar amount or percentage transferred from the Alliance Money
Market Fund into the other Investment Funds on a periodic basis over a longer
period of time, and all applicable Certificate charges deducted from the
Alliance Money Market Fund will apply. Dollar cost averaging does not assure a
profit or protect against a loss should market prices decline.
REBALANCING. You can have your money automatically readjusted among the
Investment Funds quarterly, semi-annually or annually in order to retain the
investment percentage allocations you select. Rebalancing does not assure a
profit or protect against a loss should market prices decline and should be
reviewed periodically, as your need 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
semi-annual statements of HR Trust and EQ Trust.
You may call toll-free at 1-800-789-7771 for a recording of daily Investment
Fund values and guaranteed rates applicable to GIROs.
11. INQUIRIES. If you need more information, please contact your agent. You may
also contact us, at:
The Equitable Life Assurance Society of the United States
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Telephone 1-800-789-7771 and Fax 1-201-583-2224
7
<PAGE>
INCOME MANAGER(R) ROLLOVER IRA
PROSPECTUS DATED DECEMBER 31, 1997
---------------------
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This prospectus describes individual retirement annuity (IRA, which can be
either TRADITIONAL IRAS or ROTH IRAS) certificates The Equitable Life Assurance
Society of the United States (EQUITABLE LIFE, WE, OUR and US) offers under a
combination variable and fixed deferred annuity contract (ROLLOVER IRA) issued
on a group basis or as individual contracts. Enrollment under a group contract
will be evidenced by issuance of a certificate. Certificates and individual
contracts each will be referred to as "Certificates." Under the Rollover IRA we
will accept only initial contributions that are rollover contributions or that
are direct transfers from other individual retirement arrangements, as described
in this prospectus. A minimum initial contribution of $5,000 is required to put
a Certificate into effect.
The Rollover IRA is designed to provide for the accumulation of retirement
savings and for income. Contributions accumulate on a tax-deferred basis and can
be distributed under a number of different methods which are designed to be
responsive to the owner's (CERTIFICATE OWNER, YOU and YOUR) objectives. The
distribution methods include the ASSURED PAYMENT OPTION, Assured Payment Option
Plus (APO PLUS), and a variety of payout options, including variable annuities
and fixed annuities. The Assured Payment Option and APO Plus are also available
for election in the application if you are interested in receiving distributions
rather than accumulating funds.
The Rollover IRA offers investment options (INVESTMENT OPTIONS) that permit you
to create your own strategies. These Investment Options include 24 variable
investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in the GUARANTEED
PERIOD ACCOUNT. There is an additional Investment Fund which is available only
under APO Plus.
We invest each Investment Fund in Class IB shares of a corresponding portfolio
(PORTFOLIO) of The Hudson River Trust (HR TRUST) and EQ Advisors Trust (EQ
TRUST), mutual funds whose shares are purchased by separate accounts of
insurance companies. The prospectuses for HR Trust and EQ Trust, both of which
accompany this prospectus, describe the investment objectives, policies and
risks of the Portfolios.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
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>
Alliance Equity Index Fund (AVAILABLE ONLY UNDER APO PLUS)
- --------------------------------------------------------------------------------
Amounts allocated to a Guarantee Period accumulate on a fixed basis and are
credited with interest at a rate we set (GUARANTEED RATE) for the entire period.
On each business day (BUSINESS DAY) we will determine the Guaranteed Rates
available for amounts newly allocated to Guarantee Periods. A market value
adjustment (positive or negative) will be made for withdrawals, transfers,
surrender and certain other transactions from a Guarantee Period before its
expiration date (EXPIRATION DATE). Each Guarantee Period has its own Guaranteed
Rates. The Guarantee Periods currently available have Expiration Dates of
February 15, in years 1999 through 2008 under the Rollover IRA and 1999 through
2012 under the Assured Payment Option and APO Plus. The Guarantee Period
maturing on February 15, 2013 will become available under the Assured Payment
Option and APO Plus on January 2, 1998.
This prospectus provides information about the Rollover IRA that prospective
investors should know before investing. You should read it carefully and retain
it for future reference. The prospectus is not valid unless accompanied by
current prospectuses for HR Trust and EQ Trust, both of which you should also
read carefully.
Registration statements relating to Separate Account No. 45 (SEPARATE ACCOUNT)
and interests under the Guarantee Periods have been filed with the Securities
and Exchange Commission (SEC). The statement of additional information (SAI),
dated December 31, 1997, which is part of the registration statement for the
Separate Account, is available free of charge upon request by writing to our
Processing Office or calling 1-800-789-7771, our toll-free number. The SAI has
been incorporated by reference into this prospectus. The Table of Contents for
the SAI appears at the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CERTIFICATES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE
SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- --------------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States,
New York, New York 10104. All rights reserved.
Income Manager is a registered service mark and baseBUILDER is a service mark
of The Equitable Life Assurance Society of the United States.
IM-95-04 PROS (1/98)
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996, its quarterly reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1997, and a current report on Form 8-K dated July 10,
1997 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).
- --------------------------------------------------------------------------------
This prospectus dated December 31, 1997 is a revision of Equitable Life's
prospectus dated May 1, 1997, for the Income Manager Rollover IRA Certificates
and reflects limited changes in the Certificates and features described in the
May prospectus. These Certificates were first offered on May 1, 1997. For
convenience, in lieu of a supplement to the May prospectus, the prospectus has
been reprinted in its entirety.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL TERMS PAGE 4
FEE TABLE PAGE 6
PART 1: EQUITABLE LIFE, THE SEPARATE
ACCOUNT AND THE
INVESTMENT FUNDS PAGE 10
Equitable Life 10
Separate Account No. 45 10
HR Trust 10
HR Trust's Manager and Adviser 11
EQ Trust 11
EQ Trust's Manager and Advisers 11
Investment Policies and Objectives of
HR Trust's Portfolios and EQ Trust's
Portfolios 12
PART 2: THE GUARANTEED PERIOD
ACCOUNT PAGE 15
Guarantee Periods 15
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior to the
Expiration Date 16
Modal Payment Portion 17
Investments 17
PART 3: PROVISIONS OF THE
CERTIFICATES AND SERVICES
WE PROVIDE PAGE 18
What Is the Rollover IRA? 18
Availability of the Certificates 18
Contributions under the Certificates 18
Methods of Payment 18
Allocation of Contributions 19
Free Look Period 19
Annuity Account Value 20
Transfers among Investment Options 20
Dollar Cost Averaging 21
Rebalancing 21
baseBUILDER Benefits 21
Death Benefit 22
Guaranteed Minimum Income Benefit 22
Cash Value 24
Surrendering the Certificates to
Receive the Cash Value 24
When Payments Are Made 24
Assignment 24
Services We Provide 24
Distribution of the Certificates 25
PART 4: DISTRIBUTION METHODS
UNDER THE CERTIFICATES PAGE 26
Assured Payment Option 26
APO Plus 30
Withdrawal Options 31
How Withdrawals and Transfers Affect Your
Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit 33
Annuity Benefits 34
PART 5: DEDUCTIONS AND CHARGES PAGE 36
Charges Deducted from the Annuity
Account Value 36
Charges Deducted from the Investment Funds 37
HR Trust Charges to Portfolios 37
EQ Trust Charges to Portfolios 38
Sponsored Arrangements 38
Other Distribution Arrangements 38
PART 6: VOTING RIGHTS PAGE 39
HR Trust and EQ Trust Voting Rights 39
Voting Rights of Others 39
Separate Account Voting Rights 39
Changes in Applicable Law 39
PART 7: TAX ASPECTS OF THE CERTIFICATES PAGE 40
IRA Tax Information 40
Traditional Individual Retirement
Annuities (Traditional IRAs) 40
Roth Individual Retirement Annuities
(Roth IRAs) 46
Federal and State Income Tax Withholding 49
Other Withholding 50
Impact of Taxes to Equitable Life 50
Transfers among Investment Options 50
Tax Changes 50
PART 8: INDEPENDENT ACCOUNTANTS PAGE 51
PART 9: INVESTMENT PERFORMANCE PAGE 52
Adjusted Historical Performance Data 52
Rate of Return Data for Investment Funds 54
Communicating Performance Data 57
Alliance Money Market Fund and
Alliance Intermediate Government
Securities Fund Yield Information 58
APPENDIX I: MARKET VALUE
ADJUSTMENT EXAMPLE PAGE 59
APPENDIX II: DEATH BENEFIT FOR
CERTIFICATES ISSUED IN NEW YORK PAGE 60
APPENDIX III: GUARANTEED MINIMUM
DEATH BENEFIT EXAMPLE PAGE 61
APPENDIX IV: EXAMPLE OF PAYMENTS
UNDER THE ASSURED PAYMENT
OPTION AND APO PLUS PAGE 62
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS PAGE 63
3
<PAGE>
- --------------------------------------------------------------------------------
GENERAL TERMS
- --------------------------------------------------------------------------------
ACCUMULATION UNIT -- Contributions that are invested in an Investment Fund
purchase Accumulation Units in that Investment Fund.
ACCUMULATION UNIT VALUE -- The dollar value of each Accumulation Unit in an
Investment Fund on a given date.
ANNUITANT -- The individual who is the measuring life for determining benefits
under a Certificate. The Annuitant and Certificate Owner must be the same
individual.
ANNUITY ACCOUNT VALUE -- The sum of the amounts in the Investment Options under
the Certificate. See "Annuity Account Value" in Part 3.
ANNUITY COMMENCEMENT DATE -- The date on which annuity benefit payments are to
commence.
ASSURED PAYMENT OPTION -- A distribution option which provides guaranteed
lifetime income. The Assured Payment Option may be elected in the application or
elected as a distribution option at a later date. Under this option amounts are
allocated to the Guaranteed Period Account and the Life Contingent Annuity. No
amounts may be allocated to the Investment Funds.
APO PLUS -- A distribution option which provides guaranteed lifetime income. APO
Plus may be elected in the application or as a distribution option at a later
date. Under this option amounts are allocated to the Guaranteed Period Account,
the Life Contingent Annuity and to the Alliance Common Stock Fund or the
Alliance Equity Index Fund. The amount in the selected Fund is then
systematically converted to increase the guaranteed lifetime income.
BASEBUILDERSM -- Optional protection benefit, consisting of the Guaranteed
Minimum Death Benefit and the Guaranteed Minimum Income Benefit.
BUSINESS DAY -- Generally, any day on which the New York Stock Exchange is open
for trading. For the purpose of determining the Transaction Date, our Business
Day ends at 4:00 p.m. Eastern Time or the closing of the New York Stock
Exchange, if earlier.
CASH VALUE -- The Annuity Account Value minus any applicable charges.
CERTIFICATE -- The Certificate issued under the terms of a group annuity
contract and any individual contract, including any endorsements.
CERTIFICATE OWNER -- The person who owns a Certificate and has the right to
exercise all rights under the Certificate. The Certificate Owner must be the
same individual as the Annuitant.
CODE -- The Internal Revenue Code of 1986, as amended.
CONTRACT DATE -- The effective date of the Certificates. This is usually the
Business Day we receive the initial contribution at our Processing Office.
CONTRACT YEAR -- The 12-month period beginning on your Contract Date and each
anniversary of that date.
EQ TRUST -- EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants, Inc. (EQ
FINANCIAL) is the manager of EQ Trust and has appointed advisers for each of the
Portfolios.
EXPIRATION DATE -- The date on which a Guarantee Period ends.
GUARANTEED MINIMUM DEATH BENEFIT -- The minimum amount payable with respect to
the Investment Funds (in all states except New York), upon the death of the
Annuitant. The Guaranteed Minimum Death Benefit is different in New York.
GUARANTEED MINIMUM INCOME BENEFIT -- The minimum amount of future guaranteed
lifetime income provided with respect to the Investment Funds.
GUARANTEE PERIOD -- Any of the periods of time ending on an Expiration Date that
are available for investment under the Certificates. Guarantee Periods may also
be referred to as Guaranteed Interest Rate Options (GIROS).
GUARANTEED PERIOD ACCOUNT -- The Account that contains the Guarantee Periods and
the Modal Payment Portion of such Account.
GUARANTEED RATE -- The annual interest rate established for each allocation to a
Guarantee Period.
HR TRUST -- The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (ALLIANCE) is the manager and adviser to HR Trust.
INVESTMENT FUNDS -- The funds of the Separate Account that are available under
the Certificates. The Alliance Equity Index Fund is only available under APO
Plus.
4
<PAGE>
INVESTMENT OPTIONS -- The choices for investment: the Investment Funds and each
available Guarantee Period.
IRA-- An individual retirement annuity, as defined in Section 408(b) of the
Code. There are two types of IRAs, a Traditional IRA, and a Roth IRA which must
also meet the requirements of Section 408A of the Code.
LIFE CONTINGENT ANNUITY -- Provides guaranteed lifetime income beginning at a
future date. Amounts may only be applied under the Life Contingent Annuity
through election of the Assured Payment Option and APO Plus.
MATURITY VALUE -- The amount in a Guarantee Period on its Expiration Date.
MODAL PAYMENT PORTION -- Under the Assured Payment Option and APO Plus, the
portion of the Guaranteed Period Account from which payments, other than
payments due on an Expiration Date, are made.
PORTFOLIOS -- The portfolios of HR Trust and EQ Trust that correspond to the
Investment Funds of the Separate Account.
PROCESSING DATE -- The day when we deduct certain charges from the Annuity
Account Value. If the Processing Date is not a Business Day, it will be on the
next succeeding Business Day. The Processing Date will be once each year on each
anniversary of the Contract Date.
PROCESSING OFFICE -- The address to which all contributions, written requests
(e.g., transfers, withdrawals, etc.) or other written communications must be
sent. See "Services We Provide" in Part 3.
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.
TRADITIONAL IRA -- An IRA which is generally purchased with pretax
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.
VALUATION PERIOD -- Each Business Day together with any preceding non-business
days.
5
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate so
that you may compare them with other similar products. The table reflects both
the charges of the Separate Account and the expenses of HR Trust and EQ Trust.
Charges for applicable taxes such as state or local premium taxes may also
apply. For a complete description of the charges under the Certificate, see
"Part 5: Deductions and Charges." For a complete description of each trust's
charges and expenses, see the prospectuses for HR Trust and EQ Trust.
As explained in Part 2, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge shown
in the Table which will be deducted from amounts allocated to the Guarantee
Periods is the withdrawal charge. See "Part 5: Deductions and Charges." A market
value adjustment (either positive or negative) also may be applicable as a
result of a withdrawal, transfer or surrender of amounts from a Guarantee
Period. See "Part 2: The Guaranteed Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
<S> <C> <C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon surrender CONTRACT
or for certain withdrawals. The applicable withdrawal charge percentage is YEAR
determined by the Contract Year in which the withdrawal is made or the Certificate ----
is surrendered beginning with "Contract Year 1" with respect to each contribution 1........................7.00%
withdrawn or surrendered. For each contribution, the Contract Year in which we 2........................6.00
receive that contribution is "Contract Year 1").(1) 3........................5.00
4........................4.00
5........................3.00
6........................2.00
7........................1.00
8+.......................0.00
<CAPTION>
GUARANTEED BENEFIT EXPENSE (DEDUCTED FROM ANNUITY ACCOUNT VALUE)(2)
- ----------------------------------------------------------------
<S> <C>
COMBINED GUARANTEED MINIMUM DEATH BENEFIT AND GUARANTEED MINIMUM INCOME BENEFIT
(PLAN A) (calculated as a percentage of the Guaranteed Minimum Death Benefit)............................ 0.45%
GUARANTEED MINIMUM DEATH BENEFIT ONLY (PLAN B) (calculated as a percentage of the
Guaranteed Minimum Death Benefit)........................................................................ 0.20%
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- ------------------------------------------------------------------------------------
<S> <C>
MORTALITY AND EXPENSE RISKS................................................................................. 0.90%
ADMINISTRATION(3)........................................................................................... 0.25%
=====
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES................................................................... 1.15%
=====
</TABLE>
- -------------------
See footnotes on next page.
6
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
-----------------------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL INTERNATIONAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65% 0.90%
12b-1 Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08% 0.18%
===============================================================================================================================
TOTAL HR TRUST ANNUAL EXPENSES(5) 0.80% 0.84% 0.85% 0.66% 0.98% 1.33%
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
AGGRESSIVE SMALL CAP MONEY GOVT. HIGH
HR TRUST STOCK GROWTH MARKET SECURITIES YIELD
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.55% 0.90% 0.35% 0.50% 0.60%
12b-1 Fee(4) 0.25% 0.25%(7) 0.25% 0.25% 0.25%
Other Expenses 0.03% 0.10% 0.04% 0.09% 0.06%
===============================================================================================================================
TOTAL HR TRUST ANNUAL EXPENSES(5) 0.83% 1.20%(7) 0.64% 0.84% 0.91%
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
BT BT MFS MERRILL
BT SMALL INTERNATIONAL EMERGING LYNCH
EQUITY 500 COMPANY EQUITY GROWTH MFS BASIC VALUE
EQ TRUST 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(4) 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 EQ TRUST ANNUAL EXPENSES(6) 0.55% 0.60% 0.80% 0.85% 0.85% 0.85%
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
MORGAN WARBURG
MERRILL STANLEY EQ/PUTNAM T. ROWE T. ROWE PINCUS
LYNCH EMERGING GROWTH & PRICE INTER- SMALL
WORLD MARKETS EQ/PUTNAM INCOME EQUITY NATIONAL COMPANY
EQ TRUST STRATEGY EQUITY BALANCED VALUE INCOME STOCK VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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(4) 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 EQ TRUST ANNUAL EXPENSES(6) 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% free
corridor amount, and upon surrender of a Certificate. See "Withdrawal
Charge" in Part 5.
(2) This charge is deducted annually on each Processing Date. See "Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit
Charge (Plan A)" and "Guaranteed Minimum Death Benefit Only Benefit Charge
(Plan B)" in Part 5.
(3) We reserve the right to increase this charge to an annual rate of 0.35%, the
maximum permitted under the Certificates.
(4) The Class IB shares of HR Trust and EQ Trust are subject to fees imposed
under distribution plans (herein, the "Rule 12b-1 Plans") adopted by HR
Trust and EQ Trust pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as amended. The Rule 12b-1 Plans provide that HR Trust and EQ
Trust, on behalf of each Portfolio, may pay annually up to 0.25% of the
average daily net assets of a Portfolio attributable to its Class IB shares
in respect of activities primarily intended to result in the sale of the
Class IB shares. The 12b-1 fee will not be increased for the life of the
Certificates.
(5) The amounts shown for the Portfolios of HR Trust (other than Alliance Small
Cap Growth) have been restated to reflect advisory fees which went into
effect as of May 1, 1997. "Other Expenses" are based on average daily net
assets in each Portfolio during 1996. The amounts shown for the Alliance
Small Cap Growth Portfolio are estimated for 1997 as this Portfolio
commenced operations on May 1, 1997 (see footnote 7). 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
HR Trust. 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 "HR Trust Charges to Portfolios" in Part
5.
(6) The EQ Trust Portfolios had no operations prior to May 1, 1997. Therefore,
the amounts shown as "Other Expenses" for these Portfolios are estimated.
The 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 Portfolios of EQ Trust commenced
operations on May 1, 1997. The Morgan Stanley Emerging Markets Equity
Portfolio commenced operations on August 20, 1997 (and was offered under
this prospectus as of September 2, 1997). The BT Equity 500 Index, BT Small
Company Index, and BT International Equity Index Portfolios commenced
operations on December 31, 1997. The maximum investment management and
advisory fees for each EQ Trust 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, but pursuant to
agreement, cannot together with other fees exceed total annual expense
limitations (which are the respective amounts shown in "Total Annual
Expenses"). Absent the expense limitation, we estimate that the other
expenses for 1998 for each Portfolio would be 0.285% for BT Equity 500
Index; 0.231% for BT Small Company Index; 0.472% for BT International Equity
Index; 0.412% for EQ/Putnam Balanced; 0.262% for EQ/Putnam Growth & Income
Value; 0.242% for MFS Emerging Growth Companies; 0.234% for MFS Research;
0.247% for Merrill Lynch Basic Value Equity; 0.497% for Merrill Lynch World
Strategy; 0.461% for Morgan Stanley Emerging Markets Equity; 0.235% for T.
Rowe Price Equity Income; 0.422% for T. Rowe Price International Stock; and
0.191% for Warburg Pincus Small Company Value. See "EQ Trust Charges to
Portfolios" in Part 5.
(7) Equitable Distributors Inc. (EDI) has agreed to waive the 0.25% 12b-1 fee to
the extent necessary to limit annual expenses for the Alliance Small Cap
Growth Portfolio to 1.20% of the average daily net assets of that Portfolio
as set forth above. This agreement may be modified by EDI and HR Trust at
any time, and there can be no assurance that the 12b-1 fee will not be
restored to 0.25% in the future. Absent the fee waiver, we estimate that the
annual expenses for 1997 for the Alliance Small Cap Growth Portfolio would
have been 1.21%.
7
<PAGE>
EXAMPLES
- --------
The examples below show the expenses that a hypothetical Certificate Owner would
pay under the Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit (Plan A), under the Guaranteed Minimum Death Benefit Only Benefit
(Plan B) and under APO Plus in the two situations noted below assuming a $1,000
contribution invested in one of the Investment Funds listed, and a 5% annual
return on assets.(1)
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be greater
or less than those shown. Similarly, the annual rate of return assumed in the
examples is not an estimate or guarantee of future investment performance.
COMBINED GUARANTEED MINIMUM DEATH BENEFIT
AND GUARANTEED MINIMUM INCOME BENEFIT (PLAN A) ELECTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE 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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $89.74 $120.55 $154.64 $275.75 $24.51 $ 75.92 $130.68 $283.83
Alliance Growth Investors 90.14 121.76 156.67 279.80 24.91 77.12 132.69 287.85
Alliance Growth & Income 90.24 122.06 157.17 280.80 25.01 77.42 133.19 288.87
Alliance Common Stock 88.35 116.35 147.61 261.52 23.12 71.71 123.63 269.57
Alliance Global 91.53 125.95 163.66 293.80 26.30 81.30 139.67 301.85
Alliance International 95.01 136.36 180.97 328.00 29.78 91.73 157.01 336.07
Alliance Aggressive Stock 90.04 121.46 156.17 278.79 24.81 76.82 132.19 286.85
Alliance Small Cap
Growth 93.72 132.50 -- -- 28.49 87.87 -- --
Alliance Money Market 88.15 115.75 146.59 259.45 22.92 71.11 122.61 267.51
Alliance Intermediate Gov't
Securities 90.14 121.76 156.67 279.80 24.91 77.12 132.69 287.85
Alliance High Yield 90.84 123.86 160.17 286.83 25.61 79.22 136.19 294.89
EQ TRUST
- --------
BT Equity 500 Index $87.26 $113.04 -- -- $22.03 $68.40 -- --
BT Small Company Index 87.75 114.55 -- -- 22.52 69.90 -- --
BT International Equity
Index 89.74 120.55 -- -- 24.51 75.92 -- --
MFS Emerging
Growth Companies 90.24 122.06 -- -- 25.01 77.42 -- --
MFS Research 90.24 122.06 -- -- 25.01 77.42 -- --
Merrill Lynch Basic Value
Equity 90.24 122.06 -- -- 25.01 77.42 -- --
Merrill Lynch World
Strategy 93.72 132.50 -- -- 28.49 87.87 -- --
Morgan Stanley Emerging
Markets Equity 99.19 148.78 -- -- 33.96 104.14 -- --
EQ/Putnam Balanced 90.74 123.56 -- -- 25.51 78.91 -- --
EQ/Putnam Growth & Income
Value 90.24 122.06 -- -- 25.01 77.42 -- --
T. Rowe Price Equity
Income 90.24 122.06 -- -- 25.01 77.42 -- --
T. Rowe Price
International Stock 93.72 132.50 -- -- 28.49 87.87 -- --
Warburg Pincus
Small Company Value 91.73 126.55 -- -- 26.50 81.90 -- --
</TABLE>
- -------------------
See footnote on next page.
8
<PAGE>
GUARANTEED MINIMUM DEATH BENEFIT ONLY BENEFIT (PLAN B) 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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $89.74 $115.25 $143.62 $248.28 $21.86 $67.64 $116.31 $251.89
Alliance Growth Investors 90.14 116.46 145.64 252.38 22.26 68.84 118.33 255.98
Alliance Growth & Income 90.24 116.76 146.16 253.43 22.36 69.14 118.83 257.01
Alliance Common Stock 88.35 111.05 136.55 233.84 20.47 63.42 109.21 237.42
Alliance Global 91.53 120.66 152.69 266.60 23.65 73.04 125.36 270.18
Alliance International 95.01 131.11 170.11 301.30 27.13 83.49 142.78 304.87
Alliance Aggressive Stock 90.04 116.16 145.14 251.37 22.16 68.54 117.82 254.95
Alliance Small Cap
Growth 93.72 127.24 -- -- 25.84 79.62 -- --
Alliance Money Market 88.15 110.44 135.53 231.77 20.27 62.82 108.21 235.35
Alliance Intermediate Gov't
Securities 90.14 116.46 145.64 252.38 22.26 68.84 118.33 255.98
Alliance High Yield 90.84 118.56 149.17 259.51 22.96 70.95 121.86 263.11
EQ TRUST
- --------
BT Equity 500 Index $87.26 $107.73 -- -- $19.38 $60.11 -- --
BT Small Company Index 87.75 109.23 -- -- 19.87 61.61 -- --
BT International Equity
Index 89.74 115.25 -- -- 21.86 67.64 -- --
MFS Emerging
Growth Companies 90.24 116.76 -- -- 22.36 69.14 -- --
MFS Research 90.24 116.76 -- -- 22.36 69.14 -- --
Merrill Lynch Basic Value
Equity 90.24 116.76 -- -- 22.36 69.14 -- --
Merrill Lynch World
Strategy 93.72 127.24 -- -- 25.84 79.62 -- --
Morgan Stanley Emerging
Markets Equity 99.19 143.56 -- -- 31.31 95.94 -- --
EQ/Putnam Balanced $90.74 $118.26 -- -- $22.86 $70.65 -- --
EQ/Putnam Growth &
Income Value 90.24 116.76 -- -- 22.36 69.14 -- --
T. Rowe Price Equity
Income 90.24 116.76 -- -- 22.36 69.14 -- --
T. Rowe Price
International Stock 93.72 127.24 -- -- 25.84 79.62 -- --
Warburg Pincus
Small Company Value 91.73 121.26 -- -- 23.85 73.64 -- --
</TABLE>
- -------------------
See note below.
APO PLUS ELECTION
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Common Stock $88.35 $111.05 $136.55 $233.84 $20.47 $63.42 $109.21 $237.42
Alliance Equity Index 88.05 110.14 135.02 230.74 20.17 62.52 107.69 234.31
</TABLE>
- -------------------
Note:
(1)The amount accumulated from the $1,000 contribution could not be paid in the
form of an annuity at the end of any of the periods shown in the examples. If
the amount applied to purchase an annuity is less than $2,000, or the initial
payment is less than $20 we may pay the amount to the payee in a single sum
instead of as payments under an annuity form. See "Annuity Benefits" in Part
4. The examples do not reflect charges for applicable taxes such as state or
local premium taxes that may also be deducted in certain jurisdictions.
9
<PAGE>
- --------------------------------------------------------------------------------
PART 1: EQUITABLE LIFE, THE SEPARATE ACCOUNT
AND THE INVESTMENT FUNDS
- --------------------------------------------------------------------------------
EQUITABLE LIFE
Equitable Life is a New York stock life insurance company that has been in
business since 1859. For more than 100 years we have been among the largest life
insurance companies in the United States. Our home office is located at 1290
Avenue of the Americas, New York, New York 10104. We are authorized to sell life
insurance and annuities in all fifty states, the District of Columbia, Puerto
Rico and the Virgin Islands. We maintain local offices throughout the United
States.
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (THE HOLDING COMPANY). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of September 30, 1997, AXA beneficially owned 59.0%
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
$272.7 billion of assets as of September 30, 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 HR Trust and EQ Trust. Because
amounts allocated to the Investment Funds are invested in a mutual fund,
investment return and principal will fluctuate and the Certificate Owner's
Accumulation Units may be worth more or less than the original cost when
redeemed.
Under the New York Insurance Law, the portion of the Separate Account's assets
equal to the reserves and other liabilities relating to the Certificates are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains or losses, whether or not realized, from assets of the Separate
Account are credited to or charged against the Separate Account without regard
to our other income gains or losses. We are the issuer of the Certificates, and
the obligations set forth in the Certificates (other than those of Annuitants or
Certificate Owners) are our obligations.
In addition to contributions made under the Rollover IRA Certificates, we may
allocate to the Separate Account monies received under other contracts,
certificates, or agreements. Owners of all such contracts, certificates or
agreements will participate in the Separate Account in proportion to the amounts
they have in the Investment Funds that relate to their contracts, certificates
or agreements. We may retain in the Separate Account assets that are in excess
of the reserves and other liabilities relating to the Rollover IRA Certificates
or to other contracts, certificates or agreements, or we may transfer the excess
to our General Account.
We reserve the right, subject to compliance with applicable law: (1) to add
Investment Funds (or sub-funds of Investment Funds) to, or to remove Investment
Funds (or sub-funds) from, the Separate Account, or to add other separate
accounts; (2) to combine any two or more Investment Funds or sub-funds thereof;
(3) to transfer the assets we determine to be the share of the class of
contracts to which the Certificates belong from any Investment Fund to another
Investment Fund; (4) to operate the Separate Account or any Investment Fund as a
management investment company under the 1940 Act, in which case charges and
expenses that otherwise would be assessed against an underlying mutual fund
would be assessed against the Separate Account; (5) to deregister the Separate
Account under the 1940 Act, provided that such action conforms with the
requirements of applicable law; (6) to restrict or eliminate any voting rights
as to the Separate Account; and (7) to cause one or more Investment Funds to
invest some or all of their assets in one or more other trusts or investment
companies. If any changes are made that result in a material change in the
underlying investment policy of an Investment Fund, you will be notified as
required by law.
HR TRUST
HR Trust is an open-end, diversified management investment company, more
commonly called a mutual fund. As a "series" type of mutual fund, it issues
several different series of stock, each of which
10
<PAGE>
relates to a different Portfolio of HR Trust. HR Trust commenced operations in
January 1976 with a predecessor of its Alliance Common Stock Portfolio. HR Trust
does not impose a sales charge or "load" for buying and selling its shares. All
dividend distributions to HR Trust are reinvested in full and fractional shares
of the Portfolio to which they relate. Investment Funds that invest in
Portfolios of HR Trust purchase Class IB shares of a corresponding Portfolio of
HR Trust. More detailed information about HR Trust, its investment objectives,
policies, restrictions, risks, expenses, the Rule 12b-1 Plan relating to Class
IB shares, and all other aspects of its operations appears in the HR Trust
prospectus which accompanies this prospectus or in the HR Trust statement of
additional information.
HR TRUST'S MANAGER AND ADVISER
HR Trust is managed and advised by Alliance Capital Management L.P. (ALLIANCE),
which is registered with the SEC as an investment adviser under the 1940 Act.
Alliance, a publicly traded limited partnership, is indirectly majority-owned by
Equitable Life. On September 30, 1997, Alliance was managing approximately
$217.3 billion in assets. Alliance acts as an investment adviser to various
separate accounts and general accounts of Equitable Life and other affiliated
insurance companies. Alliance also provides management and consulting services
to mutual funds, endowment funds, insurance companies, foreign entities,
qualified and non-tax qualified corporate funds, public and private pension and
profit-sharing plans, foundations and tax-exempt organizations.
Alliance's main office is located at 1345 Avenue of the Americas, New York, New
York 10105.
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type" of
mutual fund, EQ Trust issues different series of stock, each of which relates to
a different Portfolio of EQ Trust. EQ Trust commenced operations on May 1, 1997.
EQ Trust does not impose a sales charge or "load" for buying and selling its
shares. All dividend distributions to EQ Trust are reinvested in full and
fractional shares of the Portfolio to which they relate. Investment Funds that
invest in Portfolios of EQ Trust purchase Class IB shares of a corresponding
Portfolio of EQ Trust. More detailed information about EQ Trust, its investment
objectives, policies and restrictions, risks, expenses, the Rule 12b-1 Plan
relating to the Class IB shares, and all other aspects of its operations appears
in the EQ Trust prospectus which accompanies this prospectus and in the EQ Trust
statement of additional information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ FINANCIAL) which,
subject to supervision and direction of the Trustees of EQ Trust, has overall
responsibility for the general management and administration of EQ Trust. EQ
Financial is an investment adviser registered under the 1940 Act, and a
broker-dealer registered under the Exchange Act. EQ Financial is a Delaware
corporation and an indirect, wholly owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New York,
New York 10104.
EQ Financial has entered into investment advisory agreements with Bankers Trust
Company, who serves as adviser to the BT Equity 500 Index, BT Small Company
Index, and BT International Equity Index Portfolios; Massachusetts Financial
Services Company, adviser to the MFS Emerging Growth Companies and MFS Research
Portfolios; Merrill Lynch Asset Management Inc., adviser to the Merrill Lynch
Basic Value Equity and Merrill Lynch World Strategy Portfolios; Putnam
Investments, adviser to the EQ/Putnam Balanced and EQ/Putnam Growth & Income
Value Portfolios; Morgan Stanley Asset Management Inc., adviser to the Morgan
Stanley Emerging Markets Equity Portfolio; T. Rowe Price Associates, Inc. and
Rowe Price-Fleming International, Inc., adviser to the T. Rowe Price Equity
Income and T. Rowe Price International Stock Portfolios; and Warburg, Pincus
Counsellors, Inc., adviser to the Warburg Pincus Small Company Value Portfolio.
11
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF HR TRUST'S PORTFOLIOS AND EQ
TRUST'S PORTFOLIOS
- --------------------------------------------------------------------------------
Each Portfolio has a different investment objective which it tries to achieve by
following separate investment policies. The policies and objectives of each
Portfolio will affect its return and its risks. There is no guarantee that these
objectives will be achieved. Set forth below is a summary of the investment
policies and objectives of each Portfolio. This summary is qualified in its
entirety by reference to the prospectuses for HR Trust and EQ Trust, both of
which accompany this prospectus. Please read the prospectuses for each of the
trusts carefully before investing.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HR TRUST 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 Long-term growth of capital
non-United 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>
12
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HR TRUST PORTFOLIO
AVAILABLE UNDER APO PLUS INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Equity Index Selected securities in the Standard & Total return (before trust and separate
Poor's 500 Index (the "Index") which account expenses) approximates the in-
the adviser that believes will, in the vestment performance of the Index (includ-
aggregate, approximate the performance ing reinvestment of dividends) at risk
results of the Index. level consistent with that of the Index
- -------------------------------------------------------------------------------------------------------------------------------
EQ TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index Invest in a statistically selected sample of the Replicate as closely as possible
500 stocks included in the Standard & Poor's 500 (before the deduction of
Composite Stock Price Index ("S&P 500"). Portfolio expenses) the total
return of the S&P 500
- -------------------------------------------------------------------------------------------------------------------------------
BT Small Company Index Invest in statistically selected sample of the Replicate as closely as possible
2,000 stocks included in the Russell 2000 Small (before the deduction of
Stock Index ("Russell 2000"). Portfolio expenses) the total
return of the Russell 2000
- -------------------------------------------------------------------------------------------------------------------------------
BT International Equity Index Invest in a statistically selected sample of the Replicate as closely as possible
securities of companies included in the Morgan (before the deduction of
Stanley Capital International Europe, Portfolio expenses) the total
Australia, Far East Index ("EAFE"), return of the EAFE
although 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 Portfolio
adviser believes are early in their life cycle
but which have the potential to become major
enterprises.
- -------------------------------------------------------------------------------------------------------------------------------
MFS Research A substantial portion of assets invested in Long-term growth of capital and
common stock or securities convertible future income
into common stock of companies believed
by the Portfolio adviser to possess
better than average prospects for long-term
growth.
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity Investment in securities, primarily equities, Capital appreciation and,
that the Portfolio adviser believes are secondarily, income
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 Portfolio's 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>
13
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQ TRUST 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 Portfolio adviser
considers to be relatively undervalued.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
PART 2: THE GUARANTEED PERIOD ACCOUNT
- --------------------------------------------------------------------------------
GUARANTEE PERIODS
Each amount allocated to a Guarantee Period and held to the Period's Expiration
Date accumulates interest at a Guaranteed Rate. The Guaranteed Rate for each
allocation is the annual interest rate applicable to new allocations to that
Guarantee Period, which was in effect on the Transaction Date for the
allocation. We may establish different Guaranteed Rates under different classes
of Certificates. We use the term GUARANTEED PERIOD AMOUNT to refer to the amount
allocated to and accumulated in each Guarantee Period. The Guaranteed Period
Amount is reduced or increased by any market value adjustment as a result of
withdrawals, transfers or charges (see below).
Your Guaranteed Period Account contains the Guarantee Periods to which you have
allocated Annuity Account Value. On the Expiration Date of a Guarantee Period,
its Guaranteed Period Amount and its value in the Guaranteed Period Account are
equal. We call the Guaranteed Period Amount on an Expiration Date the Guarantee
Period's Maturity Value. We report the Annuity Account Value in your Guaranteed
Period Account to reflect any market value adjustment that would apply if all
Guaranteed Period Amounts were withdrawn as of the calculation date. The Annuity
Account Value in the Guaranteed Period Account with respect to the Guarantee
Periods on any Business Day, therefore, will be the sum of the present value of
the Maturity Value in each Guarantee Period, using the Guaranteed Rate in effect
for new allocations to each such Guarantee Period on such date.
Guarantee Periods and Expiration Dates
We currently offer Guarantee Periods ending on February 15th for each of the
maturity years 1999 through 2008. Not all of these Guarantee Periods will be
available for ages 76 and above. See "Allocation of Contributions" in Part 3.
Also, the Guarantee Periods may not be available for investment in all states.
As Guarantee Periods expire we expect to add maturity years so that generally 10
are available at any time.
Under the Assured Payment Option and APO Plus, in addition to the Guarantee
Periods above, Guarantee Periods ending on February 15th for each of the
maturity years 2009 through 2012 are also available. The Guarantee Period
maturing on February 15, 2013 will become available on January 2, 1998.
Under the Rollover IRA, we will not accept allocations to a Guarantee Period if,
on the Transaction Date:
o Such Transaction Date and the Expiration Date for such Guarantee Period fall
within the same calendar year.
o The Guaranteed Rate is 3%.
o The Guarantee Period has an Expiration Date beyond the February 15th
immediately following the Annuity Commencement Date.
Guaranteed Rates and Price Per $100 of Maturity Value
Because the Maturity Value of a contribution allocated to a Guarantee Period can
be determined at the time it is made, you can determine the amount required to
be allocated to a Guarantee Period in order to produce a target Maturity Value
(assuming no transfers or withdrawals are made and no charges are allocated to
the Guarantee Period). The required amount is the present value of that Maturity
Value at the Guaranteed Rate on the Transaction Date for the contribution, which
may also be expressed as the price per $100 of Maturity Value on such
Transaction Date.
Guaranteed Rates for new allocations as of December 10, 1997 and the related
price per $100 of Maturity Value for each currently available Guarantee Period
were as follows:
- -------------------------------------------------------------
GUARANTEE
PERIODS WITH GUARANTEED
EXPIRATION DATE RATE AS OF PRICE
FEBRUARY 15TH OF DECEMBER 10, PER $100 OF
MATURITY YEAR 1997 MATURITY VALUE
- -------------------------------------------------------------
1999 4.78% $94.62
2000 4.88 90.12
2001 4.95 85.73
2002 4.98 81.59
2003 5.03 77.53
2004 5.09 73.56
2005 5.11 69.89
2006 5.12 66.44
2007 5.14 63.09
2008 5.08 60.36
- -------------------------------------------------------------
Available under the Assured Payment Option and APO Plus
- -------------------------------------------------------------
2009 5.08% $57.43
2010 5.08 54.66
2011 5.08 52.01
2012 5.08 49.50
- -------------------------------------------------------------
15
<PAGE>
Allocation among Guarantee Periods
The same approach as described above may also be used to determine the amount
which you would need to allocate to each Guarantee Period in order to create a
series of constant Maturity Values for two or more years.
For example, if you wish to have $100 mature on February 15th of each of years
1999 through 2003, then according to the above table the lump sum contribution
you would have to make as of December 10, 1997 would be $429.59 (i.e., the sum
of the price 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 Guarantee Periods or for the
market value adjustment that would apply to such transactions. Actual
calculations will be based on Guaranteed Rates on each actual Transaction Date,
which may differ.
Options at Expiration Date
Under the Rollover IRA, we will notify you on or before December 31st prior to
the Expiration Date of each Guarantee Period in which you have any Guaranteed
Period Amount. You may elect one of the following options to be effective at the
Expiration Date, subject to the restrictions set forth on the prior page and
under "Allocation of Contributions" in Part 3:
(a) to transfer the Maturity Value into any Guarantee Period we are then
offering, or into any of our Investment Funds; or
(b) to withdraw the Maturity Value (subject to any withdrawal charges which
may apply).
If we have not received your election as of the Expiration Date, the Maturity
Value in the expired Guarantee Period will be transferred into the Guarantee
Period with the earliest Expiration Date.
MARKET VALUE ADJUSTMENT FOR TRANSFERS, WITHDRAWALS OR SURRENDER PRIOR TO
THE EXPIRATION DATE
Any withdrawal (including transfers, surrender and deductions) from a Guarantee
Period prior to its Expiration Date will cause any remaining Guaranteed Period
Amount for that Guarantee Period to be increased or decreased by a market value
adjustment. The amount of the adjustment will depend on two factors: (a) the
difference between the Guaranteed Rate applicable to the amount being withdrawn
and the Guaranteed Rate on the Transaction Date for new allocations to a
Guarantee Period with the same Expiration Date, and (b) the length of time
remaining until the Expiration Date. In general, if interest rates have risen
between the time when an amount was originally allocated to a Guarantee Period
and the time it is withdrawn, the market value adjustment will be negative, and
vice versa; and the longer the period of time remaining until the Expiration
Date, the greater the impact of the interest rate difference. Therefore, it is
possible that a significant rise in interest rates could result in a substantial
reduction in your Annuity Account Value in the Guaranteed Period Account related
to longer-term Guarantee Periods.
The market value adjustment (positive or negative) resulting from a withdrawal
of all funds from a Guarantee Period will be determined for each contribution
allocated to that Guarantee Period as follows:
(1) We determine the present value of the Maturity Value on the Transaction
Date as follows:
(a) We determine the Guaranteed Period Amount that would be payable on
the Expiration Date, using the applicable Guaranteed Rate.
(b) We determine the period remaining in your Guarantee Period (based
on the Transaction Date) and convert it to fractional years based
on a 365-day year. For example, three years and 12 days becomes
3.0329.
(c) We determine the current Guaranteed Rate which applies on the
Transaction Date to new allocations to the same Guarantee Period.
(d) We determine the present value of the Guaranteed Period Amount
payable at the Expiration Date, using the period determined in (b)
and the rate determined in (c).
(2) We determine the Guaranteed Period Amount as of the current date.
(3) We subtract (2) from the result in (1)(d). The result is the market
value adjustment applicable to such Guarantee Period, which may be
positive or negative.
The market value adjustment (positive or negative) resulting from a withdrawal
(including any withdrawal charges) of a portion of the amount in a Guarantee
Period will be a percentage of the market value adjustment that would be
applicable upon a withdrawal of all funds from a Guarantee Period. This
percentage is determined by (i) dividing the amount of the withdrawal or
transfer from the Guarantee Period by (ii) the Annuity Account Value in such
Guarantee Period prior to the withdrawal or transfer. See Appendix I for an
example.
The Guaranteed Rate for new allocations to a Guarantee Period is the rate we
have in effect for this purpose
16
<PAGE>
even if new allocations to that Guarantee Period would not be accepted at the
time. This rate will not be less than 3%. If we do not have a Guaranteed Rate in
effect for a Guarantee Period to which the "current Guaranteed Rate" in (1)(c)
would apply, we will use the rate at the next closest Expiration Date. If we are
no longer offering new Guarantee Periods, the "current Guaranteed Rate" will be
determined in accordance with our procedures then in effect. For purposes of
calculating the market value adjustment only, we reserve the right to add up to
0.25% to the current rate in (1)(c) above.
MODAL PAYMENT PORTION
Under the Assured Payment Option and APO Plus, a portion of your contributions
or Annuity Account Value is allocated to the Modal Payment Portion of the
Guaranteed Period Account for payments to be made prior to the Expiration Date
of the earliest Guarantee Period we then offer. Such amount will accumulate
interest beginning on the Transaction Date at an interest rate we set. Interest
will be credited daily. Such rate will not be less than 3%.
Upon the expiration of a Guarantee Period, the Guaranteed Period Amount will be
held in the Modal Payment Portion of the Guaranteed Period Account. Amounts from
an expired Guarantee Period held in the Modal Payment Portion of the Guaranteed
Period Account will be credited with interest at a rate equal to the Guaranteed
Rate applicable to the expired Guarantee Period, beginning on the Expiration
Date of such Guarantee Period.
There is no market value adjustment with respect to amounts held in the Modal
Payment Portion of the Guaranteed Period Account.
INVESTMENTS
Amounts allocated to Guarantee Periods or the Modal Payment Portion of the
Guaranteed Period Account will be held in a "nonunitized" separate account
established by Equitable Life under the laws of New York. This separate account
provides an additional measure of assurance that full payment of amounts due
under the Guarantee Periods and the Modal Payment Portion of the Guaranteed
Period Account will be made. Under the New York Insurance Law, the portion of
the separate account's assets equal to the reserves and other contract
liabilities relating to the Certificates are not chargeable with liabilities
arising out of any other business we may conduct.
Investments purchased with amounts allocated to the Guaranteed Period Account
are the property of Equitable Life. Any favorable investment performance on the
assets held in the separate account accrues solely to Equitable Life's benefit.
Certificate Owners do not participate in the performance of the assets held in
this separate account. Equitable Life may, subject to applicable state law,
transfer all assets allocated to the separate account to its general account.
Regardless of whether assets supporting Guaranteed Period Accounts are held in a
separate account or our general account, all benefits relating to the Annuity
Account Value in the Guaranteed Period Account are guaranteed by Equitable Life.
Equitable Life has no specific formula for establishing the Guaranteed Rates for
the Guarantee Periods. Equitable Life expects the rates to be influenced by, but
not necessarily correspond to, among other things, the yields on the
fixed-income securities to be acquired with amounts that are allocated to the
Guarantee Periods at the time that the Guaranteed Rates are established. Our
current plans are to invest such amounts in fixed-income obligations, including
corporate bonds, mortgage-backed and asset-backed securities and government and
agency issues having durations in the aggregate consistent with those of the
Guarantee Periods.
Although the foregoing generally describes Equitable Life's plans for investing
the assets supporting Equitable Life's obligations under the fixed portion of
the Certificates, Equitable Life is not obligated to invest those assets
according to any particular plan except as may be required by state insurance
laws, nor will the Guaranteed Rates Equitable Life establishes be determined by
the performance of the nonunitized separate account.
General Account
Our general account supports all of our policy and contract guarantees,
including those applicable to the Guaranteed Period Account, as well as our
general obligations. Amounts applied under the Life Contingent Annuity become
part of the general account. See "Assured Payment Option," "Life Contingent
Annuity," in Part 4.
The general account is subject to regulation and supervision by the Insurance
Department of the State of New York and to the insurance laws and regulations of
all jurisdictions where we are authorized to do business. Because of applicable
exemptions and exclusionary provisions, interests in the general account have
not been registered under the Securities Act of 1933, as amended (1933 ACT), nor
is the general account an investment company under 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 this 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.
17
<PAGE>
- --------------------------------------------------------------------------------
PART 3: PROVISIONS OF THE CERTIFICATES AND SERVICES WE PROVIDE
- --------------------------------------------------------------------------------
THE PROVISIONS DISCUSSED IN THIS PART 3 APPLY WHEN YOUR CERTIFICATE IS OPERATING
PRIMARILY TO ACCUMULATE ANNUITY ACCOUNT VALUE. DIFFERENT RULES MAY APPLY WHEN
YOU ELECT THE ASSURED PAYMENT OPTION OR APO PLUS IN THE APPLICATION OR AS LATER
ELECTED AS A DISTRIBUTION OPTION UNDER YOUR ROLLOVER IRA AS DISCUSSED IN PART 4.
THE PROVISIONS OF YOUR CERTIFICATE MAY BE RESTRICTED BY APPLICABLE LAWS OR
REGULATIONS.
WHAT IS THE ROLLOVER IRA?
The Rollover IRA is a deferred annuity designed to provide for the accumulation
of retirement savings and for income at a future date. Investment Options
available are Investment Funds providing variable returns and Guarantee Periods
providing guaranteed interest when held to maturity. Rollover IRA Certificates
can be issued as two different types of individual retirement annuities,
TRADITIONAL IRAS and ROTH IRAS.
Earnings generally accumulate on a tax-deferred basis until withdrawn or when
distributions become payable. Withdrawals made prior to 59 1/2 may be subject to
tax penalty.
AVAILABILITY OF THE CERTIFICATES
The Certificates are available for issue ages 20 through 78. These Certificates
may not be available in all states. These Certificates are not available in
Puerto Rico.
CONTRIBUTIONS UNDER THE CERTIFICATES
Your initial contribution must be at least $5,000. Under Traditional 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 7: Tax Aspects
of the Certificates."
Under Traditional IRA Certificates, you may make subsequent contributions in an
amount of at least $1,000 at any time until you attain age 79. Subsequent
Traditional IRA contributions may be "regular" IRA contributions (limited to a
maximum of $2,000 a year), or rollover contributions or direct transfers as
described above.
"Regular" contributions to Traditional IRAs may no longer be made for the
taxable year in which you attain age 70 1/2 or thereafter. Rollover and direct
transfer contributions may be made until you attain age 79. However, 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 "Part 7: Tax Aspects of the Certificates."
For the consequences of making a "regular" IRA contribution to your Traditional
IRA Certificate, also see Part 7.
We will not accept "regular" IRA contributions to Roth IRAs. Rollover and direct
custodian-to-custodian transfer contributions can be made any time during your
lifetime provided you meet certain requirements. See "Part 7: Tax Aspects of the
Certificates."
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.
METHODS OF PAYMENT
Except as indicated below, all contributions must be made by check drawn on a
bank or credit union in the U.S., in U.S. dollars and made payable to Equitable
Life. All checks are accepted subject to collection. Contributions must be sent
to Equitable Life at our Processing Office address designated for contributions.
Your initial contribution must be accompanied by a completed application which
is acceptable to us. In the event the application information or the application
is otherwise not acceptable, we may retain your contribution for a period not
exceeding five Business Days while an attempt is made to obtain the required
information. If the required information cannot be obtained within those five
Business Days, the Processing Office will inform the agent, on behalf of the
applicant, of the reasons for the delay and return the contribution immediately
to the applicant, unless the applicant specifically consents to our retaining
the contribution until the required information is received by the Processing
Office.
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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 a Traditional IRA Certificate on a monthly or quarterly basis.
The minimum amount that will be deducted is $100 monthly and $300 quarterly
(subject to the maximum of $2,000 annually for Traditional IRAs). AIP subsequent
contributions may be made to any Investment Option available under your
Certificate. 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. AIP is not available for Roth
IRA Certificates.
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 Fund based on the Accumulation Unit Value for that Investment
Fund computed on the Transaction Date. A contribution allocated to the
Guaranteed Period Account will have the Guaranteed Rate for the specified
Guarantee Period offered on the Transaction Date.
Self-Directed Allocation
You allocate your contributions to one or up to all of the available Investment
Options. Allocations among the Investment Options must be in whole percentages.
Allocation percentages can be changed at any time by writing to our Processing
Office, or by telephone. The change will be effective on the Transaction Date
and will remain in effect for future contributions unless another change is
requested.
At ages 76 and above, allocations to Guarantee Periods must be limited to those
with maturities of five years or less and with maturity dates no later than the
February 15th immediately following the Annuity Commencement Date.
Principal Assurance Allocation
This option (for issue ages 20 through 75) assures that your Maturity Value in a
specified Guarantee Period will equal your initial contribution on the Guarantee
Period's Expiration Date, while at the same time allowing you to invest in the
Investment Funds. It may be elected only at issue of your Certificate and
assumes no withdrawals or transfers from the Guarantee Period. The maturity year
generally may not be later than 10 years nor earlier than seven years from the
Contract Date. In order to accomplish this strategy, we will allocate a portion
of your initial contribution to the selected Guarantee Period. See "Guaranteed
Rates and Price Per $100 of Maturity Value" in Part 2. The balance of your
initial contribution and all subsequent contributions must be allocated under
"Self-Directed Allocation" as described above.
If you are applying for a Traditional IRA Certificate, before you select a year
that would extend beyond the year in which you will attain age 70 1/2 you should
consider your ability to take minimum distributions from other 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 7.
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
3 under "Dollar Cost Averaging."
FREE LOOK PERIOD
You have the right to examine the Rollover IRA Certificate for a period of 10
days after you receive it, and to return it to us for a refund. You cancel it by
sending it to our Processing Office. The free look 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, and any positive or negative market value adjustment, through the date
we receive your Certificate at our Processing Office. Some states or Federal
income tax regulations may require that we calculate the refund differently. If
the Assured Payment Option or APO Plus is elected in the application for the
Certificate, your refund will include any amount applied under the Life
Contingent Annuity. See "Assured Payment Option," "Life Contingent Annuity" in
Part 4. If you cancel your Certificate during the free look period, we may
require that you wait six months before you may apply for a Certificate with us
again.
We follow these same procedures if you change your mind before you receive your
Certificate but after a
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contribution has been made. See "Part 7: 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 Traditional IRA Certificate
to a Roth IRA Certificate, you may cancel your Roth IRA Certificate and return
to a 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 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 Guarantee
Period, using the Guaranteed Rate in effect for new allocations to such
Guarantee Period on such date. (This is equivalent to the Guaranteed Period
Amount increased or decreased by the full market value adjustment.) The Annuity
Account Value, therefore, may be higher or lower than the contributions (less
withdrawals) accumulated at the Guaranteed Rate. At the Expiration Date the
Annuity Account Value in the Guaranteed Period Account will equal the Maturity
Value. While the Assured Payment Option or APO Plus is in effect, the Annuity
Account Value will include any amount in the Modal Payment Portion of the
Guaranteed Period Account. However, amounts held in the Modal Payment Portion of
the Guaranteed Period Account are not subject to a market value adjustment. See
"Part 2: The Guaranteed Period Account."
TRANSFERS AMONG INVESTMENT OPTIONS
At any time prior to the Annuity Commencement Date, you may transfer all or
portions of your Annuity Account Value among the Investment Options, subject to
the following:
o Transfers out of a Guarantee Period other than at the Expiration Date will
result in a market value adjustment. See "Part 2: The Guaranteed Period
Account."
o At ages 76 and above, transfers to Guarantee Periods must be limited to those
with maturities of five years or less and with maturity dates no later than
the February 15th immediately following the Annuity Commencement Date.
o Transfers may not be made to a Guarantee Period with an Expiration Date in
the current calendar year, or if the Guaranteed Rate is 3%.
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.
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DOLLAR COST AVERAGING
We offer two Dollar Cost Averaging programs as described below. The main
objective of Dollar Cost Averaging is to attempt to shield your investment from
short-term price fluctuations. Since approximately the same dollar amounts are
transferred from the Alliance Money Market Fund to other Investment Funds
periodically, more Accumulation Units are purchased in an Investment Fund if the
value per Accumulation Unit is low and fewer Accumulation Units are purchased if
the value per Accumulation Unit is high. Therefore, a lower average value per
Accumulation Unit may be achieved over the long term. This plan of investing
allows you to take advantage of market fluctuations but does not assure a profit
or protect against a loss in declining markets.
Dollar Cost Averaging may not be elected while the rebalancing program
(disucssed below) or the Systematic Withdrawal option (described under
"Withdrawal Options" in Part 4) 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 Alliance Money Market Fund
into the other Investment Funds monthly over a period of twelve months, we offer
a Special Dollar Cost Averaging program under which the mortality and expense
risks and administration charges normally deducted from the Alliance Money
Market Fund will not be deducted. See "Charges Deducted from the Investment
Funds" in Part 5.
General Dollar Cost Averaging
If you have at least $5,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage of
your Annuity Account Value transferred from the Alliance Money Market Fund to
other Investment Funds on a monthly, quarterly or annual basis. This program may
be elected at any time.
The minimum amount that may be transferred on each Transaction Date is $250. The
maximum amount which may be transferred is equal to the Annuity Account Value in
the Alliance Money Market Fund at the time the program is elected, divided by
the number of transfers scheduled to be made each Contract Year.
The transfer date will be the same calendar day of the month as the Contract
Date (other than the 29th, 30th or 31st). 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). The Annuity Account Value allocated to each
selected Investment Fund will grow or decline in value at different rates during
each time period. Rebalancing automatically reallocates the Annuity Account
Value in the chosen Investment Funds at the end of each period to the specified
allocation percentages. Rebalancing is intended to transfer specified portions
of the Annuity Account Value from those chosen Investment Funds that have
increased in value to those chosen Investment Funds that have declined in value.
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.
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 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 Death Benefit and Guaranteed Minimum Income Benefit. The
combined benefit (Plan A) for which there is a charge is available for issue
ages 20 through 75. You elect Plan A in the application. Once elected, the
benefit may not be changed. See "Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit
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Charge" in Part 5. The baseBUILDER provides a degree of protection while you
live (Income Benefit), as well as for your beneficiary should you die. If you do
not elect the combined benefit, the Guaranteed Minimum Death Benefit is still
provided under the Certificate at a lower charge. The combined benefit (Plan A)
is not currently available in New York.
DEATH BENEFIT
Generally, upon receipt of proof satisfactory to us of your death prior to the
Annuity Commencement Date, we will pay the death benefit to the beneficiary
named in your Certificate. You designate the beneficiary at the time you apply
for the Certificate. While the Certificate is in effect, you may change your
beneficiary by writing to our Processing Office. The change will be effective on
the date the written submission was signed. The death benefit payable will be
determined as of the date we receive such proof of death and any required
instructions as to the method of payment.
The death benefit applicable to Certificates issued in all states except New
York is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater, the
Guaranteed Minimum Death Benefit defined below; and
(2) the death benefit provided with respect to the Guaranteed Period
Account, which is equal to the Annuity Account Value in the Guaranteed
Period Account or, if greater, the sum of the Guaranteed Period Amounts
in each Guarantee Period, plus any amounts in the Modal Payment Portion
of the Guaranteed Period Account. See "Part 2: The Guaranteed Period
Account."
GUARANTEED MINIMUM DEATH BENEFIT
Your Guaranteed Minimum Death Benefit is the minimum amount payable with respect
to the Investment Funds upon your death.
6% to Age 80 Benefit -- On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the portion of the initial contribution allocated to the
Investment Funds. Thereafter, the Guaranteed Minimum Death Benefit is credited
with interest at 6% (3% for amounts in the Alliance Money Market and Alliance
Intermediate Government Securities Funds, except as indicated below) on each
Contract Date anniversary through age 80 (or at your death, if earlier) and 0%
thereafter, and is adjusted for any subsequent contributions and transfers into
the Investment Funds and transfers and withdrawals from such Funds. The
Guaranteed Minimum Death Benefit interest applicable to amounts in the Alliance
Money Market Fund under the Special Dollar Cost Averaging program (described
above) will be 6%.
Withdrawals and transfers will reduce your Guaranteed Minimum Death Benefit, see
"How Withdrawals and Transfers Affect Your Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit" in Part 4.
For the death benefit applicable to Certificates issued in New York, see
Appendix II.
See Appendix III for an example of the calculation of the Guaranteed Minimum
Death Benefit.
HOW DEATH BENEFIT PAYMENT IS MADE
We will pay the death benefit to the beneficiary in the form of the annuity
benefit you have chosen under your Certificate. If no annuity benefit has been
chosen at the time of your death, the beneficiary will receive the death benefit
in a lump sum. However, subject to any exceptions in the Certificate, Equitable
Life's rules then in effect and any other applicable requirements under the
Code, the beneficiary may elect to apply the death benefit amount to one or more
annuity benefits offered by Equitable Life. See "Annuity Benefits" in Part 4.
Successor Annuitant
If you elect to have your spouse be both the sole primary beneficiary and the
successor Annuitant/Certificate Owner, then no death benefit is payable until
your surviving spouse's death.
On the Processing Date following your death, if the successor
Annuitant/Certificate Owner election was elected at issue of your Certificate
and is in effect at your death, the Guaranteed Minimum Death Benefit will be
reset at the greater of the then current Guaranteed Minimum Death Benefit and
the then current Annuity Account Value in the Investment Funds. In determining
whether the Guaranteed Minimum Death Benefit will continue to grow, we will use
the age (as of the Processing Date) of the successor Annuitant/ Certificate
Owner.
GUARANTEED MINIMUM INCOME BENEFIT
The Guaranteed Minimum Income Benefit provides a minimum amount of guaranteed
lifetime income with respect to the Investment Funds. It operates through
application of your Annuity Account Value in the Investment Funds under the
Assured Payment Option (discussed in Part 4).
On the Transaction Date that you exercise your Guaranteed Minimum Income
Benefit, the annual lifetime income that will be provided under the Assured
Payment Option will be the greater of (i) your Guaranteed Minimum Income
Benefit, and (ii) the income provided by application of your Annuity Account
Value in the Investment Funds at our then current annuity purchase factors. The
Guaranteed Minimum Income Benefit does not provide an Annuity Account Value or
guarantee performance of your Investment Funds.
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Because it is based on conservative actuarial factors, the level of lifetime
income that it guarantees may often be less than the level that would be
provided by application of your Annuity Account Value at current annuity
purchase factors. It should therefore be regarded as a safety net.
If you have any Annuity Account Value in the Guaranteed Period Account as of the
Transaction Date that you exercise your Guaranteed Minimum Income Benefit, such
Annuity Account Value will also be applied (at current annuity purchase factors)
toward providing payments under the Assured Payment Option. Such Annuity Account
Value will increase the payments provided by the Guaranteed Minimum Income
Benefit. A market value adjustment may apply.
Illustrated below are Guaranteed Minimum Income Benefit amounts per $100,000 of
initial contribution, for a male age 60 (at issue) on Contract Date
anniversaries as indicated below, assuming allocation only to the Investment
Funds (excluding the Alliance Money Market and Alliance Intermediate Government
Securities Funds), no subsequent contributions, transfers or withdrawals.
- -------------------------------------------------------------
GUARANTEED MINIMUM
CONTRACT DATE INCOME BENEFIT -- ANNUAL
ANNIVERSARY INCOME PAYABLE FOR LIFE WITH
AT ELECTION 10 YEAR FIXED PERIOD
- -------------------------------------------------------------
7 $ 8,992
10 12,160
15 18,358
- -------------------------------------------------------------
Withdrawals and transfers will reduce your Guaranteed Minimum Income Benefit,
see "How Withdrawals and Transfers Affect Your Guaranteed Minimum Death Benefit
and Guaranteed Minimum Income Benefit" in Part 4.
The Guaranteed Minimum Income Benefit may be exercised only within 30 days
following the seventh or later Contract Date anniversary. However, it may not be
exercised earlier than your age 60, nor later than age 83; except that for issue
ages 20 through 44, it may be exercised following the 15th or later Contract
Date anniversary.
When you exercise your Guaranteed Minimum Income Benefit, you will receive at
least the minimum annual income specified and a fixed period based on your age
at the time the benefit is exercised as follows:
- -------------------------------------------------------------
LEVEL PAYMENTS*
AGE AT ELECTION PERIOD CERTAIN YEARS
- -------------------------------------------------------------
60 through 75 10
76 9
77 8
78 through 83 7
- ----------------
* Other forms and periods certain may also be available. See "Traditional
Individual Retirement Annuities (Traditional IRAs): Required Minimum
Distributions" in Part 7 to see how this option may be affected if exercised
after age 70 1/2.
- --------------------------------------------------------------------------------
Payments start one payment mode after the Assured Payment Option goes into
effect.
Each year on your Contract Date anniversary, if you are eligible to exercise
your Guaranteed Minimum Income Benefit, we will send you an eligibility notice
illustrating how much income could be provided on the Contract Date anniversary.
You may then notify us within 30 days following the Contract Date anniversary if
you want to exercise your Guaranteed Minimum Income Benefit by submitting the
proper form. The amount of income you actually receive will be determined on the
Transaction Date that we receive your properly completed exercise notice.
The Guaranteed Minimum Death Benefit, which relates to the Investment Funds,
will no longer be in effect if you elect the Assured Payment Option. If you
subsequently terminate the Assured Payment Option and have your Certificate
operate under the Rollover IRA rules, then the Guaranteed Minimum Death Benefit
will go back into effect based on your Annuity Account Value in the Investment
Funds as of the Transaction Date that the Rollover IRA goes into effect.
You may always apply your Annuity Account Value to any of our life annuity
benefits. The annuity benefits are discussed in Part 4. These benefits differ
from the Assured Payment Option and may provide higher or lower income levels,
but do not have all the features under the Assured Payment Option. You may
request an illustration from your agent.
Successor Annuitant/Certificate Owner
If the successor Annuitant/Certificate Owner election (discussed above) was
elected at issue of the Certificate and is in effect at your death, the
Guaranteed Minimum Income Benefit will continue to be available on Contract Date
anniversaries specified above based on the Contract Date, provided the
Guaranteed Minimum Income Benefit is exercised as specified above based on the
age of the successor Annuitant/Certificate Owner.
Alternate Plan A Arrangements
Available for issue ages 20 through 65 -- In addition to a baseBUILDER Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit where the
Guaranteed Minimum Death Benefit interest is credited through age 80 (6% to Age
80 Benefit), there is a lower cost benefit where interest is credited through
age 70 (6% to Age 70 Benefit) to the Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit. If you wish to elect this alternate benefit,
you must do so in the application; otherwise the 6% to Age 80 Benefit will
apply. Once elected, the benefit may not be changed.
Available for issue ages 76 through 78 -- If you are age 76 or older and you are
interested in the Combined Guaranteed Minimum Death Benefit and Guaranteed
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Minimum Income Benefit, ask your agent for a copy of the prospectus supplement
describing this benefit.
CASH VALUE
The Cash Value under the Certificate fluctuates daily with the investment
performance of the Investment Funds you have selected and reflects any upward or
downward market value adjustment. See "Part 2: The Guaranteed Period Account."
We do not guarantee any minimum Cash Value except for amounts in a Guarantee
Period held to the Expiration Date. On any date before the Annuity Commencement
Date while the Certificate is in effect, the Cash Value is equal to the Annuity
Account Value less any withdrawal charge. The free corridor amount will not
apply when calculating the withdrawal charge applicable upon a surrender. See
"Part 5: Deductions and Charges."
SURRENDERING THE CERTIFICATES TO RECEIVE THE CASH VALUE
You may surrender a Certificate to receive the Cash Value at any time while you
are living and before the Annuity Commencement Date. For a surrender to be
effective, we must receive your written request and the Certificate at our
Processing Office. The Cash Value will be determined on the Transaction Date.
All benefits under the Certificate will be terminated as of that date, other
than any Life Contingent Annuity Benefits, discussed in Part 4.
You may receive the Cash Value in a single sum payment or apply it under one or
more of the annuity benefits. See "Annuity Benefits" in Part 4. We will usually
pay the Cash Value within seven calendar days, but we may delay payment as
described in "When Payments Are Made" below.
For the tax consequences of surrenders, see "Part 7: Tax Aspects of the
Certificates."
WHEN PAYMENTS ARE MADE
Under applicable law, application of proceeds from the Investment Funds to a
variable annuity, payment of a death benefit from the Investment Funds, payment
of any portion of the Annuity Account Value (less any applicable withdrawal
charge) from the Investment Funds, and, upon surrender, payment of the Cash
Value from the Investment Funds will be made within seven calendar days after
the Transaction Date. Payments or application of proceeds from the Investment
Funds can be deferred for any period during which (1) the New York Stock
Exchange is closed or trading on it is restricted, (2) sales of securities or
determination of the fair value of an Investment Fund's assets is not reasonably
practicable because of an emergency, or (3) the SEC, by order, permits us to
defer payment in order to protect persons with interest in the Investment Funds.
We can defer payment of any portion of the Annuity Account Value in the
Guaranteed Period Account (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
The 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.
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 Guarantee Periods. Also call during our
regular business hours to speak to one of our customer service
representatives.
o PROCESSING OFFICE
o FOR CONTRIBUTIONS SENT BY REGULAR MAIL:
Equitable Life
Income Management Group
Post Office Box 13014
Newark, NJ 07188-0014
o FOR CONTRIBUTIONS SENT BY EXPRESS MAIL:
Equitable Life
c/o First Chicago National Processing Center
300 Harmon Meadow Boulevard, 3rd Floor
Attn: Box 13014
Secaucus, NJ 07094
o FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY REGULAR MAIL:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
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o FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY EXPRESS MAIL:
Equitable Life
Income Management Group
200 Plaza Drive, 4th Floor
Secaucus, NJ 07096
DISTRIBUTION OF THE CERTIFICATES
As the distributor of the Certificates, Equitable Distributors, Inc. (EDI), an
indirect, wholly owned subsidiary of Equitable Life, has responsibility for
sales and marketing functions for the Certificates. EDI also serves as the
principal underwriter of the Separate Account under the 1940 Act. EDI is
registered with the SEC as a broker-dealer under the Exchange Act and is a
member of the National Association of Securities Dealers, Inc. EDI's principal
business address is 1290 Avenue of the Americas, New York, New York 10104. EDI
was paid a fee of $1,204,370 for 1996 and $126,914 for 1995 for its services
under its "Distribution Agreement" with Equitable Life and the Separate Account.
The Certificates will be sold by registered representatives of EDI and its
affiliates, who are also our licensed insurance agents. Broker-dealer sales
compensation for EDI and its affiliates will generally not exceed six percent of
total contributions made under a Certificate. EDI may also receive compensation
and reimbursement for its marketing services under the terms of its distribution
agreement with Equitable Life. Broker-dealers receiving sales compensation will
generally pay a portion thereof to their registered representatives as
commissions related to sales of the Certificates. The offering of the
Certificates is intended to be continuous.
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PART 4: DISTRIBUTION METHODS UNDER THE CERTIFICATES
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The Rollover IRA Certificates offer several distribution methods specifically
designed to provide retirement income. The Assured Payment Option and APO Plus,
may be elected in the application or as a distribution option at a later date.
In addition, the Traditional IRA and Roth IRA Certificates provide for Lump Sum
Withdrawals, Substantially Equal Payment Withdrawals, and Systematic
Withdrawals. Minimum Distribution Withdrawals are provided for only under
Traditional IRA Certificates. Fixed and variable annuity benefit options are
also available for amounts to be applied at the Annuity Commencement Date. The
Assured Payment Option and APO Plus may not be available in all states.
The Traditional IRA Certificates are subject to the Code's minimum distribution
requirements. Generally, distributions from these Certificates must commence by
April 1 of the calendar year following the calendar year in which you attain age
70 1/2. Subsequent distributions must be made by December 31st of each calendar
year. If you do not commence minimum distributions in the calendar year in which
you attain age 70 1/2, and wait until the three-month period (January 1 to April
1) in the next calendar year to commence minimum distributions, then you must
take two required minimum distributions in that calendar year. If the required
minimum distribution is not made, a penalty tax in an amount equal to 50% of the
difference between the amount required to be withdrawn and the amount actually
withdrawn may apply. See "Part 7: Tax Aspects of the Certificates" for a
discussion of various special rules concerning the minimum distribution
requirements.
For 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 annuitized before that time).
ASSURED PAYMENT OPTION
The Assured Payment Option is designed to provide you with guaranteed payments
for your life (SINGLE LIFE) or for the lifetime of you and a joint Annuitant you
designate (JOINT AND SURVIVOR) through a series of distributions from the
Annuity Account Value that are followed by Life Contingent Annuity payments.
Payments you receive during the fixed period are designed to pay out the entire
Annuity Account Value by the end of the fixed period and, 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 Guarantee Period, or
distribution of the final amount in the Modal Payment Portion of the Guaranteed
Period Account. The fixed period may also be referred to as the "liquidity
period" as during this period, you have access to the Cash Value through Lump
Sum Withdrawals or surrender of the Certificate, with lifetime income continuing
in reduced amounts.
After the fixed period, the payments are made under the Life Contingent Annuity
described below.
You may elect the Assured Payment Option at any time if your initial
contribution or Annuity Account Value is at least $10,000 at the time of
election, by submitting a written request satisfactory to us. The Assured
Payment Option may be elected at ages 59 1/2 through 83. If you are over age 70
1/2, the availability of this option may be restricted under certain limited
circumstances. See "Traditional Individual Retirement Annuities (Traditional
IRAs): Tax Considerations for the Assured Payment Option and APO Plus" in Part
7. The Assured Payment Option with level payments (described below) may be
elected at ages as young as 45. However, there are tax considerations that
should be taken into account before electing level payments under the Assured
Payment Option if you are under age 59 1/2. See "Part 7: Tax Aspects of the
Certificates." The Assured Payment Option with increasing payments (described
below) 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 Rollover IRA must be allocated to the Guarantee Periods, the Modal Payment
Portion of the Guaranteed Period Account, if applicable, and the Life Contingent
Annuity. See "Allocation of Contributions or Annuity Account Value" below.
Subsequent contributions may be made according to the rules set forth below and
in "Part 7: 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
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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 7: 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 the Maturity Values of
serially maturing Guarantee Periods on their Expiration Dates. Payments to be
made monthly, quarterly or annually on dates other than an Expiration Date
represent distributions from amounts in the Modal Payment Portion of the
Guaranteed Period Account. See "Part 2: The Guaranteed Period Account."
You have a choice of receiving level payments during the fixed period and then
under the Life Contingent Annuity. Or, you may elect to receive payments that
increase. During the fixed period, payments are designed to increase by 10%
every three years on each third anniversary of the payment start date. After the
end of the fixed period, your first payment under the Life Contingent Annuity
will be 10% greater than the final payment made under the fixed period.
Thereafter, payments will increase annually on each anniversary of the payment
start date under the Life Contingent Annuity based on the annual increase, if
any, in the Consumer Price Index, but in no event greater than 3% per year.
Payments will generally start one payment mode from the date the Assured Payment
Option goes into effect. Or you may choose to defer the date payments will start
generally for a period of up to 72 months. Deferral of the payment start date
permits you to lock in rates at a time when you may consider current rates to be
high, while permitting you to delay receiving payments if you have no immediate
need to receive income under your Certificate. In making this decision, you
should consider that the amount of income you purchase is based on the rates
applicable on the Transaction Date, so if rates rise during the interim, your
payments may be less than they would have been if you had elected the Assured
Payment Option at a later date. Deferral of the payment start date is not
available above age 80. 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 7. The ability to defer the payment start date
may not be available in all states. Also, if amounts are applied to the Assured
Payment Option as a result of the Guaranteed Minimum Income Benefit (discussed
in Part 3), deferral of the payment start date is not permitted.
For Traditional IRA Certificates, required minimum distributions will be
calculated based on the Annuity Account Value in each Guarantee Period and the
deemed value of the Life Contingent Annuity for tax purposes. If at any time
your payment under the Assured Payment Option would be less than the minimum
amount required to be distributed under minimum distribution rules, we will
notify you of the difference. You will have the option to have an additional
amount withdrawn under your 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 7.
See Appendix IV for an example of payments purchased under an Assured Payment
Option.
Fixed Period
If you elect level payments, you may select a fixed period of not less than
seven years nor more than 15 years. The maximum fixed period available based on
your age at issue of the Certificate (or age at the time of election if the
Assured Payment Option is elected after issue) is as follows:
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MAXIMUM
AGE* FIXED PERIOD
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45 through 70 15 years
71 through 78 85 less your age
79 through 83 7 years
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The minimum and maximum fixed period will be reduced by each year you defer the
date payments will start.
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If you elect increasing payments, you do not have a choice as to the fixed
period. Based on your age at issue of the Certificate (or age at the time of
election if the Assured Payment Option is elected after issue), your fixed
period will be as follows:
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AGE* FIXED PERIOD
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59 1/2 through 70 15 years
71 through 75 12 years
76 through 80 9 years
81 through 83 6 years
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If you elect increasing payments and defer the date payments will start, your
fixed period will be as follows:
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FIXED PERIOD
BASED ON DEFERRAL PERIOD
----------------------------------------
1-36 37-60 61-72
AGE* MONTHS MONTHS MONTHS
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53 1/2 through 70 12 years 9 years 9 years
71 through 75 9 years 9 years N/A
76 through 80 6 years 6 years N/A
81 through 83 N/A N/A N/A
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* For joint and survivor, the fixed period is based on the age of the younger
Annuitant.
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If amounts are applied to the Assured Payment Option as a result of the
Guaranteed Minimum Income Benefit, the fixed periods will be as discussed under
"Guaranteed Minimum Income Benefit" in Part 3.
Allocation of Contributions or Annuity Account Value
If the Assured Payment Option is elected in the application, then based on the
amount of your initial contribution, your age and sex (and the age and sex of
the joint Annuitant, if applicable), the mode of payment, the form of payments
and the fixed period you select, your entire contribution will be allocated by
us. A portion of the initial contribution will be allocated among the Guarantee
Periods and the Modal Payment Portion of the Guaranteed Period Account, if
applicable, to provide fixed period payments and a portion will be applied under
the Life Contingent Annuity in order to provide the payments for life. For
initial contributions of $500,000 or more, amounts allocated to the Life
Contingent Annuity may also be based on your underwriting classification. In
general, underwriting classification is based on your medical history and smoker
status and may result in a smaller allocation of amounts to the Life Contingent
Annuity if your classification is lower than our standard class. If the Assured
Payment Option is elected 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 currently
invested in the Investment Funds, will be allocated by us among the Guarantee
Periods, the Modal Payment Portion of the Guaranteed Period Account, if
applicable, and applied under the Life Contingent Annuity. While the Assured
Payment Option is in effect, no amounts may be allocated to the Investment
Funds. If amounts in the Guarantee Periods are transferred, a market value
adjustment may apply.
If you elect the Assured Payment Option in the application and your initial
contribution will come from multiple sources, your application must also
indicate that contributions are to be allocated to the Alliance Money Market
Fund under the Rollover IRA described in Part 3. Election of the Assured Payment
Option must include your instructions to apply your Annuity Account Value, on
the date the last such contribution is received, under the Assured Payment
Option as described above.
Any subsequent contributions made while the Assured Payment Option is in effect
must be allocated to the Guarantee Periods and applied to the Life Contingent
Annuity. We will determine the allocation of such contributions, such that your
payments will be increased and the fixed period and date that payments are to
start under the Life Contingent Annuity will remain the same.
Life Contingent Annuity
The Life Contingent Annuity provides lifetime payments starting after the end of
the fixed period. The portion of your contributions or Annuity Account Value
applied under the Life Contingent Annuity does not have a Cash Value or an
Annuity Account Value and, therefore, does not provide for transfers or
withdrawals. Once the fixed period has ended and payments have begun under the
Life Contingent Annuity, subsequent amounts may no longer be applied under the
Life Contingent Annuity.
THERE IS NO DEATH BENEFIT PROVIDED UNDER THE LIFE CONTINGENT ANNUITY AND ANNUITY
INCOME IS PAID ONLY IF YOU (OR A JOINT ANNUITANT) ARE LIVING AT THE DATE ANNUITY
BENEFITS BEGIN. BENEFITS ARE ONLY PAID DURING YOUR LIFETIME AND, IF APPLICABLE,
THE LIFETIME OF A JOINT ANNUITANT. CONSEQUENTLY, YOU SHOULD CONSIDER THE
POSSIBILITY THAT NO AMOUNTS WILL BE PAID UNDER THE LIFE CONTINGENT ANNUITY IF
YOU (OR A JOINT ANNUITANT) DO NOT SURVIVE TO THE DATE PAYMENTS ARE TO START
UNDER SUCH ANNUITY.
You may elect to have the Life Contingent Annuity provide level or increasing
payments on a Single Life or a Joint and 100% to Survivor basis. If you elect
increasing payments, the payments will increase annually based on the increase,
if any, in the Consumer Price Index, but in no event greater than 3% per year.
The Life Contingent Annuity may also provide payments on
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a Joint and one-half to Survivor or a Joint and two-thirds to Survivor basis.
Payments under the Life Contingent Annuity will be made to you during your
lifetime (and the lifetime of the joint Annuitant, if applicable) on the same
payment mode and date as the payments that were made during the fixed period.
Election Restrictions under Joint and Survivor
Election of the Assured Payment Option with a Joint and Survivor form of the
Life Contingent Annuity is subject to the following restrictions: (i) the joint
Annuitant must be your spouse; (ii) neither you nor the joint Annuitant can be
over age 83; (iii) under level payments if you elect the Joint and 100% to
Survivor form, only the longest fixed period is permitted; and (iv) the fixed
period under the Traditional IRA Certificates may be limited by the minimum
distribution rules. See "Traditional Individual Retirement Annuities
(Traditional IRAs): Required Minimum Distributions" in Part 7.
Withdrawals under the Assured Payment Option
While the Assured Payment Option is in effect, if you take a Lump Sum Withdrawal
as described under "Lump Sum Withdrawals" below (or, if a Lump Sum Withdrawal is
made under a Traditional IRA Certificate to satisfy minimum distribution
requirements under the Certificate), such withdrawals will be taken from all
remaining Guarantee Periods to which your Annuity Account Value is allocated and
the Modal Payment Portion of the Guaranteed Period Account, if applicable, such
that the amount of the payments and the length of the fixed period will be
reduced, and the date payments are to start under the Life Contingent Annuity
will be accelerated. Additional amounts above the amount of the requested
withdrawal will be withdrawn from the Guaranteed Period Account and applied to
the Life Contingent Annuity to the extent necessary to achieve this result. As a
result, the same pattern of payments will continue in reduced amounts for your
life, and if applicable, the life of your joint Annuitant. If you have elected
increasing payments, the first reduction in your payments will take place no
later than the date of the next planned increase.
Substantially Equal Payment Withdrawals, Systematic Withdrawals and, 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, as
described under "Death Benefit" in Part 3, to the designated beneficiary. Unless
you have elected a Joint and Survivor form under the Life Contingent Annuity, no
payment will be made under the Life Contingent Annuity. The death benefit
payable relates only to the Guarantee Periods under the Certificate; a death
benefit is never payable under the Life Contingent Annuity.
If you have elected a Joint and Survivor form of annuity under the Life
Contingent Annuity, payments will be made to you or the joint Annuitant, if
living on the date payments are to start. The designated beneficiary and the
joint Annuitant must be your spouse.
Termination of the Assured Payment Option
The Assured Payment Option will be terminated if: (i) you cancel such option at
any time by sending a written request satisfactory to us; (ii) you submit a
subsequent contribution and you do not want it applied under the Assured Payment
Option; (iii) you request a transfer of your Annuity Account Value as described
under "Transfers Among Investment Options" in Part 3, while the Assured Payment
Option is in effect; or (iv) you request a change in the date the payments are
to start under the Life Contingent Annuity. Once the Assured Payment Option is
terminated, in order to receive distributions from your Annuity Account Value
you must utilize the withdrawal options described under "Withdrawal Options"
below. Although the Life Contingent Annuity will continue in effect and payments
will be made if you or your joint Annuitant, if applicable, are living on the
date payments are to start, additional Life Contingent Annuity payments may not
be purchased. You may elect to start the Assured Payment Option again by
submitting a written request satisfactory to us, but no sooner than three years
after the Option was terminated. If you 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 7.
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 3, once
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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 5.
APO PLUS
APO Plus is a variation of the Assured Payment Option. APO Plus is available at
ages 59 1/2 through 83. It may also be elected at ages as young as 53 1/2
provided payments under APO Plus do not start before you attain age 59 1/2.
Except as indicated below, all provisions of the Assured Payment Option apply to
APO Plus. APO Plus enables you to keep a portion of your Annuity Account Value
in the Alliance Common Stock Fund or the Alliance Equity Index Fund as you
select, while periodically converting such Annuity Account Value to increase the
guaranteed lifetime income under the Assured Payment Option. You select either
the Alliance Common Stock Fund or Alliance Equity Index Fund in the application
and once elected it may not be changed. When you elect APO Plus, a portion of
your initial contribution or Annuity Account Value as applicable is allocated by
us to the Assured Payment Option to provide a minimum guaranteed lifetime income
through allocation of amounts to the Guarantee Periods and the Modal Payment
Portion of the Guaranteed Period Account, if applicable, and application of
amounts to the Life Contingent Annuity. The remaining Annuity Account Value
remains in the Investment Fund you selected. Periodically during the fixed
period (as described below), a portion of the remaining Annuity Account Value in
such Investment Fund is applied to increase the guaranteed level payments under
the Assured Payment Option.
APO Plus allows you to remain invested in an Investment Fund for longer than
would be possible if you applied your entire Annuity Account Value all at once
to the Assured Payment Option or to an 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 increasing payments under "Assured Payment
Option" above.
You may elect to defer the payment start date as described in "Payments" under
"Assured Payment Option," above. The fixed period will also be as indicated for
deferral of the payment start date for increasing payments under the Assured
Payment Option.
You elect APO Plus in the application or at a later date by submitting the
proper form. APO Plus may not be elected if the Assured Payment Option is
already in effect.
The amount applied under APO Plus is either the initial contribution if APO Plus
is elected at issue of the Certificate, or the Annuity Account Value if APO Plus
is elected after issue of the Certificate. Out of a portion of the amount
applied, level payments are provided under the Assured Payment Option equal to
the initial payment that would have been provided on the Transaction Date by the
allocation of the entire amount to increasing payments as described in
"Payments" under "Assured Payment Option," above. The difference between the
amount required for level payments and the amount required for increasing
payments is allocated to the Investment Fund. If you have Annuity Account Value
in the Guaranteed Period Account at the time this option is elected, a market
value adjustment may apply as a result of such amounts being transferred to
effect the Assured Payment Option.
On the third February 15th following the date the first payment is made (if
payments are to be made on February 15th, the date of the first payment will be
counted as the first February 15th) during the fixed period while you are
living, a portion of the Annuity Account Value in the Investment Fund is applied
to increase the level payments under the Assured Payment Option. If a deferral
period of three years or more is elected, a portion of the Annuity Account Value
in the Investment Fund will be applied on the February 15th prior to the date
the first payment is made, to increase the initial level payments. If payments
are to be made on February 15th, the date of the first payment will be counted
as the first February 15th.
The amount applied is the amount which provides for level payments equal to the
initial payment that would have been provided by the allocation of the entire
Annuity Account Value to increasing payments, as described in the preceding
paragraph. This process is repeated each third year during the fixed period. The
first increased payment will be reflected in the payment made following three
full years of payments and then every three years thereafter. On the Transaction
Date immediately following the last payment during the fixed period, the
remaining Annuity Account Value in
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the Investment Fund is first applied to the Life Contingent Annuity to change
the level payments previously purchased to increasing payments. If there is any
Annuity Account Value remaining after the increasing payments are purchased,
this balance is applied to the Life Contingent Annuity to further increase such
increasing payments. If the Annuity Account Value in the Investment Fund is
insufficient to purchase the increasing payments, then the level payments
previously purchased will be increased to the extent possible.
While APO Plus provides a minimum guaranteed lifetime payment under the Assured
Payment Option, the total amount of income that can be provided over time will
depend on the investment performance of the Investment Fund in which you have
Annuity Account Value, as well as the current Guaranteed Rates and the cost of
the Life Contingent Annuity, which may vary. Consequently, the aggregate amount
of guaranteed lifetime income under APO Plus may be more or less than the amount
that could have been purchased by application at the outset of the entire
initial contribution or Annuity Account Value to the Assured Payment Option.
See Appendix IV for an example of the payments purchased under Assured Payment
Option and APO Plus.
For Traditional IRA Certificates, in calculating your required minimum
distributions your Annuity Account Value in the Investment Fund, the Annuity
Account Value in each Guarantee Period, any amount in the Modal Payment Portion
of the Guaranteed Period Account, and the deemed value of the Life Contingent
Annuity for tax purposes will be taken into account as described in "Payments"
under "Assured Payment Option," above. Also see "Traditional Individual
Retirement Annuities (Traditional IRAs):
Required Minimum Distributions" in Part 7.
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 Guarantee Periods
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 requirements under the Certificate will not be subject to a
withdrawal charge.
Death Benefit
Once you have elected APO Plus, if a death benefit becomes payable during the
fixed period we will pay the death benefit amount as described under "Death
Benefit" in Part 3, to the designated beneficiary. Unless you have elected Joint
and Survivor under the Life Contingent Annuity, no payment will be made under
the Life Contingent Annuity. The death benefit relates only to the Investment
Funds and the Guarantee Periods under the Certificate; a death benefit is never
payable under the Life Contingent Annuity.
Termination of APO Plus
You may terminate APO Plus at any time by submitting a request satisfactory to
us. In connection with the termination, you may either (i) elect to terminate
APO Plus at any time and have your Certificate operate under the Rollover IRA
rules (see "Part 3: Provisions of the Certificates and Services We Provide") or
(ii) elect the Assured Payment Option with level or increasing payments. In the
latter case your remaining Annuity Account Value in the Investment Fund will be
allocated to the Guaranteed Period Account and applied under the Life Contingent
Annuity. A market value adjustment may apply for any amounts allocated from a
Guarantee Period. At least 45 days prior to the end of each three-year period,
we will send you a quote indicating how much future income could be provided
under the Assured Payment Option. The quote would be based on your current
Annuity Account Value, current Guaranteed Rates for the Guarantee Periods and
current purchase rates under the Life Contingent Annuity as of the date of the
quote. The actual amount of future income would depend on the rates in effect on
the Transaction Date.
WITHDRAWAL OPTIONS
The Rollover IRA is an annuity contract, even though you may elect to receive
your benefits in a non-annuity form. You may take withdrawals from your
Certificate before the Annuity Commencement Date and while you are alive. Four
withdrawal options are available: Lump Sum Withdrawals, Substantially Equal
Payment Withdrawals, Systematic Withdrawals and under Traditional IRA
Certificates, Minimum Distribution Withdrawals. Withdrawals may result in
withdrawal charges. See "Part 5: Deductions and Charges." Special withdrawal
rules may apply under the Assured Payment Option and APO Plus.
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Amounts withdrawn from the Guaranteed Period Account, other than at the
Expiration Date, will result in a market value adjustment. See "Market Value
Adjustment for Transfers, Withdrawals or Surrender Prior to the Expiration Date"
in Part 2. Withdrawals may be taxable and subject to tax penalty. See "Part 7:
Tax Aspects of the Certificates."
As a deterrent to early withdrawal (generally prior to age 59 1/2), the Code
provides certain penalties. We may also be required to withhold income taxes
from the amount distributed. These rules are outlined in "Part 7: Tax Aspects of
the Certificates."
LUMP SUM WITHDRAWALS
You may take a Lump Sum Withdrawal at any time subject to a minimum withdrawal
amount of $1,000.
A request to withdraw more than 90% of the Cash Value as of the Transaction Date
will result in the termination of the Certificate and will be treated as a
surrender of the Certificate for its Cash Value. See "Surrendering the
Certificates to Receive the Cash Value" in Part 3.
To make a Lump Sum Withdrawal, you must submit a request satisfactory to us
which specifies the Investment Options from which the Lump Sum Withdrawal will
be taken. If we have received the information we require, the requested
withdrawal will become effective on the Transaction Date and proceeds will
usually be mailed within seven calendar days thereafter, but we may delay
payment as described in "When Payments Are Made" in Part 3. If we receive only
partially completed information, our Processing Office will contact you for
specific instructions before your request can be processed.
Lump Sum Withdrawals in excess of the 15% free corridor amount may be subject to
a withdrawal charge. While either the Assured Payment Option or APO Plus is in
effect, Lump Sum Withdrawals that exceed the 10% free corridor amount may be
subject to a withdrawal charge. See "Withdrawal Charge" in Part 5.
SUBSTANTIALLY EQUAL PAYMENT WITHDRAWALS
Substantially Equal Payment Withdrawals provide distributions from the Annuity
Account Value of the amounts necessary so that the 10% penalty tax, normally
applicable to distributions made prior to age 59 1/2, does not apply. See "Part
7: 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 form. You
select the day and the month when the first withdrawal will be made, but it may
not be sooner than 28 days after the issue of the Certificate. In no event may
you elect to receive the first payment in the same Contract Year in which a Lump
Sum Withdrawal was taken. We will calculate the amount of the distribution under
a method we select and payments will be made monthly, quarterly or annually as
you select. These payments will continue to be made until we receive written
notice from you to cancel this option. Such notice must be received at our
Processing Office at least seven calendar days prior to the next scheduled
withdrawal date. A Lump Sum Withdrawal taken while Substantially Equal Payment
Withdrawals are in effect will cancel such withdrawals. You may elect to start
receiving Substantially Equal Payment Withdrawals again, but in no event can the
payments start in the same Contract Year in which a Lump Sum Withdrawal was
taken. We will calculate a new distribution amount. 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 Guarantee Periods in order of the
earliest Expiration Date(s) first.
Substantially Equal Payment Withdrawals are not subject to a withdrawal charge.
SYSTEMATIC WITHDRAWALS
This option may be elected if you are age 59 1/2 to 70 1/2. Systematic
Withdrawals provide level percentage or level amount payouts. You may choose to
receive Systematic Withdrawals on a monthly, quarterly or annual frequency. You
select a dollar amount or percentage of the Annuity Account Value to be
withdrawn, subject to a maximum of 1.2% monthly, 3.6% quarterly and 15.0%
annually, but in no event may any payment be less than $250. If at the time a
Systematic Withdrawal is to be made, the withdrawal amount would be less than
$250, no payment will be made and your Systematic Withdrawal election will
terminate.
You select the date of the month when the withdrawals will be made, but you may
not choose a date later than the 28th day of the month. If no date is selected,
withdrawals will be made on the same calendar day of the month as the Contract
Date. The commencement of payments under the Systematic Withdrawal option may
not be elected to start sooner than 28 days after issue of the Certificate.
You may elect Systematic Withdrawals at any time by completing the proper form
and sending it to our
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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 Guarantee Periods in order of the earliest Expiration
Date(s) first.
Systematic Withdrawals are not subject to a withdrawal charge, except to the
extent that, when added to a Lump Sum Withdrawal previously taken in the same
Contract Year, the Systematic Withdrawal exceeds the 15% free corridor amount.
See "Withdrawal Charge" in Part 5.
MINIMUM DISTRIBUTION WITHDRAWALS (Available Only 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, Minimum Distribution Withdrawal
payments will be made annually.
Unless you specify otherwise, Minimum Distributions Withdrawals will be
withdrawn on a pro rata basis from your Annuity Account Value in the Investment
Funds. If there is insufficient value or no value in the Investment Funds, any
additional amount of the withdrawal required or the total amount of the
withdrawal, as applicable, will be withdrawn from the Guarantee Periods in order
of the earliest Expiration Date(s) first.
Minimum Distribution Withdrawals are not subject to a withdrawal charge, except
to the extent that, when added to a Lump Sum Withdrawal previously taken in the
same Contract Year, the Minimum Distribution Withdrawal exceeds the 15% free
corridor amount. See "Withdrawal Charge" in Part 5.
Example
- -------
The chart below illustrates the pattern of payments, under Minimum Distribution
Withdrawals for a male who purchases the Traditional IRA at age 70 with a single
contribution of $100,000, with payments commencing at the end of the first
Contract Year.
[THE FOLLOWING TABLE WAS REPRESENTED AS AN AREA GRAPH IN THE PROSPECTUS]
PATTERN OF MINIMUM DISTRIBUTION WITHDRAWALS
$100,000 SINGLE CONTRIBUTION FOR A
SINGLE LIFE -- MALE AGE 70
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. This rate of return
is for illustrative purposes only and is not intended to represent an expected
or guaranteed rate of return. Your investment results will vary. In addition,
this example does not reflect any charges that may be applicable under the
Rollover IRA. Such charges would effectively reduce the actual return.
HOW WITHDRAWALS AND TRANSFERS AFFECT YOUR GUARANTEED MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT
Your current Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit benefit base will be reduced on a dollar-for-dollar basis as long as the
sum of your withdrawals and transfers from the Investment Funds in any Contract
Year is 6% or less of the beginning of Contract Year Guaranteed Minimum Death
Benefit. Once a withdrawal or transfer is made that causes cumulative
withdrawals and transfers from the Investment Funds in a Contract Year to exceed
6% of the beginning of Contract Year Guaranteed Minimum Death Benefit, that
withdrawal or transfer and
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any subsequent withdrawals and transfers in that Contract Year will cause a pro
rata reduction to occur.
Reduction on a dollar-for-dollar basis means your current Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit benefit base will be reduced
by the dollar amount of the withdrawal. Reduction on a pro rata basis means that
we calculate the percentage of the Annuity Account Value as of the Transaction
Date that is being withdrawn and we reduce your current Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit benefit base by that same
percentage. For example, if your Annuity Account Value is $10,000 and you
withdraw $4,000, you have withdrawn 40% ($4,000/$10,000) of your Annuity Account
Value. If your Guaranteed Minimum Death Benefit was $20,000 prior to the
withdrawal, it would be reduced by $8,000 ($20,000 x .40) and your new
Guaranteed Minimum Death Benefit after the withdrawal would be $12,000
($20,000-$8,000).
The timing of your withdrawals and whether they exceed the 6% threshold
described above can have a significant impact on your Guaranteed Minimum Death
Benefit or Guaranteed Minimum Income Benefit.
GUARANTEED MINIMUM INCOME BENEFIT
BENEFIT BASE
The Guaranteed Minimum Income Benefit benefit base is equal to the portion of
the initial contribution allocated to the Investment Funds on the Contract Date.
Thereafter, the Guaranteed Minimum Income Benefit benefit base is credited with
interest at 6% (3% for amounts in the Alliance Money Market and Alliance
Intermediate Government Securities Funds, except as indicated below) on each
Contract Date anniversary through age 80, and 0% thereafter, and is adjusted for
any subsequent contributions and transfers into the Investment Funds and
transfers and withdrawals from such Funds. The Guaranteed Minimum Income Benefit
benefit base interest applicable to amounts in the Alliance Money Market Fund
under the Special Dollar Cost Averaging program (described in Part 3) will be
6%. The Guaranteed Minimum Income Benefit benefit base will also be reduced by
any withdrawal charge remaining on the Transaction Date that you exercise your
Guaranteed Minimum Income Benefit.
Your Guaranteed Minimum Income Benefit benefit base is applied to guaranteed
minimum annuity 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
Annuity benefits provide periodic payments over a specified period of time which
may be fixed or may be based on your life. Annuity forms of payment are
calculated as of the Annuity Commencement Date, which is on file with our
Processing Office. You can change the Annuity Commencement Date by writing to
our Processing Office anytime before the Annuity Commencement Date. However, you
may not choose a date later than the 28th day of any month. Also, no Annuity
Commencement Date will be later than the Processing Date which follows your 90th
birthday (may be different in some states).
Before the Annuity Commencement Date, we will send you a letter advising that
annuity benefits are available. Unless you otherwise elect, we will pay you a
fixed annuity benefit on the "normal form" indicated for your Certificate as of
your Annuity Commencement Date. The amount applied to provide the annuity
benefit will be (1) the Annuity Account Value for any life annuity form or (2)
the Cash Value for any period certain only annuity form except that if the
period certain is more than five years, the amount applied will be no less than
95% of the Annuity Account Value.
Amounts in the Guarantee Periods that are applied to an annuity benefit prior to
an Expiration Date will result in a market value adjustment. See "Market Value
Adjustment for Transfers, Withdrawals or Surrender Prior to the Expiration Date"
in Part 2.
ANNUITY FORMS
o Life Annuity: An annuity which guarantees payments for the rest of your life.
Payments end with the last monthly payment before your death. Because there
is no death benefit associated with this annuity form, it provides the
highest monthly payment of any of the life income annuity options, so long as
you are living.
o Life Annuity -- Period Certain: This annuity form also guarantees payments
for the rest of your life. In addition, if you die before a specific period
of time (the "certain period") has ended, payments will continue to your
beneficiary for the balance of the certain period. Certain periods may be 5,
10, 15 or 20 years. A life annuity with a certain period of 10 years is the
normal form of annuity under the Certificates.
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o Life Annuity -- Refund Certain: This annuity form guarantees payments to you
for the rest of your life. In addition, if you die before the amount applied
to purchase this annuity option has been recovered, payments will continue to
your beneficiary until that amount has been recovered. This option is
available only as a fixed annuity.
o Period Certain Annuity: This annuity form guarantees payments for a specific
period of time, usually 5, 10, 15 or 20 years, and does not involve life
contingencies.
o Joint and Survivor Life Annuity: This annuity form guarantees life income to
you and, after your death, continuation of income to the survivor.
The life annuity -- period certain and the life annuity -- refund certain are
available on either a single life or joint and survivor life basis.
The annuity forms outlined above are available in both fixed and variable form,
unless otherwise indicated. Fixed annuity payments are guaranteed by us and will
be based either on the tables of guaranteed annuity payments in your Certificate
or on our then current annuity rates, whichever is more favorable for you.
Variable income annuities may be funded through the Investment Funds through the
purchase of annuity units. The amount of each variable annuity payment may
fluctuate, depending upon the performance of the Investment Funds. That is
because the annuity unit value rises and falls depending on whether the actual
rate of net investment return (after deduction of charges) is higher or lower
than the assumed base rate. See "Annuity Unit Values" in the SAI. Variable
income annuities may also be available by separate prospectus through the
Investment Funds of other separate accounts we offer.
For all Annuitants, the normal form of annuity provides for fixed payments. We
may offer other forms not outlined here. Your agent can provide details.
For each annuity benefit, we will issue a separate written agreement putting the
benefit into effect. Before we pay any annuity benefit, we require the return of
the Certificate.
The amount of the annuity payments will depend on the amount applied to purchase
the annuity, the type of annuity chosen and, in the case of a life annuity form,
your age (or your and the joint Annuitant's ages) and in certain instances, the
sex of the Annuitant(s). Once an annuity form is chosen and payments have
commenced, no change can be made.
If, at the time you elect an annuity form, the amount to be applied is less than
$2,000 or the initial payment under the form elected is less than $20 monthly,
we reserve the right to pay the Annuity Account Value in a single sum rather
than as payments under the annuity form chosen.
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- --------------------------------------------------------------------------------
PART 5: DEDUCTIONS AND CHARGES
- --------------------------------------------------------------------------------
CHARGES DEDUCTED FROM THE ANNUITY ACCOUNT VALUE
We allocate the entire amount of each contribution to the Investment Options you
select, subject to certain restrictions. We then periodically deduct certain
amounts from your Annuity Account Value. Unless otherwise indicated, the charges
described below and under "Charges Deducted from the Investment Funds" below
will not be increased by us for the life of the Certificates. We may reduce
certain charges under sponsored arrangements. See "Sponsored Arrangements"
below. Charges are deducted proportionately from all the Investment Funds in
which your Annuity Account Value is invested on a pro rata basis, except as
noted below.
Withdrawal Charge
A withdrawal charge will be imposed as a percentage of each contribution made to
the extent that (i) a Lump Sum Withdrawal or cumulative withdrawals during a
Contract Year exceed the free corridor amount, or (ii) if the Certificate is
surrendered to receive its Cash Value. We determine the withdrawal charge
separately for each contribution in accordance with the table below.
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 either the Assured Payment Option or APO Plus is in effect, the free
corridor amount is 10% of the Annuity Account Value at the beginning of the
Contract Year.
There is no withdrawal charge if a Lump Sum Withdrawal is taken to satisfy
minimum distribution requirements under 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.
The withdrawal charge is to help cover sales expenses.
Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit
Charge (Plan A)
We deduct a charge annually on each Processing Date for providing the Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit (Plan A).
The charge is equal to a percentage of the Guaranteed Minimum Death Benefit in
effect on the Processing Date. The percentage is equal to 0.45% for the 6% to
Age 80 Benefit and 0.30% for the 6% to Age 70 Benefit.
Guaranteed Minimum Death Benefit Only Benefit Charge (Plan B)
We deduct a charge annually on each Processing Date for providing the Guaranteed
Minimum Death Benefit Only Benefit (Plan B). The charge is equal to a percentage
of the Guaranteed Minimum Death Benefit in effect on the Processing Date. The
percentage is equal to 0.20%.
Charges for State Premium and Other Applicable Taxes
We deduct a charge for applicable taxes, such as state or local premium taxes,
that might be imposed in your state. Generally we deduct this charge from the
amount applied to provide an annuity benefit. In certain states, however, we may
deduct the charge for taxes from contributions. The current tax charge that
might be imposed varies by state and ranges from 0% to 2.25%.
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CHARGES DEDUCTED FROM THE INVESTMENT FUNDS
Mortality and Expense Risks Charge
We will deduct a daily charge from the assets in each Investment Fund to
compensate us for mortality and expense risks. The daily charge is at the rate
of 0.002477%, which is equivalent to an annual rate of 0.90%, on the assets in
each Investment Fund.
The mortality risk assumed is the risk that Annuitants as a group will live for
a longer time than our actuarial tables predict. As a result, we would be paying
more in annuity income than we planned. We also assume a risk that the mortality
assumptions reflected in our guaranteed annuity payment tables, shown in each
Certificate, will differ from actual mortality experience. Lastly, we assume a
mortality risk to the extent that at the time of death, the Guaranteed Minimum
Death Benefit exceeds the Cash Value of the Certificate. The expense risk
assumed is the risk that it will cost us more to issue and administer the
Certificates than we expect.
Administration Charge
We will deduct a daily charge from the assets in each Investment Fund, to
compensate us for administration expenses under the Certificates. The daily
charge is at a rate of 0.000692% (equivalent to an annual rate of 0.25%) on the
assets in each Investment Fund. We reserve the right to increase this charge to
an annual rate of 0.35%, the maximum permitted under the Certificates.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, the 12b-1 fee,
direct operating expenses of HR Trust (such as trustees' fees, expenses of
independent auditors and legal counsel, bank and custodian charges and liability
insurance), and certain investment-related expenses of HR Trust (such as
brokerage commissions and other expenses related to the purchase and sale of
securities), are reflected in each Portfolio's daily share price. The maximum
investment advisory fees paid annually by the Portfolios cannot be changed
without a vote by shareholders. They are as follows:
- -------------------------------------------------------------
AVERAGE DAILY ASSETS
--------------------------------------------
FIRST NEXT NEXT NEXT
$750 $750 $1 $2.5 THERE-
MILLION MILLION BILLION BILLION AFTER
- -------------------------------------------------------------
Alliance
Conservative
Investors 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance Growth
Investors 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Growth
& Income 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance
Common
Stock 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Global 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance
International 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance
Aggressive
Stock 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Small
Cap Growth 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Money
Market 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance
Intermediate
Government
Securities 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance High
Yield 0.600% 0.575% 0.550% 0.530% 0.520%
Alliance Equity
Index Fund 0.325% 0.300% 0.275% 0.255% 0.245%
- -------------------
* On assets in excess of $10 billion, the management fee for the Alliance Common
Stock Portfolio is reduced to 0.335% of average daily net assets.
- --------------------------------------------------------------------------------
Investment advisory fees are established under HR Trust's investment advisory
agreements between HR Trust and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that the HR Trust, on behalf of each Portfolio may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily intended
to result in the sale of the Class IB shares. This fee will not be increased for
the life of the Certificates. EDI is currently waiving a portion of the 12b-1
fee with respect to the Alliance Small Cap Growth Portfolio. Fees and expenses
are described more fully in the HR Trust prospectus.
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EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the 12b-1
fee, other direct operating expenses of EQ Trust (such as trustees' fees,
expenses of independent auditors and legal counsel, administrative service fees,
custodian fees, and liability insurance), and certain investment-related
expenses of EQ Trust (such as brokerage commissions and other expenses related
to the purchase and sale of securities), are reflected in each Portfolio's daily
share price. The investment management fees paid annually by the Portfolios
cannot be changed without a vote by shareholders. They are as follows:
- --------------------------------------------------------------
AVERAGE DAILY
NET ASSETS
----------------------
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%
- --------------------------------------------------------------
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ Financial.
EQ Financial has entered into expense limitation agreements with EQ Trust, with
respect to each Portfolio, pursuant to which EQ Financial has agreed to waive or
limit its fees and to assume other expenses so that the total operating expenses
of each Portfolio are limited to: 0.55% of the respective average daily net
assets of the BT Equity 500 Index Portfolio; 0.60% for the BT Small Company
Index Portfolio; 0.80% for the BT International Equity Index Portfolio; 0.85%
for the MFS Research, MFS Emerging Growth Companies, Merrill Lynch Basic Value
Equity, EQ/Putnam Growth & Income Value, and T. Rowe Price Equity Income
Portfolios; 0.90% for the EQ/Putnam Balanced Portfolio; 1.00% for Warburg Pincus
Small Company Value Portfolio; 1.20% for the Merrill Lynch World Strategy and T.
Rowe Price International Stock Portfolios; and 1.75% for the Morgan Stanley
Emerging Markets Equity Portfolio. See the prospectus for EQ Trust for more
information.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may pay
annually up to 0.25% of the average daily net assets of a Portfolio attributable
to its Class IB shares in respect of activities primarily intended to result in
the sale of the Class IB shares. This fee will not be increased for the life of
the Certificates. Fees and expenses are described more fully in the EQ Trust
prospectus.
SPONSORED ARRANGEMENTS
For certain sponsored arrangements, we may reduce the withdrawal charge, or 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 offer Investment Funds investing in Class IA shares of HR
Trust and EQ Trust, which are not subject to the 12b-1 fee. Sponsored
arrangements include those in which an employer allows us to sell Certificates
to its employees or retirees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the size
and stability of the sponsoring organization among other factors. We take all
these factors into account when reducing charges. To qualify for reduced
charges, a sponsored arrangement must meet certain requirements, including our
requirements for size and number of years in existence. Sponsored arrangements
that have been set up solely to buy Certificates or that have been in existence
less than six months will not qualify for reduced charges.
We may also establish different Guaranteed Rates for the Guarantee Periods under
different classes of Certificates for 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.
Sponsored arrangements may be governed by the Code, the Employee Retirement
Income Security Act of 1974 (ERISA), or both. We make no representations as to
the impact of those and other applicable laws on such programs. WE RECOMMEND
THAT EMPLOYERS PURCHASING OR MAKING CERTIFICATES AVAILABLE FOR PURCHASE UNDER A
SPONSORED ARRANGEMENT SEEK THE ADVICE OF THEIR OWN LEGAL AND BENEFITS ADVISERS.
OTHER DISTRIBUTION ARRANGEMENTS
Charges may be reduced or eliminated when sales are made in a manner that
results in savings of sales and administrative expenses, such as sales through
persons who are compensated by clients for recommending investments and receive
no commission or reduced commissions in connection with the sale of the
Certificates. In no event will a reduction or elimination of charges be
permitted where it would be unfairly discriminatory.
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- --------------------------------------------------------------------------------
PART 6: VOTING RIGHTS
- --------------------------------------------------------------------------------
HR TRUST AND EQ TRUST VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of HR Trust and EQ Trust.
Since we own the assets of the Separate Account, we are the legal owner of the
shares and, as such, have the right to vote on certain matters. Among other
things, we may vote:
o to elect each trust's Board of Trustees,
o to ratify the selection of independent auditors for each trust, and
o on any other matters described in each trust's current prospectus or
requiring a vote by shareholders under the 1940 Act.
Because HR Trust is a Massachusetts business trust and EQ Trust is a Delaware
business trust, annual meetings are not required. Whenever a shareholder vote is
taken, we will give Certificate Owners the opportunity to instruct us how to
vote the number of shares attributable to their Certificates. If we do not
receive instructions in time from all Certificate Owners, we will vote the
shares of a Portfolio for which no instructions have been received in the same
proportion as we vote shares of that Portfolio for which we have received
instructions. We will also vote any shares that we are entitled to vote directly
because of amounts we have in an Investment Fund in the same proportions that
Certificate Owners vote.
Each share of each trust is entitled to one vote. Fractional shares will be
counted. Voting generally is on a Portfolio-by-Portfolio basis except that
shares will be voted on an aggregate basis when universal matters, such as
election of Trustees and ratification of independent auditors, are voted upon.
However, if the Trustees determine that shareholders in a Portfolio are not
affected by a particular matter, then such shareholders generally would not be
entitled to vote on that matter.
VOTING RIGHTS OF OTHERS
Currently, we control each trust. EQ Trust shares currently are sold only to our
separate accounts. HR Trust shares are held by other separate accounts of ours
and by separate accounts of insurance companies affiliated and unaffiliated with
us. Shares held by these separate accounts will probably be voted according to
the instructions of the owners of insurance policies and contracts issued by
those insurance companies. While this will dilute the effect of the voting
instructions of the Rollover IRA Certificate Owners, we currently do not foresee
any disadvantages arising out of this. HR Trust's Board of Trustees intends to
monitor events in order to identify any material irreconcilable conflicts that
possibly may arise and to determine what action, if any, should be taken in
response. If we believe that HR Trust's response to any of those events
insufficiently protects our Certificate Owners, we will see to it that
appropriate action is taken to protect our Certificate Owners.
SEPARATE ACCOUNT VOTING RIGHTS
If actions relating to the Separate Account require Certificate Owner approval,
Certificate Owners will be entitled to one vote for each Accumulation Unit they
have in the Investment Funds. Each Certificate Owner who has elected a variable
annuity payout may cast the number of votes equal to the dollar amount of
reserves we are holding for that annuity in an Investment Fund divided by the
Accumulation Unit Value for that Investment Fund. We will cast votes
attributable to any amounts we have in the Investment Funds in the same
proportion as votes cast by Certificate Owners.
CHANGES IN APPLICABLE LAW
The voting rights we describe in this prospectus are created under applicable
Federal securities laws. To the extent that those laws or the regulations
promulgated under those laws eliminate the necessity to submit matters for
approval by persons having voting rights in separate accounts of insurance
companies, we reserve the right to proceed in accordance with those laws or
regulations.
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PART 7: TAX ASPECTS OF THE CERTIFICATES
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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 pretax 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-IRAs are issued and funded in
connection with employer-sponsored retirement plans. There are also Education
IRAs, which are not discussed herein because they are not available in
individual retirement annuity form. As the Rollover Roth IRA is an individual
retirement annuity, the term "Roth IRA" refers to a Roth individual retirement
annuity unless the context requires otherwise.
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.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES (TRADITIONAL IRAS)
This prospectus contains the information which the Internal Revenue Service
(IRS) requires to be disclosed to an individual before he or she purchases a
Traditional IRA.
The Rollover IRA Certificate is designed to qualify as a Traditional IRA under
Section 408(b) of the Code. Your rights under the Rollover IRA cannot be
forfeited.
This prospectus covers some of the special tax rules that apply to individual
retirement arrangements. You should be aware that a Traditional IRA is subject
to certain restrictions in order to qualify for its special treatment under the
Federal tax law.
This prospectus provides our general understanding of applicable Federal income
tax rules, but does not provide detailed tax information and does not address
issues such as state income and other taxes or Federal gift and estate taxes.
Please consult a tax adviser when considering the tax aspects of the Traditional
IRA Certificates.
Further information on Traditional IRA tax matters can be obtained from any IRS
district office. Additional information regarding IRAs, including a discussion
of required distributions, can be found in IRS Publication 590, entitled
"Individual Retirement Arrangements (IRAs)," which is generally updated
annually.
The Rollover IRA Certificate has been approved by the IRS as to form for use as
a Traditional IRA. This IRS approval is a determination only as to the form of
the annuity, and does not represent a determination of the merits of the annuity
as an investment, and may not address certain features under the Rollover IRA
Certificates.
Cancellation
You can cancel a Certificate issued as a Traditional IRA by following the
directions in Part 3 under "Free Look Period." Since there may be adverse tax
consequences if a Certificate is cancelled (and because we are required to
report to the IRS certain distributions from cancelled 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 "Tax-Free Transfers and Rollovers"
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 3. The immediately following discussion relates
to "regular" Traditional IRA contributions. For the reasons noted in "Tax-Free
Transfers and Rollovers" below, you should consult with your tax adviser before
making any subsequent contributions to a Traditional IRA which is intended to
serve as a "conduit" IRA.
Generally, $2,000 is the maximum amount of deductible and nondeductible
contributions which may be
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made to all IRAs (including Roth IRAs) by an individual in any taxable year. The
above limit may be less when the individual's earnings are below $2,000. This
limit does not apply to rollover contributions or direct custodian-to-custodian
transfers into a Traditional IRA.
Where married individuals file joint income tax returns, their 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 an individual
can deduct depends on whether the individual is 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 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 the individual is single and covered by a retirement plan during any part of
the taxable year, the deduction for IRA contributions phases out with AGI
between $30,000 and $40,000. This amount will be indexed every year until 2005.
If the individual is married and files a joint return, and the individual is
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. 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, the individual determines AGI and
subtracts $30,000 if the individual is a single person, $50,000 if the
individual is married and files a joint return with the spouse. The resulting
amount is the individual's Excess AGI. The individual then determines the limit
on the deduction for Traditional IRA contributions using the following formula:
$10,000-Excess AGI Maximum Adjusted
------------------ x Permissable = Dollar
$10,000 Dollar Deduction
Deduction Limit
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 an individual attains age 70
1/2 or any tax year after that. A working spouse age 70 1/2 or over, however,
can contribute up to the lesser of $2,000 or 100% of "earned income" to a
spousal individual retirement arrangement for a nonworking spouse until the year
in which the nonworking spouse reaches age 70 1/2.
An individual not eligible to deduct part or all of the Traditional IRA
contribution may still make nondeductible contributions on which earnings will
accumulate on a tax-deferred basis. The deductible and nondeductible
contributions to the individual's 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. Individuals must keep their own records
of deductible and nondeductible contributions in order to prevent double
taxation on the distribution of previously taxed amounts. See "Distributions
from Traditional IRA Certificates" below.
An individual making nondeductible contributions in any taxable year, or any
individual who has made nondeductible contributions to a Traditional IRA in
prior years and is receiving amounts from any Traditional IRA must file the
required information with the IRS. Moreover, individuals making nondeductible
Traditional IRA contributions must retain all income tax returns and records
pertaining to such contributions until interests in all Traditional IRAs are
fully distributed.
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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 the individual's Federal income tax return for the tax year
(including extensions) is not includable in income and therefore is not subject
to the 10% penalty tax on early distributions (discussed below under "Penalty
Tax on Early Distributions"), provided any earnings attributable to the excess
contribution are also withdrawn and no tax deduction is taken for the excess
contribution. The withdrawn earnings on the excess contribution, however, would
be includable in the individual's gross income and would be subject to the 10%
penalty tax. If excess contributions are not withdrawn before the time for
filing the individual's Federal income tax return for 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 includable in gross income and would not be subject to
the 10% penalty tax. Lastly, excess "regular" contributions may also be removed
by underutilizing the allowable contribution limits for a later year.
If excess rollover contributions are not withdrawn before the time for filing
the individual's Federal tax return for the year (including extensions) and the
excess contribution occurred as a result of incorrect information provided by
the plan, any such excess amount can be withdrawn if no tax deduction was taken
for the excess contribution. As above, excess rollover contributions withdrawn
under those circumstances would not be includable in gross income and would not
be subject to the 10% penalty tax.
TAX-FREE TRANSFERS AND ROLLOVERS
Tax-free 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, an individual 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
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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 the individual.
Distributions include withdrawals from your Certificate, surrender of your
Certificate and annuity payments from your Certificate. Death benefits are also
distributions. Except as discussed below, the amount of any distribution from a
Traditional IRA is fully includable as ordinary income by the individual in
gross income.
If the individual has made nondeductible Traditional IRA contributions to any
Traditional IRA (whether or not this particular arrangement), those
contributions are recovered tax free when distributions are received. The
individual must keep records of all such nondeductible contributions. At the end
of each tax year in which the individual has received a distribution from any
traditional individual retirement arrangement, the individual determines 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 the individual 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 amount received is rolled over to another
traditional individual retirement arrangement (see "Tax-Free Transfers and
Rollovers" 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 the owner's interest in
the IRA over the owner's life expectancy. Whether the correct amount has been
distributed is calculated on a year-by-year basis; there are no provisions in
the Code to allow amounts taken in excess of the required amount to be carried
over or carried back and credited to other years.
Generally, an individual must take the first required minimum distribution with
respect to the calendar year in which the individual turns age 70 1/2. The
individual has the choice to take the first required minimum distribution during
the calendar year he or she turns age 70 1/2, or to delay taking it until the
three-month (January 1 - April 1) period in the next calendar year.
(Distributions must commence no later than the "Required Beginning Date," which
is the April 1st of the calendar year following the calendar year in which the
individual turns age 70 1/2.) If the individual chooses to delay taking the
first annual minimum distribution, then the individual will have to take two
minimum distributions in that year -- the delayed one for the first year and the
one actually for that year. Once minimum distributions begin, they must be made
at some time every year.
There are two approaches to taking minimum distributions -- "account based" or
"annuity based" -- and there are a number of distribution options in both of
these categories. These choices are intended to give individuals a great deal of
flexibility to provide for themselves and their families.
An account-based minimum distribution approach may be a lump sum payment, or
periodic withdrawals made over a period which does not extend beyond the
individual's life expectancy or the joint life expectancies of the individual
and a designated beneficiary. An annuity-based approach involves application of
the Annuity Account Value to an annuity for the life of the individual or the
joint lives of the individual and a designated beneficiary, or for a period
certain not extending beyond applicable life expectancies.
You should discuss with your tax adviser which minimum distribution options are
best for your own personal situation. Individuals who are participants in more
than one tax-favored retirement plan may be able to choose different
distribution options for each plan.
Your required minimum distribution for any taxable year is calculated by taking
into account the required minimum distribution from each of your 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.
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An individual may recompute his or her minimum distribution amount each year
based on the individual's current life expectancy as well as that of the spouse.
No recomputation is permitted, however, for a beneficiary other than a spouse.
An individual who has been computing minimum distributions with respect to
Traditional IRA funds on an account-based approach (discussed above) may
subsequently apply such funds to a life annuity-based payout, provided that the
individual had elected to recalculate life expectancy annually (and the 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 the individual dies after
distribution in the form of an annuity has begun, or after the Required
Beginning Date, payment of the remaining interest must be made at least as
rapidly as under the method used prior to the individual's death. (The IRS has
indicated that an exception to the rule that payment of the remaining interest
must be made at least as rapidly as under the method used prior to the
individual's death applies if the beneficiary of the Traditional IRA is the
surviving spouse. In some circumstances, the 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.)
If an individual dies before the Required Beginning Date and before
distributions in the form of an annuity begin, distributions of the individual's
entire interest under the Certificate must be completed within five years after
death, unless payments to a designated beneficiary begin within one year of the
individual's death and are made over the beneficiary's life or over a period
certain which does not extend beyond the beneficiary's life expectancy.
If the surviving spouse is the designated beneficiary, the spouse may delay the
commencement of such payments up until the individual would have attained 70
1/2. In the alternative, a surviving spouse may elect to roll over the inherited
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 the individual would have received if distribution had been made to
the individual.
If you elect to have your spouse be the sole primary beneficiary and to be the
successor Annuitant and Certificate Owner, then your surviving spouse
automatically becomes both the successor Certificate Owner and Annuitant, and no
death benefit is payable until the surviving spouse's death.
GUARANTEED MINIMUM DEATH BENEFIT
The Code provides that no part of an individual retirement account may be
invested in life insurance contracts. Treasury Regulations provide that an
individual retirement account may be invested in an annuity contract which
provides a death benefit of the greater of premiums paid or the contract's cash
value. Your Certificate provides a minimum death benefit guarantee that in
certain circumstances may be greater than either of contributions made or the
Annuity Account Value. Although there is no ruling regarding the type of minimum
death benefit guarantee provided by the Certificate, Equitable Life believes
that the Certificate's minimum death benefit guarantee should not adversely
affect the qualification of the Certificate as 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
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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 Rollover IRA 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 "Tax-Free
Transfers and Rollovers" above.
PROHIBITED TRANSACTION
A Traditional IRA may not be borrowed against or used as collateral for a loan
or other obligation. If the Traditional IRA is borrowed against or used as
collateral, its tax-favored status will be lost as of the first day of the tax
year in which the event occurred. If this happens, the individual must include
in Federal gross income for that year an amount equal to the fair market value
of the 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 the individual has not
reached age 59 1/2 before the first day of that tax year. See "Penalty Tax on
Early Distributions" below.
PENALTY TAX ON EARLY DISTRIBUTIONS
The taxable portion of 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 Traditional 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 Assured Payment Option with level payments, both of
which are described in Part 4. 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 Assured
Payment Option level 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 Assured Payment Option
level payments begin, the distributions should not be stopped or changed until
the later of your attaining age 59 1/2 or five years after the date of the first
distribution, or the penalty tax, including an interest charge for the prior
penalty avoidance, may apply to all prior distributions under this option. Also,
it is possible that the IRS could view any additional withdrawal or payment you
take from your Certificate as changing your pattern of Substantially Equal
Payment Withdrawals or Assured Payment Option 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 tax-
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payer 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 prospectus contains the information which the IRS requires to be disclosed
to you before you purchase a Roth IRA. This section of Part 7 covers some of the
special tax rules that apply to Roth IRAs.
The Rollover Roth IRA is designed to qualify as a Roth individual retirement
annuity under Sections 408A and 408(b) of the Code. Your interest in the Roth
IRA cannot be forfeited. You or your beneficiaries who survive you are the only
ones who can receive the benefits or payments.
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.
We have received favorable opinion letters from the IRS approving the forms of
the individual Contract and group certificates for the Rollover IRA as a
Traditional IRA. Such IRS approval is a determination only that the form of the
contract or certificate meets the requirements for an individual retirement
annuity and does not represent a determination of the merits of the contract or
certificate as an investment. The IRS does not yet have a procedure in place for
approving the form of Roth IRAs.
Cancellation
You can cancel a Certificate issued as a Roth IRA by following the directions in
Part 3 under "Free Look Period." In addition, you can cancel a Rollover Roth IRA
Certificate issued as a result of a full conversion of a Rollover 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 3. 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
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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 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 rollovers 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.)
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 ROLLOVER CONTRIBUTIONS TO A ROTH IRA FOR ANY TAXABLE
YEAR IN WHICH YOUR 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 5. 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.
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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 Rollover 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).
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 is highly possible 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
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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 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
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. Withholding
may also apply to taxable amounts paid under a free look or cancellation. 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.
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
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estimated income tax payments, however, the recipient may incur penalties under
the estimated income tax rules. Recipients should consult their tax advisers to
determine whether they should elect out of withholding. Requests not to withhold
Federal income tax must be made in writing prior to receiving benefits under the
Certificate. Our Processing Office will provide forms for this purpose. No
election out of withholding is valid unless the recipient provides us with the
correct taxpayer identification number and a United States residence address.
Certain states have indicated that income tax withholding will apply to payments
from the Certificates made to residents. In some states, a recipient may elect
out of state withholding. Generally, an election out of Federal withholding will
also be considered an election out of state withholding. If you need more
information concerning a particular state or any required forms, call our
Processing Office at the toll-free number and consult your tax adviser.
Periodic payments are generally subject to wage-bracket type withholding (as if
such payments were payments of wages by an employer to an employee) unless the
recipient elects no withholding. If a recipient does not elect out of
withholding or does not specify the number of withholding exemptions,
withholding will generally be made as if the recipient is married and claiming
three withholding exemptions. There is an annual threshold of taxable income
from periodic annuity payments which is exempt from withholding based on this
assumption. For 1997, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,400 taxable amount will generally be
exempt from Federal income tax withholding, unless the recipient specifies a
different choice of withholding exemption. A withholding election may be revoked
at any time and remains effective until revoked. If a recipient fails to provide
a correct taxpayer identification number, withholding is made as if the
recipient is single with no exemptions.
A recipient of a non-periodic distribution (total or partial) will generally be
subject to withholding at a flat 10% rate. A recipient who provides a United
States residence address and a correct taxpayer identification number will
generally be permitted to elect not to have tax withheld.
All recipients receiving periodic and non-periodic payments will be further
notified of the withholding requirements and of their right to make withholding
elections.
OTHER WITHHOLDING
As a general rule, if death benefits are payable to a person two or more
generations younger than you, a Federal generation skipping tax may be payable
with respect to the benefit at rates similar to the maximum estate tax rate in
effect at the time. The generation skipping tax provisions generally apply to
transfers which would also be subject to the gift and estate tax rules.
Individuals are generally allowed an aggregate generation skipping tax exemption
of $1 million. Because these rules are complex, you should consult with your tax
adviser for specific information, especially where benefits are passing to
younger generations, as opposed to a spouse or child.
If we believe a benefit may be subject to generation skipping tax we may be
required to withhold for such tax unless we receive acceptable written
confirmation that no such tax is payable.
IMPACT OF TAXES TO EQUITABLE LIFE
The Certificates provide that Equitable Life may charge the Separate Account for
taxes. Equitable Life can set up reserves for such taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers among the Investment Funds or between the Guaranteed Period Account
and one or more Investment Funds are not taxable.
TAX CHANGES
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities and individual retirement arrangements. In addition, the
Treasury Department may amend existing regulations, issue new regulations, or
adopt new interpretations of existing laws. State tax laws or, if you are not a
United States resident, foreign tax laws, may affect the tax consequences to you
or the beneficiary. These laws may change from time to time without notice and,
as a result, the tax consequences may be altered. There is no way of predicting
whether, when or in what form any such change would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
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PART 8: INDEPENDENT ACCOUNTANTS
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The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 included in Equitable Life's
Annual Report on Form 10-K, incorporated by reference in the prospectus, have
been examined by Price Waterhouse LLP, independent accountants, whose reports
thereon are incorporated herein by reference. Such consolidated financial
statements and consolidated financial statement schedules have been incorporated
herein by reference in reliance upon the reports of Price Waterhouse LLP given
upon their authority as experts in accounting and auditing.
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PART 9: INVESTMENT PERFORMANCE
- --------------------------------------------------------------------------------
This Part presents performance data for each of the Investment Funds included in
the tables below. The performance data are calculated by two methods. The first
method presented in the tables under "Adjusted Historical Performance Data,"
reflects all applicable fees and charges, including the Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge, but not the
charge for tax such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does not
reflect the withdrawal charge, the Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit Charge, or the charge for tax such as premium
taxes. These additional charges would effectively reduce the rates of return
credited to a particular Certificate.
The Certificates were not offered prior to May 1, 1997. Accordingly, the
performance data for the Investment Funds have been adjusted for expenses, as
described herein, that would have been incurred had these Certificates been
available prior to such date.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IB shares
of HR Trust Portfolios (other than the Alliance Small Cap Growth Portfolio which
commenced operations on May 1, 1997) are based on the actual investment results
of the Portfolios and have been adjusted for the fees and charges applicable
under the Certificates. However, the investment results for the Alliance Growth
& Income, Alliance International, Alliance Conservative Investors and Alliance
Intermediate Government Securities Portfolios (under which Class IB shares were
only recently available) and for the other Portfolios prior to October 1996,
when Class IB shares were not available under such Portfolios, do not reflect
12b-1 fees, which would effectively reduce such investment performance.
The performance data for the Alliance Money Market and Alliance Common Stock
Investment Funds that invest in corresponding HR Trust Portfolios, for periods
prior to March 22, 1985, reflect the investment results of two open-end
management separate accounts (the "predecessor separate accounts") which were
reorganized in unit investment trust form. The "Since Inception" figures for
these Investment Funds are based on the date of inception of the predecessor
separate accounts. These performance data have been adjusted to reflect the
maximum investment advisory fee payable for the corresponding Portfolio of HR
Trust, as well as an assumed charge of 0.06% for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares of
Portfolios of EQ Trust have only recently been established. EQ Trust commenced
operations on May 1, 1997. In this connection, see the discussion immediately
following the tables below.
See "Part 2: The Guaranteed Period Account" for information on the Guaranteed
Period Account.
ADJUSTED HISTORICAL PERFORMANCE DATA
The performance data in the following tables illustrate the average annual total
return of the Investment Funds over the periods shown, assuming a single initial
contribution of $1,000 and the surrender of the Certificate at the end of each
period. These tables (which reflect the first calculation method described
above) are prepared for use when we advertise the performance of the Separate
Account. An Investment Fund's average annual total return is the annual rate of
growth of the Investment Fund that would be necessary to achieve the ending
value of a contribution kept in the Investment Fund for the period specified.
Each calculation assumes that the $1,000 contribution was allocated to only one
Investment Fund, no transfers or subsequent contributions were made and no
amounts were allocated to any other Investment Option under the Certificate.
In order to calculate annualized rates of return, we divide the Cash Value of a
Certificate which is surrendered on December 31, 1996 by the $1,000 contribution
made at the beginning of each period illustrated. The result of that calculation
is the total growth rate for the period. Then we annualize that growth rate to
obtain the average annual percentage increase (decrease) during the period
shown. When we "annualize," we assume that a single rate of return applied each
year during the period will produce the ending value, taking into account the
effect of compounding.
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ADJUSTED HISTORICAL PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1996*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
------------------------------------------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
- ------------------------------------------ ----------------- ----------------- ----------------- ------------- ----------------
HR TRUST
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors (3.01)% 3.61% 5.20% -- 6.60%
Alliance Growth Investors 4.24 8.24 8.65 -- 12.44
Alliance Growth & Income 11.70 11.01 -- -- 8.04
Alliance Common Stock 15.76 14.24 13.64 14.14% 13.57
Alliance Global 6.20 9.72 11.42 -- 9.26
Alliance International 1.54 -- -- -- 13.25
Alliance Aggressive Stock 13.71 12.66 9.70 16.91 18.36
Alliance Money Market (2.95) 1.89 2.15 4.23 5.43
Alliance Intermediate Government
Securities (4.43) 0.85 3.47 -- 4.85
Alliance High Yield 14.39 9.69 12.59 -- 9.69
Alliance Equity Index 13.97 -- -- -- 16.23
</TABLE>
- -------------------
See footnotes below.
- --------------------------------------------------------------------------------
The table below illustrates the growth of an assumed investment of $1,000, with
fees and charges deducted on the standardized basis described above for the
first method of calculation.
ADJUSTED HISTORICAL PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
------------------------------------------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
- ------------------------------------------ ----------------- ----------------- ----------------- ------------- ----------------
HR TRUST
<S> <C> <C> <C> <C> <C>
Alliance Conservative Investors $ 970 $1,112 $1,288 -- $ 1,668
Alliance Growth Investors 1,042 1,268 1,514 -- 2,555
Alliance Growth & Income 1,117 1,368 -- -- 1,362
Alliance Common Stock 1,158 1,491 1,895 $3,752 14,485
Alliance Global 1,062 1,321 1,717 -- 2,424
Alliance International 1,015 -- -- -- 1,132
Alliance Aggressive Stock 1,137 1,430 1,589 4,770 6,388
Alliance Money Market 971 1,058 1,112 1,514 2,332
Alliance Intermediate Government
Securities 956 1,026 1,186 -- 1,328
Alliance High Yield 1,144 1,320 1,809 -- 2,522
Alliance Equity Index 1,140 -- -- -- 1,570
</TABLE>
- -------------------
* For all the Investment Funds shown other than the Alliance Equity Index, the
tables reflect the withdrawal charge and charges under a Certificate with the
0.45% Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit Charge. The values shown for the Alliance Equity Index Fund reflect
the withdrawal charge and charges under a Certificate with the 0.20%
Guaranteed Minimum Death Benefit Only Benefit Charge.
** The "Since Inception" dates for the Portfolios of HR Trust are as follows:
Alliance Conservative Investors (October 2, 1989); Alliance Growth Investors
(October 2, 1989); Alliance Growth & Income (October 1, 1993); Alliance
Common Stock (January 13, 1976); Alliance Global (August 27, 1987); Alliance
International (April 3, 1995); Alliance Aggressive Stock (January 27, 1986);
Alliance Money Market (July 13, 1981); Alliance Intermediate Government
Securities (April 1, 1991); Alliance High Yield (January 2, 1987); and
Alliance Equity Index (March 1, 1994).
- --------------------------------------------------------------------------------
Additional investment performance information appears in the attached HR Trust
and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations on May
1, 1997. Historical performance of a composite of six other advisory accounts
managed by Alliance is described in the attached HR Trust prospectus. According
to that prospectus, these accounts have substantially the same investment
objectives and policies, and are managed in accordance with essentially the same
investment strategies and techniques, as those of the Alliance Small Cap Growth
Portfolio. It should be noted that these accounts are not subject to certain of
the require-
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ments and restrictions to which the Alliance Small Cap Growth Portfolio is
subject and that they are managed for tax-exempt clients of Alliance. The
investment performance information included in the HR Trust prospectus for all
Portfolios other than the Alliance Small Cap Growth Portfolio is based on actual
historical performance.
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR Trust
and the EQ Trust prospectuses, are provided by those prospectuses to illustrate
the past performance of each respective Portfolio adviser in managing
substantially similar investment vehicles as measured against specified market
indices and do not represent the past or future performance of any Portfolio.
None of the performance data contained in the HR Trust and EQ Trust prospectuses
reflects fees and charges imposed under your Certificate, which fees and charges
would reduce such performance figures. Therefore, the performance data for each
of the Portfolios described in the EQ Trust prospectus and for the Alliance
Small Cap Growth Portfolio in the HR Trust prospectus may be of limited use and
are not intended to be a substitute for actual performance of the corresponding
Portfolios, nor are such results an estimate or guarantee of future performance
for these Portfolios.
RATE OF RETURN DATA FOR INVESTMENT FUNDS
The following tables (which reflect the second calculation method described
above) provide you with information on rates of return on an annualized,
cumulative and year-by-year basis.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends. Cumulative rates of return
reflect performance over a stated period of time. Annualized rates of return
represent the annual rate of growth that would have produced the same cumulative
return, if performance had been constant over the entire period.
BENCHMARKS
Market indices are not subject to any charges for investment advisory fees,
brokerage commission or other operating expenses typically associated with a
managed portfolio. Nor do they reflect other charges such as the mortality and
expense risks charge and the administration charge, or any withdrawal charge
under the Certificates. Comparisons with these benchmarks, therefore, are of
limited use. We include them because they are widely known and may help you to
understand the universe of securities from which each Portfolio is likely to
select its holdings. Benchmark data reflect the reinvestment of dividend income.
PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS:
ALLIANCE CONSERVATIVE INVESTORS: October 2, 1989; 70% Lehman Treasury Bond
Composite Index and 30% Standard & Poor's 500 Index.
ALLIANCE GROWTH INVESTORS: October 2, 1989; 30% Lehman Government/Corporate Bond
Index and 70% Standard & Poor's 500 Index.
ALLIANCE GROWTH & INCOME: October 1, 1993; 75% Standard & Poor's 500 Index and
25% Value Line Convertible Index.
ALLIANCE COMMON STOCK: January 13, 1976; Standard & Poor's 500 Index.
ALLIANCE GLOBAL: August 27, 1987; Morgan Stanley Capital International World
Index.
ALLIANCE INTERNATIONAL: April 3, 1995; Morgan Stanley Capital International
Europe, Australia, Far East Index.
ALLIANCE AGGRESSIVE STOCK: January 27, 1986; 50% Standard & Poor's Mid-Cap Total
Return Index and 50% Russell 2000 Small Stock Index.
ALLIANCE MONEY MARKET: July 13, 1981; Salomon Brothers Three-Month T-Bill Index.
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES: April 1, 1991; Lehman Intermediate
Government Bond Index.
ALLIANCE HIGH YIELD: January 2, 1987; Merrill Lynch Master High Yield.
ALLIANCE EQUITY INDEX FUND: March 1, 1994; Standard & Poor's 500 Index.
The Lipper Variable Insurance Products Performance Analysis Survey (Lipper)
records the performance of a large group of variable annuity products, including
managed separate accounts of insurance companies. According to Lipper Analytical
Services, Inc., the data are presented net of investment management fees, direct
operating expenses and asset-based charges applicable under annuity contracts.
Lipper data provide a more accurate picture than market benchmarks of the
Rollover IRA performance relative to other variable annuity products.
54
<PAGE>
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 5.47% 6.08% -- -- -- 7.77%
Lipper Income 8.95 8.91 9.55 -- -- -- 9.55
Benchmark 8.78 10.14 9.64 -- -- -- 10.42
ALLIANCE GROWTH
INVESTORS 11.24 9.98 9.47 -- -- -- 14.22
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GROWTH &
INCOME 18.70 12.69 -- -- -- -- 11.47
Lipper Growth & Income 19.96 15.39 -- -- -- -- 14.78
Benchmark 21.28 17.93 -- -- -- -- 17.24
ALLIANCE COMMON STOCK 22.76 15.85 14.38 14.48% 15.16% 14.16% 13.90
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE GLOBAL 13.20 11.42 12.18 -- -- -- 10.42
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 10.90
Lipper International 13.36 -- -- -- -- -- 14.33
Benchmark 6.05 -- -- -- -- -- 8.74
ALLIANCE AGGRESSIVE
STOCK 20.71 14.31 10.53 17.23 -- -- 18.79
Lipper Small Company Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
ALLIANCE MONEY MARKET 4.05 3.80 3.11 4.68 5.87 -- 6.07
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES 2.57 2.80 4.38 -- -- -- 5.75
Lipper Gen. U.S. Government 1.57 3.99 5.21 -- -- -- 6.76
Benchmark 4.06 5.37 6.23 -- -- -- 7.43
ALLIANCE HIGH YIELD 21.39 11.41 13.32 -- -- -- 10.13
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
ALLIANCE EQUITY INDEX 20.97 -- -- -- -- -- 18.92
Lipper S&P Index 21.10 -- -- -- -- -- 18.87
Benchmark 22.96 -- -- -- -- -- 20.90
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE
INVESTORS 3.99% 17.34% 34.32% -- -- -- 72.02%
Lipper Income 8.95 29.47 58.37 -- -- -- 94.21
Benchmark 8.78 33.60 58.40 -- -- -- 105.23
ALLIANCE GROWTH
INVESTORS 11.24 33.03 57.18 -- -- -- 162.01
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GROWTH &
INCOME 18.70 43.09 -- -- -- -- 42.30
Lipper Growth & Income 19.96 53.82 -- -- -- -- 56.73
Benchmark 21.28 63.99 -- -- -- -- 67.75
ALLIANCE COMMON STOCK 22.76 55.49 95.76 286.77% 731.08% 1,313.81% 1,429.67
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1,416.26 1,655.74
ALLIANCE GLOBAL 13.20 38.31 77.66 -- -- -- 152.53
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 -- -- -- 95.62
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 19.76
Lipper International 13.36 -- -- -- -- -- 26.53
Benchmark 6.05 -- -- -- -- -- 15.78
ALLIANCE AGGRESSIVE
STOCK 20.71 49.35 64.99 390.16 -- -- 556.01
Lipper Small Company Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 48.69 99.38 280.32 -- -- 318.19
ALLIANCE MONEY MARKET 4.05 11.83 16.52 57.94 135.33 -- 148.77
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 -- 184.26
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES 2.57 8.63 23.89 -- -- -- 37.89
Lipper Gen. U.S. Government 1.57 12.45 28.92 -- -- -- 45.71
Benchmark 4.06 16.98 35.30 -- -- -- 51.07
ALLIANCE HIGH YIELD 21.39 38.28 86.89 -- -- -- 162.22
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
ALLIANCE EQUITY INDEX 20.97 -- -- -- -- -- 63.39
Lipper S&P Index 21.10 -- -- -- -- -- 63.19
Benchmark 22.96 -- -- -- -- -- 71.28
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.79% 5.14% 18.51% 4.50% 9.54% (5.20)% 19.02% 3.99%
ALLIANCE
GROWTH
INVESTORS -- -- -- -- -- 3.53 9.39 47.19 3.69 13.95 (4.27) 24.92 11.24
ALLIANCE
GROWTH
& INCOME -- -- -- -- -- -- -- -- -- (0.55) (1.72) 22.65 18.70
ALLIANCE
COMMON
STOCK** (3.09)% 31.90% 16.02% 6.21% 21.03% 24.16 (9.17) 36.30 2.03 23.29 (3.26) 30.93 22.76
ALLIANCE
GLOBAL -- -- -- (13.62) 9.61 25.29 (7.15) 29.06 (1.65) 30.60 4.02 17.45 13.20
ALLIANCE
INTERNATIONAL -- -- -- -- -- -- -- -- -- -- -- 10.34 8.54
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.83 6.06 (0.03) 41.86 6.92 84.73 (4.28) 15.41 (4.92) 30.13 20.71
ALLIANCE MONEY
MARKET** 9.59 7.22 5.39 5.41 6.09 7.93 6.99 4.97 2.37 1.78 2.82 4.53 4.05
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- -- -- 11.30 4.38 9.27 (5.47) 12.03 2.57
ALLIANCE HIGH
YIELD -- -- -- 3.49 8.48 3.93 (2.26) 23.03 11.02 21.74 (3.90) 18.54 21.39
ALLIANCE
EQUITY
INDEX -- -- -- -- -- -- -- -- -- -- 0.11 34.92 20.97
</TABLE>
- -------------------
* Returns do not reflect the withdrawal charge the Combined Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit Charge and any charge for
tax such as premium taxes.
<TABLE>
<CAPTION>
** Prior to 1984 the Year-by-Year Rates of Return 1976 1977 1978 1979 1980 1981 1982 1983
were: -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE COMMON STOCK 8.20% (10.28)% 6.99% 28.35% 48.39% (6.94)% 16.22% 24.67%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.71 11.72 7.70
</TABLE>
- --------------------------------------------------------------------------------
COMMUNICATING PERFORMANCE DATA
In reports or other communications or in advertising material, we may describe
general economic and market conditions affecting the Separate Account and each
respective trust and may present the performance of the Investment Funds or
compare it with (1) that of other insurance company separate accounts or mutual
funds included in the rankings prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc., VARDS or similar investment services that monitor the
performance of insurance company separate accounts or mutual funds, (2) other
appropriate indices of investment securities and averages for peer universes of
funds which are shown under "Benchmarks" and "Portfolio Inception Dates and
Comparative Benchmarks" in this Part 9, or (3) data developed by us derived from
such indices or averages. The Morningstar Variable Annuity/Life Report consists
of nearly 700 variable life and annuity funds, all of which report their data
net of investment management fees, direct operating expenses and separate
account charges. VARDS is a monthly reporting service that monitors
approximately 760 variable life and variable annuity funds on performance and
account information. Advertisements or other communications furnished to present
or prospective Certificate Owners may also include evaluations of an Investment
Fund or Portfolio by financial publications that are nationally recognized such
as Barron's, Morningstar's Variable Annuity Sourcebook, Business Week, Chicago
Tribune, Forbes, Fortune, Institutional Investor, Investment Adviser, Investment
Dealer's Digest, Investment Management Weekly, Los Angeles Times, Money, Money
Management Letter, Kiplinger's Personal Finance, Financial Planning, National
Underwriter, Pension & Investments, USA Today, Investor's Daily, The New York
Times, and The Wall Street Journal.
57
<PAGE>
ALLIANCE MONEY MARKET FUND AND ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES
FUND YIELD INFORMATION
The current yield and effective yield of the Alliance Money Market Fund and
Alliance Intermediate Government Securities Fund may appear in reports and
promotional material to current or prospective Certificate Owners.
Alliance Money Market Fund
Current yield for the Alliance Money Market Fund will be based on net changes in
a hypothetical investment over a given seven-day period, exclusive of capital
changes, and then "annualized" (assuming that the same seven-day result would
occur each week for 52 weeks). "Effective yield" is calculated in a manner
similar to that used to calculate current yield, but when annualized, any income
earned by the investment is assumed to be reinvested. The "effective yield" will
be slightly higher than the "current yield" because any earnings are compounded
weekly. Alliance Money Market Fund yields and effective yields assume the
deduction of all Certificate charges and expenses other than the withdrawal
charge, Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit Charge and any charge for tax such as premium tax. The yields and
effective yields for the Alliance Money Market Fund when used for the Special
Dollar Cost Averaging program assume no Certificate charges are deducted. See
"Part 5: Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund Yield Information" in the SAI.
Alliance Intermediate Government Securities Fund
Current yield for the Alliance Intermediate Government Securities Fund will be
based on net changes in a hypothetical investment over a given 30-day period,
exclusive of capital changes, and then "annualized" (assuming that the same
30-day result would occur each month for 12 months). "Effective yield" is
calculated in a manner similar to that used to calculate current yield, but when
annualized, any income earned by the investment is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current yield" because any
earnings are compounded monthly.
Alliance Intermediate Government Securities Fund yields and effective yields
assume the deduction of all Certificate charges and expenses other than the
withdrawal charge, Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit Charge and any charge for tax such as premium tax. See
"Part 5: Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund Yield Information" in the SAI.
58
<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 Guarantee Period 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%
-----------------------------------------------------------
As of February 15, 2003 (Before Withdrawal)
- -------------------------------------------
<S> <C> <C>
(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.
59
<PAGE>
APPENDIX II: DEATH BENEFIT FOR CERTIFICATES ISSUED IN NEW YORK
- --------------------------------------------------------------------------------
The death benefit applicable to Certificates issued in New York is equal to the
Annuity Account Value or, if greater, the Guaranteed Minimum Death Benefit.
GUARANTEED MINIMUM DEATH BENEFIT
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
initial contribution. Thereafter, the Guaranteed Minimum Death Benefit is reset
through age 80, to the Annuity Account Value on a Contract Date anniversary if
higher than the then current Guaranteed Minimum Death Benefit, and is adjusted
for any subsequent contributions and withdrawals. In no event will the
Guaranteed Minimum Death Benefit at your death be less than the Annuity Account
Value in the Investment Funds, plus the sum of the Guaranteed Period Amounts in
each Guarantee Period. See "Guarantee Periods" in Part 2.
Withdrawals will cause a reduction in your current Guaranteed Minimum Death
Benefit on a pro rata basis. Reduction on a pro rata basis means that we
calculate the percentage of the Annuity Account Value as of the Transaction Date
of the withdrawal, and we reduce your current Guaranteed Minimum Death Benefit
by that same percentage. For an example of the calculation, see "How Withdrawals
and Transfers Affect Your Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit" in Part 4.
60
<PAGE>
APPENDIX III: GUARANTEED MINIMUM DEATH BENEFIT EXAMPLE
- --------------------------------------------------------------------------------
Under the Certificates the death benefit for Certificates issued in all states
except New York is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds or, if greater, the
Guaranteed Minimum Death Benefit (see "Guaranteed Minimum Death
Benefit" in Part 3); and
(2) the death benefit provided with respect to the Guaranteed Period
Account (see "Death Benefit" in Part 3).
See Appendix II for the description of the death benefit applicable to
Certificates issued in New York.
The following is an example illustrating the calculation of the Guaranteed
Minimum Death Benefit. Assuming $100,000 is allocated to the Investment Funds
(with no allocation to the Alliance Money Market and Alliance Intermediate
Government Securities Funds), no subsequent contributions, no transfers and no
withdrawals, the Guaranteed Minimum Death Benefit for an Annuitant age 45 would
be calculated as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
END OF NON-NEW YORK NEW YORK
CONTRACT ANNUITY GUARANTEED MINIMUM GUARANTEED MINIMUM
YEAR ACCOUNT VALUE DEATH BENEFIT(1) DEATH BENEFIT
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $105,000 $106,000 $105,000(2)
2 $115,500 $112,360 $115,500(2)
3 $132,825 $119,102 $132,825(2)
4 $106,260 $126,248 $132,825(3)
5 $116,886 $133,823 $132,825(3)
6 $140,263 $141,852 $140,263(2)
7 $140,263 $150,363 $140,263(3)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Annuity Account Values for Contract Years 1 through 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% TO AGE 80 BENEFIT
(1) For Contract Years 1 through 7, the Guaranteed Minimum Death Benefit equals
the initial contribution increased by 6%.
NEW YORK
(2) At the end of Contract Years 1, 2, and 3 and again at the end of Contract
Year 6, the Guaranteed Minimum Death Benefit is equal to the current
Annuity Account Value.
(3) At the end of Contract Years 4, 5 and 7, the Guaranteed Minimum Death
Benefit is equal to the Guaranteed Minimum Death Benefit at the end of the
prior year since it is equal to or higher than the current Annuity Account
Value.
61
<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 Guarantee Periods 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 Guarantee Periods 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 Guarantee
Periods 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
Guarantee Periods 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
----------------------------------------------------------------------------------------------------------------------
GUARANTEED INCREASING ILLUSTRATIVE ILLUSTRATIVE
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 Guarantee Periods under the former than the latter. In this
illustration, $80,458.33 is allocated under the Assured Payment Option to the
Guarantee Periods and under APO Plus, $68,020.34 is allocated to the Guarantee
Periods. 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.
62
<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 and Alliance Intermediate
Government Securities 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
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Income Manager Rollover IRA SAI dated
December 31, 1997:
-------------------------------------------------------------------------
Name
-------------------------------------------------------------------------
Address
-------------------------------------------------------------------------
City State Zip
-------------------------------------------------------------------------
(IMIRASAI)
63
<PAGE>
SUPPLEMENT TO
INCOME MANAGER(R) ACCUMULATOR(SM)
PROSPECTUS DATED DECEMBER 31, 1997
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This prospectus supplement describes the baseBUILDER(SM) Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit (Plan A) offered to
Annuitant issue ages 76 or older under the INCOME MANAGER Accumulator
Prospectus. Capitalized terms in this supplement have the same meaning as in the
prospectus.
A different version of the Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit (Plan A) than the version discussed on page 20
of the prospectus under "baseBUILDER Benefits" is available for Annuitant issue
ages 76 or older. The charge for this benefit is still 0.45% of the Guaranteed
Minimum Death Benefit in effect on a Processing Date. The version of the
baseBUILDER Benefit described in the prospectus is not available at these
Annuitant issue ages. The benefit for Annuitant issue ages 76 and older is as
discussed below:
The Guaranteed Minimum Death Benefit applicable to the combined benefit is as
follows:
4% to Age 85 Benefit - On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the portion of the initial contribution allocated to
the Investment Funds. Thereafter, the Guaranteed Minimum Death Benefit is
credited with interest at 4% (3% for amounts in the Alliance Money Market
and Alliance Intermediate Government Securities Funds, except as indicated
below) on each Contract Date anniversary through the Annuitant's age 85 (or
at the Annuitant's death, if earlier), and 0% thereafter, and is adjusted
for any subsequent contributions and transfers into the Investment Funds
and transfers and withdrawals from such Funds. The Guaranteed Minimum Death
Benefit interest rate applicable to amounts in the Alliance Money Market
Fund under the Special Dollar Cost Averaging program will be 4%.
The Guaranteed Minimum Income Benefit discussed on page 21 of the prospectus may
be exercised only within 30 days following the 7th or later Contract Date
anniversary, but in no event later than the Annuitant's age 90.
The period certain will be 90 less the Annuitant's age at election.
The Guaranteed Minimum Income Benefit benefit base described on page 24 of the
prospectus is as follows:
The Guaranteed Minimum Income Benefit benefit base is equal to the initial
contribution allocated to the Investment Funds on the Contract Date.
Thereafter, the Guaranteed Minimum Income Benefit benefit base is credited
with interest at 4% (3% for amounts in the Alliance Money Market and
Alliance Intermediate Government Securities Funds, except as indicated
below) on each Contract Date anniversary through the Annuitant's age 85,
and 0% thereafter, and is adjusted for any subsequent contributions and
transfers into the Investment Funds and transfers and withdrawals from such
Funds. The Guaranteed Minimum Income Benefit benefit base interest rate
applicable to amounts in the Alliance Money Market Fund under the Special
Dollar Cost Averaging program will be 4%. The Guaranteed Minimum Income
Benefit benefit base will also be reduced by any withdrawal charge
remaining on the Transaction Date that you exercise your Guaranteed Minimum
Income Benefit.
- --------------------------------------------------------------------------------
Income Manager is a registered service mark and Accumulator and baseBUILDER are
service marks of The Equitable Life Assurance Society of the United States.
SUPPLEMENT DATED DECEMBER 31, 1997
IM-95-02SUPP1(1/98)
<PAGE>
DECEMBER 31, 1997
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
PROFILE OF INCOME MANAGER ACCUMULATOR(SM)
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
This Profile is a summary of some of the more important points that you should
know and consider before purchasing a Certificate. The Certificate is more fully
described in the prospectus which accompanies this Profile. Please read the
prospectus carefully.
1. THE ANNUITY CERTIFICATE. The Accumulator Certificate is a combination
variable and fixed deferred annuity issued by Equitable Life. It is designed to
provide for the accumulation of retirement savings and for income through the
investment, during an accumulation phase, of after-tax money. You may invest in
Investment Funds where your Certificate's value may vary up or down depending
upon investment performance. You may also invest in Guarantee Periods (also
called GIROS) that when held to maturity provide guaranteed interest rates that
we have set and a guarantee of principal. If you make any transfers or
withdrawals, the GIROs' investment value may increase or decrease until maturity
due to interest rate changes. Earnings accumulate under the Certificate on a
tax-deferred basis until amounts are distributed. Amounts distributed under the
Certificate may be subject to income tax.
The Investment Funds offer the potential for better returns than the interest
rates guaranteed under GIROs, but the Investment Funds involve risk and you can
lose money. You may make transfers among the Investment Funds and GIROs. The
value of GIROs prior to their maturity fluctuates and you can lose money on
premature transfers or withdrawals.
The Certificate provides a number of distribution methods during the
accumulation phase and for converting to annuity income. The amount accumulated
under your Certificate during the accumulation phase will affect the amount of
distribution or annuity benefits you receive.
2. ANNUITY PAYMENTS. When you are ready to start receiving income, annuity
income is available by applying your Certificate's value to the Income Manager
(Life Annuity with a Period Certain) payout annuity certificate. You can also
have your Certificate's value applied to any of the following ANNUITY BENEFITS:
(1) Life Annuity payments for your life, (2) Life Annuity - Period Certain -
payments for your life, but with payments continuing to the beneficiary for the
balance of the 5, 10, 15 or 20 years (as you select) if you die before the end
of the selected period; (3) Life Annuity - Refund Certain - payments for your
life, with payments continuing to the beneficiary after your death until any
remaining amount applied to this option runs out; and (4)
--------------------
Income Manager is a registered service mark and Accumulator and baseBUILDER are
service marks of The Equitable Life Assurance Society of the United States.
1
IM-95-02PROS(1/98) CATALOG NO. 127135
<PAGE>
Period Certain Annuity - payments for a specified period of time, usually 5, 10,
15 or 20 years, with no life contingencies. Options (2) and (3) are also
available as a Joint and Survivor Annuity - payments for your life, and after
your death, continuation of payments to the survivor for life. Annuity benefits
(other than the Refund Certain available only on a fixed basis) are available as
a fixed annuity, or as a variable annuity, where the dollar amount of your
payments will depend upon the investment performance of the Investment Funds.
Once you begin receiving annuity payments, you cannot change your annuity
benefit.
3. PURCHASE. You can purchase an Accumulator Certificate with $5,000 or more.
You may add additional amounts of $1,000 or more at any time (subject to certain
restrictions). Subject to certain age restrictions, you may purchase the
baseBUILDERSM guaranteed benefit in the form of a Combined Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit (Plan A). If you do not
elect the combined benefit, the Guaranteed Minimum Death Benefit is provided
under the Certificate at a lower charge (Plan B). Both benefits are discussed
below. You choose the one that best suits your needs.
4. INVESTMENT OPTIONS. You may invest in any or all of the following Investment
Funds, which invest in shares of corresponding portfolios of The Hudson River
Trust (HR TRUST) and EQ Advisors Trust (EQ TRUST). The portfolios are described
in the prospectuses for HR Trust and EQ Trust.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- ---------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION SERIES FIXED INCOME SERIES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Conservative Investors AGGRESSIVE FIXED INCOME DOMESTIC FIXED INCOME
Alliance Growth Investors Alliance High Yield Alliance Intermediate
EQ/Putnam Balanced Government Securities
Merrill Lynch World Strategy Alliance Money Market
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
You may also invest in one or more GIROs currently maturing in years 1999
through 2008.
2
<PAGE>
5. EXPENSES. The Certificate has expenses as follows: There is an annual charge
expressed as a percentage of the Guaranteed Minimum Death Benefit. For Plan A
the percentage is equal to 0.45%. For Plan B the percentage is equal to 0.20%.
As a percentage of assets in the Investment Funds, a daily charge is deducted
for mortality and expense risks at an annual rate of 0.90%; and a daily charge
is deducted for administration expenses at an annual rate of 0.25%.
The charges for the portfolios of HR Trust range from 0.64% to 1.33% of the
average daily net assets of HR Trust portfolios, depending upon HR Trust
portfolios selected. The charges for the portfolios of EQ Trust range from 0.55%
to 1.75% of the average daily net assets of EQ Trust portfolios, depending upon
the EQ Trust portfolios selected. The amounts for HR Trust are based on restated
values during 1996 (as well as an expense cap for the Alliance Small Cap Growth
portfolio) and the amounts for EQ Trust are based on a current expense cap. The
12b-1 fees for the portfolios of HR Trust and EQ Trust are 0.25% of the average
daily net assets of HR Trust and EQ Trust, respectively. Charges for state
premium and other applicable taxes may also apply at the time you elect to start
receiving annuity payments.
A withdrawal charge is imposed as a percentage of each contribution withdrawn in
excess of a free corridor amount, or if the Certificate is surrendered. The free
corridor amount for withdrawals is 15% of the Certificate's value at the
beginning of the year. When applicable, the withdrawal charge is determined in
accordance with the table below, based on the year a contribution is withdrawn.
The year in which we receive your contribution is "Year 1."
<TABLE>
<CAPTION>
Year of Contribution Withdrawal
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
The following chart is designed to help you understand the charges in the
Certificate. The "Total Annual Charges" column shows the combined total of the
Certificate charges deducted as a percentage of assets in the Investment Funds
and the portfolio charges, as shown in the first two columns. The last two
columns show you two examples of the charges, in dollars, that you would pay
under a Certificate, and include the Guaranteed Minimum Death Benefit based
charge for the optional Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit. The examples assume that you invested $1,000 in a
Certificate which earns 5% annually and that you withdraw your money: (1) at the
end of year 1, and (2) at the end of year 10. For year 1, the Total Annual
Charges are assessed as well as the withdrawal charge. For year 10, the example
shows the aggregate of all the annual charges assessed for the 10 years, but
there is no withdrawal charge. No charges for state premium and other applicable
taxes are assumed in the examples.
3
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
TOTAL ANNUAL TOTAL ANNUAL TOTAL Total Annual
CERTIFICATE PORTFOLIO ANNUAL Expenses at End of:
INVESTMENT FUND CHARGES CHARGES CHARGES (1) (2)
1 Year 10 Years
<S> <C> <C> <C> <C> <C>
Alliance Conservative
Investors 1.15% 0.80% 1.95% $89.74 $275.75
Alliance Growth Investors 1.15% 0.84% 1.99% $90.14 $279.80
Alliance Growth & Income 1.15% 0.85% 2.00% $90.24 $280.80
Alliance Common Stock 1.15% 0.66% 1.81% $88.35 $261.52
Alliance Global 1.15% 0.98% 2.13% $91.53 $293.80
Alliance International 1.15% 1.33% 2.48% $95.01 $328.00
Alliance Aggressive Stock 1.15% 0.83% 1.98% $90.04 $278.79
Alliance Small Cap Growth 1.15% 1.20% 2.35% $93.72 $315.43
Alliance Money Market 1.15% 0.64% 1.79% $88.15 $259.45
Alliance Intermediate
Government Securities 1.15% 0.84% 1.99% $90.14 $279.80
Alliance High Yield 1.15% 0.91% 2.06% $90.84 $286.83
BT Equity 500 Index 1.15% 0.55% 1.70% $87.26 $250.17
BT Small Company Index 1.15% 0.60% 1.75% $87.75 $255.35
BT International Equity Index 1.15% 0.80% 1.95% $89.74 $275.75
MFS Emerging Growth
Companies 1.15% 0.85% 2.00% $90.24 $288.87
MFS Research 1.15% 0.85% 2.00% $90.24 $288.87
Merrill Lynch Basic Value
Equity 1.15% 0.85% 2.00% $90.24 $288.87
Merrill Lynch World Strategy 1.15% 1.20% 2.35% $93.72 $323.50
Morgan Stanley Emerging
Markets Equity 1.15% 1.75% 2.90% $99.19 $375.62
EQ/Putnam Balanced 1.15% 0.90% 2.05% $90.74 $293.88
EQ/Putnam Growth & Income
Value 1.15% 0.85% 2.00% $90.24 $288.87
T. Rowe Price Equity Income 1.15% 0.85% 2.00% $90.24 $288.87
T. Rowe Price International
Stock 1.15% 1.20% 2.35% $93.72 $323.50
Warburg Pincus Small
Company Value 1.15% 1.00% 2.15% $91.73 $303.84
</TABLE>
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 expense waiver or limitation. For more
detailed information, see the Fee Table in the prospectus.
4
<PAGE>
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.
7. ACCESS TO YOUR MONEY. During the accumulation phase, you may receive
distributions under a Certificate through the following WITHDRAWAL OPTIONS: (1)
Lump Sum Withdrawals of at least $1,000 may be taken at any time, and (2)
Systematic Withdrawals, paid monthly, quarterly or annually, subject to certain
restrictions, including a maximum percentage of your Certificate's value. You
also have access to your Certificate's value by surrendering the Certificate.
All or a portion of a withdrawal may be subject to a withdrawal charge to the
extent that the withdrawal exceeds the free corridor amount. A free corridor
amount does not apply to a surrender. Withdrawals and surrenders may be subject
to income tax and a tax penalty. Withdrawals from GIROs prior to their maturity
may result in a market value adjustment.
8. PERFORMANCE. During the accumulation phase, your Certificate's value in the
Investment Funds may vary up or down depending upon the investment performance
of the Investment Funds you have selected. 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 (except in New York ) is equal to (1) your Certificate's value in the
Investment Funds, or if greater, the Guaranteed Minimum Death Benefit, and (2)
the amount of the death benefit provided with respect to GIROs.
The Guaranteed Minimum Death Benefit is equal to a "6% to Age 80 Benefit" for
annuitant ages 20 through 79 at issue of the Certificate. For ages 80 through 83
at issue of the Certificate, the Guaranteed Minimum Death Benefit is a return of
the money you invested in the Investment Funds.
6% to Age 80 Benefit -- We add interest to the initial amount at 6% (3%
for amounts in the Alliance Money Market and Alliance Intermediate
Government Securities Funds) through the annuitant's age 80 (or at the
annuitant's death, if earlier). The 6% interest rate will still apply
for amounts in the Alliance Money Market Fund under the Special Dollar
Cost Averaging program discussed below.
The death benefit with respect to the GIROs is equal to the amounts in the
GIROs, or if greater, the amounts in the GIROs reflecting guaranteed interest,
but not reflecting any increase due to interest rate changes.
The death benefit applicable to Certificates issued in New York is equal to the
amounts in the Investment Funds and the GIROs, or if greater, the Guaranteed
Minimum Death Benefit.
5
<PAGE>
For annuitant ages 20 through 79 at issue of the Certificate, the
Guaranteed Minimum Death Benefit is reset each year through the
annuitant's age 80 to your Certificate's value, if it is higher than
the prior year's Guaranteed Minimum Death Benefit. For ages 80 through
83 at issue of the Certificate, the Guaranteed Minimum Death Benefit is
a return of the money you have invested in the Investment Funds and the
GIROs. The Guaranteed Minimum Death Benefit at the annuitant's death
will never be less than the amounts in the Investment Funds, plus the
amounts in the GIROs reflecting guaranteed interest, but not reflecting
any increase due to interest rate changes.
10. OTHER INFORMATION.
QUALIFIED PLANS. If the Certificates will be purchased by certain types of plans
qualified under Section 401(a), or 401(k) of the Internal Revenue Code, please
consult your tax adviser first. Any discussion of taxes in this profile does not
apply.
BASEBUILDER BENEFIT (PLAN A). The baseBUILDER (available for annuitant ages 20
through 75 at issue of the Certificates) is an optional benefit that combines
the Guaranteed Minimum Income Benefit and the Guaranteed Minimum Death Benefit.
A baseBUILDER benefit (which is different from the one described below) may be
available for annuitant issue ages 76 and older. The baseBUILDER benefit is
currently not available in New York.
Income Benefit - The Guaranteed Minimum Income Benefit, as part of the
baseBUILDER, provides a minimum amount of guaranteed lifetime income
for your future. When you are ready to convert (at specified future
times), your Certificate's value to the Income Manager (Life Annuity
with a Period Certain) 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. Investment
performance is not guaranteed. The Guaranteed Minimum Income Benefit
provides a safety net for your future.
Death Benefit - As part of the baseBUILDER a Guaranteed Minimum Death
Benefit is provided which is the 6% to Age 80 Benefit described in
"Death Benefit" above.
FREE LOOK. You can examine the Certificate for a period of 10 days after you
receive it, and return it to us for a refund. The free look period is longer in
some states.
Your refund will equal your Certificate's value, reflecting any investment gain
or loss, in the Investment Funds, and any increase or decrease in the value of
any amounts held in the GIROs, through the date we receive your Certificate.
Some states may require that we calculate the refund differently.
PRINCIPAL ASSURANCE. This option is designed to assure the return of your
original amount invested on a GIRO maturity date, by putting a portion of your
money in a particular GIRO, and the balance in the Investment Funds in any way
you choose. Assuming that you make no transfers or withdrawals of the portion in
the GIRO, such amount will grow to your original investment upon maturity.
6
<PAGE>
DOLLAR COST AVERAGING. Special Dollar Cost Averaging - You can elect when you
apply for your Certificate to allocate your contribution to the Alliance Money
Market Fund and have it transferred from the Alliance Money Market Fund into the
other Investment Funds on a monthly basis over the first twelve months, during
which time the mortality and expense risks and administration charges will not
be deducted from the Alliance Money Market Fund. General Dollar Cost Averaging -
You can elect at any time to put money into the Alliance Money Market Fund and
have a dollar amount or percentage transferred from the Alliance Money Market
Fund into the other Investment Funds on a periodic basis over a longer period of
time, and all applicable Certificate charges deducted from the Alliance Money
Market Fund will apply. Dollar cost averaging does not assure a profit or
protect against a loss should market prices decline.
REBALANCING. You can have your money automatically readjusted among the
Investment Funds quarterly, semi-annually or annually in order to retain the
investment percentage allocations you select. 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
semi-annual statements of HR Trust and EQ Trust.
You may call toll-free at 1-800-789-7771 for a recording of daily Investment
Fund values and guaranteed rates applicable to GIROs.
11. INQUIRIES. If you need more information, please contact your agent. You may
also contact us at:
The Equitable Life Assurance Society of the United States
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Telephone 1-800-789-7771 and Fax 1-201-583-2224
7
<PAGE>
INCOME MANAGER(R) ACCUMULATOR(SM)
PROSPECTUS DATED DECEMBER 31, 1997
------------------
COMBINATION VARIABLE AND FIXED DEFERRED ANNUITY CERTIFICATES
Issued By:
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This prospectus describes certificates The Equitable Life Assurance Society of
the United States (EQUITABLE LIFE, WE, OUR and US) offers under a combination
variable and fixed deferred annuity contract (ACCUMULATOR) issued on a group
basis or as individual contracts. Enrollment under a group contract will be
evidenced by issuance of a certificate. Certificates and individual contracts
each will be referred to as "Certificates." Accumulator Certificates are issued
as non-qualified annuities for after-tax contributions. A minimum initial
contribution of $5,000 is required to put the Certificates into effect.
The Accumulator is designed to provide for the accumulation of retirement
savings and for income. Contributions accumulate on a tax-deferred basis and can
be later distributed under a number of different methods which are designed to
be responsive to the owner's (CERTIFICATE OWNER, YOU and YOUR) objectives.
The Accumulator offers investment options (INVESTMENT OPTIONS) that permit you
to create your own strategies. These Investment Options include 24 variable
investment funds (INVESTMENT FUNDS) and each GUARANTEE PERIOD in the GUARANTEED
PERIOD ACCOUNT.
We invest each Investment Fund in Class IB shares of a corresponding portfolio
(PORTFOLIO) of The Hudson River Trust (HR TRUST) and EQ Advisors Trust (EQ
TRUST), mutual funds whose shares are purchased by separate accounts of
insurance companies. The prospectuses for HR Trust and EQ Trust, both of which
accompany this prospectus, describe the investment objectives, policies and
risks of the Portfolios.
INVESTMENT FUNDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
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>
Amounts allocated to a Guarantee Period accumulate on a fixed basis and are
credited with interest at a rate we set (GUARANTEED RATE) for the entire period.
On each business day (BUSINESS DAY) we will determine the Guaranteed Rates
available for amounts newly allocated to Guarantee Periods. A market value
adjustment (positive or negative) will be made for withdrawals, transfers,
surrender and certain other transactions from a Guarantee Period before its
expiration date (EXPIRATION DATE). Each Guarantee Period has its own Guaranteed
Rates. The Guarantee Periods currently available have Expiration Dates of
February 15, in years 1999 through 2008.
You may choose from a variety of payout options, including Income Manager payout
annuity options and our other variable annuities and fixed annuities.
This prospectus provides information about the Accumulator that prospective
investors should know before investing. You should read it carefully and retain
it for future reference. The prospectus is not valid unless accompanied by
current prospectuses for HR Trust and EQ Trust, both of which you should also
read carefully.
Registration statements relating to Separate Account No. 45 (SEPARATE ACCOUNT)
and interests under the Guarantee Periods have been filed with the Securities
and Exchange Commission (SEC). The statement of additional information (SAI),
dated December 31, 1997, which is part of the registration statement for the
Separate Account, is available free of charge upon request by writing to our
Processing Office or calling 1-800-789-7771, our toll-free number. The SAI has
been incorporated by reference into this prospectus. The Table of Contents for
the SAI appears at the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CERTIFICATES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE
SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
- --------------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States,
New York, New York 10104. All rights reserved. Income Manager is a
registered service mark and Accumulator and baseBUILDER are service marks of
The Equitable Life Assurance Society of the United States.
IM-95-02 PROS (1/98)
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Equitable Life's Annual Report on Form 10-K for the year ended December
31, 1996, its quarterly reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1997, and a current report on Form 8-K dated July 10,
1997 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).
- --------------------------------------------------------------------------------
This prospectus dated December 31, 1997 is a revision of Equitable Life's
prospectus dated May 1, 1997 for the Income Manager Accumulator Certificates,
and reflects limited changes in the Accumulator Certificates and features
described in the May prospectus. These Certificates were first offered on May 1,
1997. For convenience, in lieu of a supplement to the May prospectus, the
prospectus has been reprinted in its entirety.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL TERMS PAGE 4
FEE TABLE PAGE 5
PART 1: EQUITABLE LIFE, THE SEPARATE
ACCOUNT AND THE INVESTMENT
FUNDS PAGE 9
Equitable Life 9
Separate Account No. 45 9
HR Trust 9
HR Trust's Manager and Adviser 10
EQ Trust 10
EQ Trust's Manager and Advisers 10
Investment Policies and Objectives of HR
Trust's Portfolios and EQ Trust's
Portfolios 11
PART 2: THE GUARANTEED PERIOD
ACCOUNT PAGE 14
Guarantee Periods 14
Market Value Adjustment for Transfers,
Withdrawals or Surrender Prior to
the Expiration Date 15
Investments 15
PART 3: PROVISIONS OF THE CERTIFICATES
AND SERVICES WE PROVIDE PAGE 17
What Is the Accumulator? 17
Availability of the Certificates 17
Contributions under the Certificates 17
Methods of Payment 17
Allocation of Contributions 17
Free Look Period 18
Annuity Account Value 18
Transfers among Investment Options 19
Dollar Cost Averaging 19
Rebalancing 19
baseBUILDER Benefits 20
Death Benefit 20
How Death Benefit Payment Is Made 21
When the Certificate Owner Dies before
the Annuitant 21
Guaranteed Minimum Income Benefit 21
Withdrawal Options 22
How Withdrawals and Transfers Affect Your
Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit 23
Cash Value 24
Surrendering the Certificates to Receive
the Cash Value 24
When Payments Are Made 24
Annuity Benefits and Payout Annuity
Options 24
Assignment 26
Services We Provide 26
Distribution of the Certificates 26
PART 4: DEDUCTIONS AND CHARGES PAGE 27
Charges Deducted from the Annuity
Account Value 27
Charges Deducted from the Investment
Funds 28
HR Trust Charges to Portfolios 28
EQ Trust Charges to Portfolios 29
Group or Sponsored Arrangements 29
Other Distribution Arrangements 29
PART 5: VOTING RIGHTS PAGE 30
HR Trust and EQ Trust Voting Rights 30
Voting Rights of Others 30
Separate Account Voting Rights 30
Changes in Applicable Law 30
PART 6: TAX ASPECTS OF THE
CERTIFICATES PAGE 32
Tax Changes 32
Taxation of Non-Qualified Annuities 32
Charitable Remainder Trusts 33
Federal and State Income Tax
Withholding 33
Other Withholding 34
Special Rules for Certificates Issued in
Puerto Rico 34
Impact of Taxes to Equitable Life 34
Transfers among Investment Options 34
PART 7: INDEPENDENT ACCOUNTANTS PAGE 35
PART 8: INVESTMENT PERFORMANCE PAGE 36
Adjusted Historical Performance Data 36
Rate of Return Data for Investment
Funds 38
Communicating Performance Data 41
Alliance Money Market Fund and
Alliance Intermediate Government
Securities Fund Yield Information 41
APPENDIX I: MARKET VALUE
ADJUSTMENT EXAMPLE PAGE 43
APPENDIX II: QUALIFIED PLAN
CERTIFICATES PAGE 44
APPENDIX III: DEATH BENEFIT FOR
CERTIFICATES ISSUED IN NEW YORK PAGE 45
APPENDIX IV: GUARANTEED MINIMUM
DEATH BENEFIT EXAMPLE PAGE 46
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS PAGE 47
3
<PAGE>
- --------------------------------------------------------------------------------
GENERAL TERMS
- --------------------------------------------------------------------------------
ACCUMULATION UNIT -- Contributions that are invested in an Investment Fund
purchase Accumulation Units in that Investment Fund.
ACCUMULATION UNIT VALUE -- The dollar value of each Accumulation Unit in an
Investment Fund on a given date.
ANNUITANT -- The individual who is the measuring life for determining benefits
under a Certificate.
ANNUITY ACCOUNT VALUE -- The sum of the amounts in the Investment Options under
the Accumulator Certificate. See "Annuity Account Value" in Part 3.
ANNUITY COMMENCEMENT DATE -- The date on which annuity benefit payments are to
commence.
BASEBUILDERSM -- Optional protection benefit, consisting of the Guaranteed
Minimum Death Benefit and the Guaranteed Minimum Income Benefit.
BUSINESS DAY -- Generally, any day on which the New York Stock Exchange is open
for trading. For the purpose of determining the Transaction Date, our Business
Day ends at 4:00 p.m. Eastern Time or the closing of the New York Stock
Exchange, if earlier.
CASH VALUE -- The Annuity Account Value minus any applicable charges.
CERTIFICATE -- The Certificate issued under the terms of a group annuity
contract and any individual contract, including any endorsements.
CERTIFICATE OWNER -- The person who owns an Accumulator Certificate and has the
right to exercise all rights under the Certificate.
CODE -- The Internal Revenue Code of 1986, as amended.
CONTRACT DATE -- The effective date of the Certificates. This is usually the
Business Day we receive the initial contribution at our Processing Office.
CONTRACT YEAR -- The 12-month period beginning on your Contract Date and each
anniversary of that date.
EQ TRUST -- EQ Advisors Trust, a mutual fund in which the assets of separate
accounts of insurance companies are invested. EQ Financial Consultants, Inc. (EQ
FINANCIAL) is the manager of EQ Trust and has appointed advisers for each of the
Portfolios.
EXPIRATION DATE -- The date on which a Guarantee Period ends.
GUARANTEED MINIMUM DEATH BENEFIT -- The minimum amount payable with respect to
the Investment Funds (in all states except New York), upon the death of the
Annuitant. The Guaranteed Minimum Death Benefit is different in New York.
GUARANTEED MINIMUM INCOME BENEFIT -- The minimum amount of future guaranteed
lifetime income provided with respect to the Investment Funds.
GUARANTEE PERIOD -- Any of the periods of time ending on an Expiration Date that
are available for investment under the Certificates. Guarantee Periods may also
be referred to as Guaranteed Interest Rate Options (GIROS).
GUARANTEED PERIOD ACCOUNT -- The Account that contains the Guarantee Periods.
GUARANTEED RATE -- The annual interest rate established for each allocation to a
Guarantee Period.
HR TRUST -- The Hudson River Trust, a mutual fund in which the assets of
separate accounts of insurance companies are invested. Alliance Capital
Management L.P. (ALLIANCE) is the manager and adviser to HR Trust.
INVESTMENT FUNDS -- The funds of the Separate Account that are available under
the Certificates.
INVESTMENT OPTIONS -- The choices for investment: the Investment Funds and each
available Guarantee Period.
MATURITY VALUE -- The amount in a Guarantee Period on its Expiration Date.
PORTFOLIOS -- The portfolios of HR Trust and EQ Trust that correspond to the
Investment Funds of the Separate Account.
PROCESSING DATE -- The day when we deduct certain charges from the Annuity
Account Value. If the Processing Date is not a Business Day, it will be on the
next succeeding Business Day. The Processing Date will be once each year on each
anniversary of the Contract Date.
PROCESSING OFFICE -- The address to which all contributions, written requests
(e.g., transfers, withdrawals, etc.) or other written communications must be
sent. See "Services We Provide" in Part 3.
SAI -- The statement of additional information for the Separate Account under
the Certificates.
SEPARATE ACCOUNT -- Equitable Life's Separate Account No. 45.
TRANSACTION DATE -- The Business Day we receive a contribution or a transaction
request providing all the information we need at our Processing Office. If your
contribution or request reaches our Processing Office on a non-Business Day, or
after the close of the Business Day, the Transaction Date will be the next
following Business Day. Transaction requests must be made in a form acceptable
to us.
VALUATION PERIOD -- Each Business Day together with any preceding non-business
days.
4
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate so
that you may compare them with other similar products. The table reflects both
the charges of the Separate Account and the expenses of HR Trust and EQ Trust.
Charges for applicable taxes such as state or local premium taxes may also
apply. For a complete description of the charges under the Certificate, see
"Part 4: Deductions and Charges." For a complete description of each trust's
charges and expenses, see the prospectuses for HR Trust and EQ Trust.
As explained in Part 2, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge shown
in the Table which will be deducted from amounts allocated to the Guarantee
Periods is the withdrawal charge. See "Part 4: Deductions and Charges." A market
value adjustment (either positive or negative) also may be applicable as a
result of a withdrawal, transfer or surrender of amounts from a Guarantee
Period. See "Part 2: The Guaranteed Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
<S> <C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon surrender CONTRACT
or for certain withdrawals. The applicable withdrawal charge percentage is YEAR
determined by the Contract Year in which the withdrawal is made or the Certificate ----
is surrendered beginning with "Contract Year 1" with respect to each contribution
withdrawn or surrendered. For each contribution, the Contract Year in which we 1.......................7.00%
receive that contribution is "Contract Year 1.")(1) 2.......................6.00
3.......................5.00
4.......................4.00
5.......................3.00
6.......................2.00
7.......................1.00
8+......................0.00
<CAPTION>
GUARANTEED BENEFIT EXPENSE (DEDUCTED FROM ANNUITY ACCOUNT VALUE)(2)
- -------------------------------------------------------------------
<S> <C>
COMBINED GUARANTEED MINIMUM DEATH BENEFIT AND GUARANTEED MINIMUM INCOME BENEFIT
(PLAN A) (calculated as a percentage of the Guaranteed Minimum Death Benefit)............................ 0.45%
GUARANTEED MINIMUM DEATH BENEFIT ONLY (PLAN B) (calculated as a percentage of the
Guaranteed Minimum Death Benefit)........................................................................ 0.20%
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- ------------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISKS................................................................................. 0.90%
ADMINISTRATION(3)........................................................................................... 0.25%
=====
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES................................................................... 1.15%
=====
</TABLE>
- -------------------
See footnotes on next page.
5
<PAGE>
<TABLE>
<CAPTION>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO)
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIOS
-----------------------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL INTERNATIONAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65% 0.90%
12b-1 Fee(4) 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08% 0.18%
===============================================================================================================================
TOTAL HR TRUST ANNUAL EXPENSES(5) 0.80% 0.84% 0.85% 0.66% 0.98% 1.33%
===============================================================================================================================
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
AGGRESSIVE SMALL CAP MONEY GOVT. HIGH
HR TRUST STOCK GROWTH MARKET SECURITIES YIELD
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.55% 0.90% 0.35% 0.50% 0.60%
12b-1 Fee(4) 0.25% 0.25%(7) 0.25% 0.25% 0.25%
Other Expenses 0.03% 0.10% 0.04% 0.09% 0.06%
===============================================================================================================================
TOTAL HR TRUST ANNUAL EXPENSES(5) 0.83% 1.20%(7) 0.64% 0.84% 0.91%
===============================================================================================================================
<CAPTION>
BT BT MFS MERRILL
BT SMALL INTERNATIONAL EMERGING LYNCH
EQUITY 500 COMPANY EQUITY GROWTH MFS BASIC VALUE
EQ TRUST 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(4) 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 EQ TRUST ANNUAL EXPENSES(6) 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
EQ TRUST STRATEGY EQUITY* BALANCED VALUE INCOME STOCK VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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(4) 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 EQ TRUST ANNUAL EXPENSES(6) 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% free
corridor amount, and upon surrender of a Certificate. See "Withdrawal
Charge" in Part 4.
(2) This charge is deducted annually on each Processing Date. See "Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit
Charge (Plan A)" and "Guaranteed Minimum Death Benefit Only Benefit Charge
(Plan B)" in Part 4.
(3) We reserve the right to increase this charge to an annual rate of 0.35%, the
maximum permitted under the Certificates.
(4) The Class IB shares of HR Trust and EQ Trust are subject to fees imposed
under distribution plans (herein, the "Rule 12b-1 Plans") adopted by HR
Trust and EQ Trust pursuant to Rule 12b-1 under the Investment Company Act
of 1940, as amended. The Rule 12b-1 Plans provide that HR Trust and EQ
Trust, on behalf of each Portfolio, may pay annually up to 0.25% of the
average daily net assets of a Portfolio attributable to its Class IB shares
in respect of activities primarily intended to result in the sale of the
Class IB shares. The 12b-1 fee will not be increased for the life of the
Certificates.
(5) The amounts shown for the Portfolios of HR Trust (other than Alliance Small
Cap Growth) have been restated to reflect advisory fees which went into
effect as of May 1, 1997. "Other Expenses" are based on average daily net
assets in each Portfolio during 1996. The amounts shown for the Alliance
Small Cap Growth Portfolio are estimated for 1997 as this Portfolio
commenced operations on May 1, 1997 (see footnote 7). 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
HR Trust. 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 "HR Trust Charges to Portfolios" in Part
4.
(6) The EQ Trust Portfolios had no operations prior to May 1, 1997. Therefore,
the amounts shown as "Other Expenses" for these Portfolios are estimated.
The 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 Portfolios of EQ Trust commenced
operations on May 1, 1997. The Morgan Stanley Emerging Markets Equity
Portfolio commenced operations on August 20, 1997 (and was offered under
this prospectus as of September 2, 1997). The BT Equity 500 Index, BT Small
Company Index, and BT International Equity Index Portfolios commenced
operations on December 31, 1997. The maximum investment management and
advisory fees for each EQ Trust 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, but pursuant to
agreement, cannot together with other fees exceed total annual expense
limitations (which are the respective amounts shown in "Total Annual
Expenses"). Absent the expense limitation, we estimate that the other
expenses for 1998 for each Portfolio would be 0.285% for BT Equity 500
Index; 0.231% for BT Small Company Index; 0.472% for BT International Equity
Index; 0.412% for EQ/Putnam Balanced; 0.262% for EQ/Putnam Growth & Income
Value; 0.242% for MFS Emerging Growth Companies; 0.234% for MFS Research;
0.247% for Merrill Lynch Basic Value Equity; 0.497% for Merrill Lynch World
Strategy; 0.461% for Morgan Stanley Emerging Markets Equity; 0.235% for T.
Rowe Price Equity Income; 0.422% for T. Rowe Price International Stock; and
0.191% for Warburg Pincus Small Company Value. See "EQ Trust Charges to
Portfolios" in Part 4.
(7) Equitable Distributors Inc. (EDI) has agreed to waive the 0.25% 12b-1 fee to
the extent necessary to limit annual expenses for the Alliance Small Cap
Growth Portfolio to 1.20% of the average daily net assets of that Portfolio
as set forth above. This agreement may be modified by EDI and HR Trust at
any time, and there can be no assurance that the 12b-1 fee will not be
restored to 0.25% in the future. Absent the fee waiver, we estimate that the
annual expenses for 1997 for the Alliance Small Cap Growth Portfolio would
have been 1.21%.
6
<PAGE>
EXAMPLES
- --------
The examples below show the expenses that a hypothetical Certificate Owner would
pay under the Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit (Plan A), under the Guaranteed Minimum Death Benefit Only Benefit
(Plan B) in the two situations noted below assuming a $1,000 contribution
invested in one of the Investment Funds listed, and a 5% annual return on
assets.(1)
These examples should not be considered a representation of past or future
expenses for each Investment Fund or Portfolio. Actual expenses may be greater
or less than those shown. Similarly, the annual rate of return assumed in the
examples is not an estimate or guarantee of future investment performance.
COMBINED GUARANTEED MINIMUM DEATH BENEFIT
AND GUARANTEED MINIMUM INCOME BENEFIT (PLAN A) ELECTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE 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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $89.74 $120.55 $154.64 $275.75 $24.51 $ 75.92 $130.68 $283.83
Alliance Growth Investors 90.14 121.76 156.67 279.80 24.91 77.12 132.69 287.85
Alliance Growth & Income 90.24 122.06 157.17 280.80 25.01 77.42 133.19 288.87
Alliance Common Stock 88.35 116.35 147.61 261.52 23.12 71.71 123.63 269.57
Alliance Global 91.53 125.95 163.66 293.80 26.30 81.30 139.67 301.85
Alliance International 95.01 136.36 180.97 328.00 29.78 91.73 157.01 336.07
Alliance Aggressive Stock 90.04 121.46 156.17 278.79 24.81 76.82 132.19 286.85
Alliance Small Cap Growth
93.72 132.50 -- -- 28.49 87.87 -- --
Alliance Money Market 88.15 115.75 146.59 259.45 22.92 71.11 122.61 267.51
Alliance Intermediate Gov't
Securities 90.14 121.76 156.67 279.80 24.91 77.12 132.69 287.85
Alliance High Yield 90.84 123.86 160.17 286.83 25.61 79.22 136.19 294.89
EQ TRUST
- --------
BT Equity 500 Index $87.26 $113.04 -- -- $22.03 $ 68.40 -- --
BT Small Company Index 87.75 114.55 -- -- 22.52 69.90 -- --
BT International Equity Index
89.74 120.55 -- -- 24.51 75.92 -- --
MFS Emerging
Growth Companies 90.24 122.06 -- -- 25.01 77.42 -- --
MFS Research 90.24 122.06 -- -- 25.01 77.42 -- --
Merrill Lynch Basic Value
Equity 90.24 122.06 -- -- 25.01 77.42 -- --
Merrill Lynch World Strategy
93.72 132.50 -- -- 28.49 87.87 -- --
Morgan Stanley Emerging
Markets Equity 99.19 148.78 -- -- 33.96 104.14 -- --
EQ/Putnam Balanced 90.74 123.56 -- -- 25.51 78.91 -- --
EQ/Putnam Growth & Income
Value 90.24 122.06 -- -- 25.01 77.42 -- --
T. Rowe Price Equity Income
90.24 122.06 -- -- 25.01 77.42 -- --
T. Rowe Price
International Stock 93.72 132.50 -- -- 28.49 87.87 -- --
Warburg Pincus
Small Company Value 91.73 126.55 -- -- 26.50 81.90 -- --
</TABLE>
- -------------------
See footnote on next page.
7
<PAGE>
GUARANTEED MINIMUM DEATH BENEFIT ONLY BENEFIT (PLAN B) ELECTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE 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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HR TRUST
- --------
Alliance Conservative
Investors $89.74 $115.25 $143.62 $248.28 $21.86 $67.64 $116.31 $251.89
Alliance Growth Investors 90.14 116.46 145.64 252.38 22.26 68.84 118.33 255.98
Alliance Growth & Income 90.24 116.76 146.16 253.43 22.36 69.14 118.83 257.01
Alliance Common Stock 88.35 111.05 136.55 233.84 20.47 63.42 109.21 237.42
Alliance Global 91.53 120.66 152.69 266.60 23.65 73.04 125.36 270.18
Alliance International 95.01 131.11 170.11 301.30 27.13 83.49 142.78 304.87
Alliance Aggressive Stock 90.04 116.16 145.14 251.37 22.16 68.54 117.82 254.95
Alliance Small Cap Growth
93.72 127.24 -- -- 25.84 79.62 -- --
Alliance Money Market 88.15 110.44 135.53 231.77 20.27 62.82 108.21 235.35
Alliance Intermediate Gov't
Securities 90.14 116.46 145.64 252.38 22.26 68.84 118.33 255.98
Alliance High Yield 90.84 118.56 149.17 259.51 22.96 70.95 121.86 263.11
EQ TRUST
- --------
BT Equity 500 Index $87.26 $107.73 -- -- $19.38 $60.11 -- --
BT Small Company Index 87.75 109.23 -- -- 19.87 61.61 -- --
BT International Equity
Index 89.74 115.25 -- -- 21.86 67.64 -- --
MFS Emerging
Growth Companies 90.24 116.76 -- -- 22.36 69.14 -- --
MFS Research 90.24 116.76 -- -- 22.36 69.14 -- --
Merrill Lynch Basic Value
Equity 90.24 116.76 -- -- 22.36 69.14 -- --
Merrill Lynch World
Strategy 93.72 127.24 -- -- 25.84 79.62 -- --
Morgan Stanley Emerging
Markets Equity 99.19 143.56 -- -- 31.31 95.94 -- --
EQ/Putnam Balanced 90.74 118.26 -- -- 22.86 70.65 -- --
EQ/Putnam Growth & Income
Value 90.24 116.76 -- -- 22.36 69.14 -- --
T. Rowe Price Equity
Income 90.24 116.76 -- -- 22.36 69.14 -- --
T. Rowe Price
International Stock 93.72 127.24 -- -- 25.84 79.62 -- --
Warburg Pincus
Small Company Value 91.73 121.26 -- -- 23.85 73.64 -- --
</TABLE>
- -------------------
Note:
(1)The amount accumulated from the $1,000 contribution could not be paid in the
form of an annuity at the end of any of the periods shown in the examples. If
the amount applied to purchase an annuity is less than $2,000, or the initial
payment is less than $20 we may pay the amount to the payee in a single sum
instead of as payments under an annuity form. See "Annuity Benefits and
Payout Annuity Options" in Part 3. The examples do not reflect charges for
applicable taxes such as state or local premium taxes that may also be
deducted in certain jurisdictions.
8
<PAGE>
- --------------------------------------------------------------------------------
PART 1: EQUITABLE LIFE, THE SEPARATE ACCOUNT
AND THE INVESTMENT FUNDS
- --------------------------------------------------------------------------------
EQUITABLE LIFE
Equitable Life is a New York stock life insurance company that has been in
business since 1859. For more than 100 years we have been among the largest life
insurance companies in the United States. Our home office is located at 1290
Avenue of the Americas, New York, New York 10104. We are authorized to sell life
insurance and annuities in all fifty states, the District of Columbia, Puerto
Rico and the Virgin Islands. We maintain local offices throughout the United
States.
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (THE HOLDING COMPANY). The largest shareholder of the Holding
Company is AXA-UAP (AXA). As of September 30, 1997, AXA beneficially owned 59.0%
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
$272.7 billion of assets as of September 30, 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 HR Trust and EQ Trust. Because
amounts allocated to the Investment Funds are invested in a mutual fund,
investment return and principal will fluctuate and the Certificate Owner's
Accumulation Units may be worth more or less than the original cost when
redeemed.
Under the New York Insurance Law, the portion of the Separate Account's assets
equal to the reserves and other liabilities relating to the Certificates are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains or losses, whether or not realized, from assets of the Separate
Account are credited to or charged against the Separate Account without regard
to our other income gains or losses. We are the issuer of the Certificates, and
the obligations set forth in the Certificates (other than those of Annuitants or
Certificate Owners) are our obligations.
In addition to contributions made under the Accumulator Certificates, we may
allocate to the Separate Account monies received under other contracts,
certificates, or agreements. Owners of all such contracts, certificates or
agreements will participate in the Separate Account in proportion to the amounts
they have in the Investment Funds that relate to their contracts, certificates
or agreements. We may retain in the Separate Account assets that are in excess
of the reserves and other liabilities relating to the Accumulator Certificates
or to other contracts, certificates or agreements, or we may transfer the excess
to our General Account.
We reserve the right, subject to compliance with applicable law: (1) to add
Investment Funds (or sub-funds of Investment Funds) to, or to remove Investment
Funds (or sub-funds) from, the Separate Account, or to add other separate
accounts; (2) to combine any two or more Investment Funds or sub-funds thereof;
(3) to transfer the assets we determine to be the share of the class of
contracts to which the Certificates belong from any Investment Fund to another
Investment Fund; (4) to operate the Separate Account or any Investment Fund as a
management investment company under the 1940 Act, in which case charges and
expenses that otherwise would be assessed against an underlying mutual fund
would be assessed against the Separate Account; (5) to deregister the Separate
Account under the 1940 Act, provided that such action conforms with the
requirements of applicable law; (6) to restrict or eliminate any voting rights
as to the Separate Account; and (7) to cause one or more Investment Funds to
invest some or all of their assets in one or more other trusts or investment
companies. If any changes are made that result in a material change in the
underlying investment policy of an Investment Fund, you will be notified as
required by law.
HR TRUST
HR Trust is an open-end, diversified management investment company, more
commonly called a mutual fund. As a "series" type of mutual fund, it issues
several different series of stock, each of which relates to a different
Portfolio of HR Trust. HR Trust
9
<PAGE>
commenced operations in January 1976 with a predecessor of its Alliance Common
Stock Portfolio. HR Trust does not impose a sales charge or "load" for buying
and selling its shares. All dividend distributions to HR Trust are reinvested in
full and fractional shares of the Portfolio to which they relate. Investment
Funds that invest in Portfolios of HR Trust purchase Class IB shares of a
corresponding Portfolio of HR Trust. More detailed information about HR Trust,
its investment objectives, policies, restrictions, risks, expenses, the Rule
12b-1 Plan relating to Class IB shares, and all other aspects of its operations
appears in the HR Trust prospectus which accompanies this prospectus or in the
HR Trust statement of additional information.
HR TRUST'S MANAGER AND ADVISER
HR Trust is managed and advised by Alliance Capital Management L.P. (ALLIANCE),
which is registered with the SEC as an investment adviser under the 1940 Act.
Alliance, a publicly traded limited partnership, is indirectly majority-owned by
Equitable Life. On September 30, 1997, Alliance was managing approximately
$217.3 billion in assets. Alliance acts as an investment adviser to various
separate accounts and general accounts of Equitable Life and other affiliated
insurance companies. Alliance also provides management and consulting services
to mutual funds, endowment funds, insurance companies, foreign entities,
qualified and non-tax qualified corporate funds, public and private pension and
profit-sharing plans, foundations and tax-exempt organizations.
Alliance's main office is located at 1345 Avenue of the Americas, New York, New
York 10105.
EQ TRUST
EQ Trust is an open-end management investment company. As a "series type" of
mutual fund, EQ Trust issues different series of stock, each of which relates to
a different Portfolio of EQ Trust. EQ Trust commenced operations on May 1, 1997.
EQ Trust does not impose a sales charge or "load" for buying and selling its
shares. All dividend distributions to EQ Trust are reinvested in full and
fractional shares of the Portfolio to which they relate. Investment Funds that
invest in Portfolios of EQ Trust purchase Class IB shares of a corresponding
Portfolio of EQ Trust. More detailed information about EQ Trust, its investment
objectives, policies and restrictions, risks, expenses, the Rule 12b-1 Plan
relating to the Class IB shares, and all other aspects of its operations appears
in the EQ Trust prospectus which accompanies this prospectus and in the EQ Trust
statement of additional information.
EQ TRUST'S MANAGER AND ADVISERS
EQ Trust is managed by EQ Financial Consultants, Inc. (EQ FINANCIAL) which,
subject to supervision and direction of the Trustees of EQ Trust, has overall
responsibility for the general management and administration of EQ Trust. EQ
Financial is an investment adviser registered under the 1940 Act, and a
broker-dealer registered under the Exchange Act. EQ Financial is a Delaware
corporation and an indirect, wholly owned subsidiary of Equitable Life.
EQ Financial's main office is located at 1290 Avenue of the Americas, New York,
New York 10104.
EQ Financial has entered into investment advisory agreements with Bankers Trust
Company, who serves as adviser to the BT Equity 500 Index, BT Small Company
Index, and BT International Equity Index Portfolios; Massachusetts Financial
Services Company, adviser to the MFS Emerging Growth Companies and MFS Research
Portfolios; Merrill Lynch Asset Management Inc., adviser to the Merrill Lynch
Basic Value Equity and Merrill Lynch World Strategy Portfolios; Putnam
Investments, adviser to the EQ/Putnam Balanced and EQ/Putnam Growth & Income
Value Portfolios; Morgan Stanley Asset Management Inc., adviser to the Morgan
Stanley Emerging Markets Equity Portfolio; T. Rowe Price Associates, Inc. and
Rowe Price-Fleming International, Inc., adviser to the T. Rowe Price Equity
Income and T. Rowe Price International Stock Portfolios; and Warburg, Pincus
Counsellors, Inc., adviser to the Warburg Pincus Small Company Value Portfolio.
10
<PAGE>
INVESTMENT POLICIES AND OBJECTIVES OF HR TRUST'S PORTFOLIOS AND EQ TRUST'S
PORTFOLIOS
Each Portfolio has a different investment objective which it tries to achieve by
following separate investment policies. The policies and objectives of each
Portfolio will affect its return and its risks. There is no guarantee that these
objectives will be achieved. Set forth below is a summary of the investment
policies and objectives of each Portfolio. This summary is qualified in its
entirety by reference to the prospectuses for HR Trust and EQ Trust, both of
which accompany this prospectus. Please read the prospectuses for each of the
trusts carefully before investing.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HR TRUST 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
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>
11
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQ TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BT Equity 500 Index Invest in a specifically selected sample of the Replicate as closely as possible
500 stocks included in the Standard & Poor's (before the deduction of
500 Composite Stock Price Index ("S&P 500"). Portfolio expenses) the total
return of the S&P 500
- -------------------------------------------------------------------------------------------------------------------------------
BT Small Company Index Invest in statistically selected sample of the Replicate as closely as possible
2,000 stocks included in the Russell 2000 Small (before the deduction of
Stock Index ("Russell 2000"). Portfolio expenses) the total
return of the Russell 2000
- -------------------------------------------------------------------------------------------------------------------------------
BT International Equity Index Invest in statistically selected sample of the Replicate as closely as possible
securities of companies included in the Morgan (before the deduction of
Stanley Capital International Europe, Portfolio expenses) the total
Australia, Far East Index ("EAFE"), return of the EAFE
although 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 Portfolio
adviser believes are early in their life cycle
but which have the potential to become major
enterprises.
- -------------------------------------------------------------------------------------------------------------------------------
MFS Research A substantial portion of assets invested in Long-term growth of capital and
common stock or securities convertible future income
into common stock of companies believed
by the Portfolio adviser to possess better
than average prospects for long-term growth.
- -------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity Investment in securities, primarily equities, Capital appreciation and,
that the Portfolio adviser believes are secondarily, income
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 Portfolio's 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.
- -------------------------------------------------------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQ TRUST PORTFOLIO (CONTINUED) INVESTMENT POLICY OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 Portfolio adviser
considers to be relatively undervalued.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
PART 2: THE GUARANTEED PERIOD ACCOUNT
- --------------------------------------------------------------------------------
GUARANTEE PERIODS
Each amount allocated to a Guarantee Period and held to the Period's Expiration
Date accumulates interest at a Guaranteed Rate. The Guaranteed Rate for each
allocation is the annual interest rate applicable to new allocations to that
Guarantee Period, which was in effect on the Transaction Date for the
allocation. We may establish different Guaranteed Rates under different classes
of Certificates. We use the term GUARANTEED PERIOD AMOUNT to refer to the amount
allocated to and accumulated in each Guarantee Period. The Guaranteed Period
Amount is reduced or increased by any market value adjustment as a result of
withdrawals, transfers or charges (see below).
Your Guaranteed Period Account contains the Guarantee Periods to which you have
allocated Annuity Account Value. On the Expiration Date of a Guarantee Period,
its Guaranteed Period Amount and its value in the Guaranteed Period Account are
equal. We call the Guaranteed Period Amount on an Expiration Date the Guarantee
Period's Maturity Value. We report the Annuity Account Value in your Guaranteed
Period Account to reflect any market value adjustment that would apply if all
Guaranteed Period Amounts were withdrawn as of the calculation date. The Annuity
Account Value in the Guaranteed Period Account on any Business Day, therefore,
will be the sum of the present value of the Maturity Value in each Guarantee
Period, using the Guaranteed Rate in effect for new allocations to each such
Guarantee Period on such date.
Guarantee Periods and Expiration Dates
We currently offer Guarantee Periods ending on February 15th for each of the
maturity years 1999 through 2008. Not all Guarantee Periods will be available
for Annuitants ages 76 and above. See "Allocation of Contributions" in Part 3.
Also, the Guarantee Periods may not be available for investment in all states.
As Guarantee Periods expire we expect to add maturity years so that generally 10
are available at any time.
We will not accept allocations to a Guarantee Period if, on the Transaction
Date:
o Such Transaction Date and the Expiration Date for such Guarantee Period fall
within the same calendar year.
o The Guaranteed Rate is 3%.
o The Guarantee Period has an Expiration Date beyond the February 15th
immediately following the Annuity Commencement Date.
Guaranteed Rates and Price Per $100 of Maturity Value
Because the Maturity Value of a contribution allocated to a Guarantee Period can
be determined at the time it is made, you can determine the amount required to
be allocated to a Guarantee Period in order to produce a target Maturity Value
(assuming no transfers or withdrawals are made and no charges are allocated to
the Guarantee Period). The required amount is the present value of that Maturity
Value at the Guaranteed Rate on the Transaction Date for the contribution, which
may also be expressed as the price per $100 of Maturity Value on such
Transaction Date.
Guaranteed Rates for new allocations as of December 10, 1997 and the related
price per $100 of Maturity Value for each currently available Guarantee Period
were as follows:
- -------------------------------------------------------------
GUARANTEE
PERIODS WITH GUARANTEED
EXPIRATION DATE RATE AS OF PRICE
FEBRUARY 15TH OF DECEMBER 10, PER $100 OF
MATURITY YEAR 1997 MATURITY VALUE
- -------------------------------------------------------------
1999 4.78% $94.62
2000 4.88 90.12
2001 4.95 85.73
2002 4.98 81.59
2003 5.03 77.53
2004 5.09 73.56
2005 5.11 69.89
2006 5.12 66.44
2007 5.14 63.09
2008 5.08 60.36
- -------------------------------------------------------------
Allocation among Guarantee Periods
The same approach as described above may also be used to determine the amount
which you would need to allocate to each Guarantee Period in order to create a
series of constant Maturity Values for two or more years.
For example, if you wish to have $100 mature on February 15th of each of years
1999 through 2003, then according to the above table the lump sum contribution
you would have to make as of December 10, 1997 would be $429.59 (i.e., the sum
of the price 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
14
<PAGE>
transfers to be made from Guarantee Periods or the market value adjustment that
would apply for such transactions. Actual calculations will be based on
Guaranteed Rates on each actual Transaction Date, which may differ.
Options at Expiration Date
We will notify you on or before December 31st prior to the Expiration Date of
each Guarantee Period in which you have any Guaranteed Period Amount. You may
elect one of the following options to be effective at the Expiration Date,
subject to the restrictions set forth on the prior page and under "Allocation of
Contributions" in Part 3:
(a) to transfer the Maturity Value into any Guarantee Period we are then
offering, or into any of our Investment Funds; or
(b) to withdraw the Maturity Value (subject to any withdrawal charges which
may apply).
If we have not received your election as of the Expiration Date, the Maturity
Value in the expired Guarantee Period will be transferred into the Guarantee
Period with the earliest Expiration Date.
MARKET VALUE ADJUSTMENT FOR TRANSFERS, WITHDRAWALS OR SURRENDER PRIOR TO
THE EXPIRATION DATE
Any withdrawal (including transfers, surrender and deductions) from a Guarantee
Period prior to its Expiration Date will cause any remaining Guaranteed Period
Amount for that Guarantee Period to be increased or decreased by a market value
adjustment. The amount of the adjustment will depend on two factors: (a) the
difference between the Guaranteed Rate applicable to the amount being withdrawn
and the Guaranteed Rate on the Transaction Date for new allocations to a
Guarantee Period with the same Expiration Date, and (b) the length of time
remaining until the Expiration Date. In general, if interest rates have risen
between the time when an amount was originally allocated to a Guarantee Period
and the time it is withdrawn, the market value adjustment will be negative, and
vice versa; and the longer the period of time remaining until the Expiration
Date, the greater the impact of the interest rate difference. Therefore, it is
possible that a significant rise in interest rates could result in a substantial
reduction in your Annuity Account Value in the Guaranteed Period Account related
to longer-term Guarantee Periods.
The market value adjustment (positive or negative) resulting from a withdrawal
of all funds from a Guarantee Period will be determined for each contribution
allocated to that Guarantee Period as follows:
(1) We determine the present value of the Maturity Value on the Transaction Date
as follows:
(a) We determine the Guaranteed Period Amount that would be payable on the
Expiration Date, using the applicable Guaranteed Rate.
(b) We determine the period remaining in your Guarantee Period (based on
the Transaction Date) and convert it to fractional years based on a
365-day year. For example, three years and 12 days becomes 3.0329.
(c) We determine the current Guaranteed Rate which applies on the
Transaction Date to new allocations to the same Guarantee Period.
(d) We determine the present value of the Guaranteed Period Amount payable
at the Expiration Date, using the period determined in (b) and the rate
determined in (c).
(2) We determine the Guaranteed Period Amount as of the current date.
(3) We subtract (2) from the result in (1)(d). The result is the market value
adjustment applicable to such Guarantee Period, which may be positive or
negative.
The market value adjustment (positive or negative) resulting from a withdrawal
(including any withdrawal charges) of a portion of the amount in a Guarantee
Period will be a percentage of the market value adjustment that would be
applicable upon a withdrawal of all funds from a Guarantee Period. This
percentage is determined by (i) dividing the amount of the withdrawal or
transfer from the Guarantee Period by (ii) the Annuity Account Value in such
Guarantee Period prior to the withdrawal or transfer. See Appendix I for an
example.
The Guaranteed Rate for new allocations to a Guarantee Period is the rate we
have in effect for this purpose even if new allocations to that Guarantee Period
would not be accepted at the time. This rate will not be less than 3%. If we do
not have a Guaranteed Rate in effect for a Guarantee Period to which the
"current Guaranteed Rate" in (1)(c) would apply, we will use the rate at the
next closest Expiration Date. If we are no longer offering new Guarantee
Periods, the "current Guaranteed Rate" will be determined in accordance with our
procedures then in effect. For purposes of calculating the market value
adjustment only, we reserve the right to add up to 0.25% to the current rate in
(1)(c) above.
INVESTMENTS
Amounts allocated to Guarantee Periods will be held in a "nonunitized" separate
account established by Equitable Life under the laws of New York. This separate
account provides an additional measure of assurance that full payment of amounts
due under the Guarantee Periods will be made. Under the New York Insurance Law,
the portion of the separate account's assets equal to the reserves and other
contract
15
<PAGE>
liabilities relating to the Certificates are not chargeable with liabilities
arising out of any other business we may conduct.
Investments purchased with amounts allocated to the Guaranteed Period Account
are the property of Equitable Life. Any favorable investment performance on the
assets held in the separate account accrues solely to Equitable Life's benefit.
Certificate Owners do not participate in the performance of the assets held in
this separate account. Equitable Life may, subject to applicable state law,
transfer all assets allocated to the separate account to its general account.
Regardless of whether assets supporting Guaranteed Period Accounts are held in a
separate account or our general account, all benefits relating to the Annuity
Account Value in the Guaranteed Period Account are guaranteed by Equitable Life.
Equitable Life has no specific formula for establishing the Guaranteed Rates for
the Guarantee Periods. Equitable Life expects the rates to be influenced by, but
not necessarily correspond to, among other things, the yields on the
fixed-income securities to be acquired with amounts that are allocated to the
Guarantee Periods at the time that the Guaranteed Rates are established. Our
current plans are to invest such amounts in fixed-income obligations, including
corporate bonds, mortgage-backed and asset-backed securities and government and
agency issues having durations in the aggregate consistent with those of the
Guarantee Periods.
Although the foregoing generally describes Equitable Life's plans for investing
the assets supporting Equitable Life's obligations under the fixed portion of
the Certificates, Equitable Life is not obligated to invest those assets
according to any particular plan except as may be required by state insurance
laws, nor will the Guaranteed Rates Equitable Life establishes be determined by
the performance of the nonunitized separate account.
General Account
Our general account supports all of our policy and contract guarantees,
including those applicable to the Guaranteed Period Account, as well as our
general obligations.
The general account is subject to regulation and supervision by the Insurance
Department of the State of New York and to the insurance laws and regulations of
all jurisdictions where we are authorized to do business. Because of applicable
exemptions and exclusionary provisions, interests in the general account have
not been registered under the Securities Act of 1933, as amended (1933 ACT), nor
is the general account an investment company under the 1940 Act. Accordingly,
the general account is not subject to regulation under the 1933 Act or the 1940
Act. However, the market value adjustment interests under the Certificates are
registered under the 1933 Act.
We have been advised that the staff of the SEC has not made a review of the
disclosure that is included in this prospectus for your information that relates
to the general account (other than market value adjustment interests). The
disclosure, however, may be subject to certain generally applicable provisions
of the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
16
<PAGE>
- --------------------------------------------------------------------------------
PART 3: PROVISIONS OF THE CERTIFICATES AND SERVICES WE PROVIDE
- --------------------------------------------------------------------------------
WHAT IS THE ACCUMULATOR?
The Accumulator Certificate is a deferred annuity designed to provide for the
accumulation of retirement savings, and for income at a future date. Investment
Options available are Investment Funds providing variable returns and Guarantee
Periods providing guaranteed interest when held to maturity. Accumulator
Certificates are issued as non-qualified annuities for after-tax contributions.
The provisions of your Certificate may be restricted by applicable laws or
regulations.
Earnings generally accumulate on a tax-deferred basis until withdrawn or when
distributions become payable. Withdrawals made prior to age 59 1/2may be subject
to tax penalty.
When issued with the appropriate endorsement, an Accumulator Certificate may be
purchased by a plan qualified under Section 401(a) of the Code. Such purchases
may not be available in all states. Plan fiduciaries considering purchase of a
Certificate should read the important information in Appendix II.
AVAILABILITY OF THE CERTIFICATES
The Certificates are available for Annuitant issue ages 20 through 83.
CONTRIBUTIONS UNDER THE CERTIFICATES
Your initial contribution must be at least $5,000. Subsequent contributions may
be made in an amount of at least $1,000 at any time up until the Annuitant
attains age 84. We may refuse to accept any contributions if the sum of all
contributions under all accumulation Certificates with the same Annuitant would
then total more than $1,500,000. We reserve the right to limit aggregate
contributions made after the first Contract Year to 150% of first-year
contributions. We may also refuse to accept any contribution if the sum of all
contributions under all Equitable Life annuity accumulation
certificates/contracts that you own would then total more than $2,500,000.
Contributions are credited as of the Transaction Date.
METHODS OF PAYMENT
Except as indicated below, all contributions must be made by check drawn on a
bank or credit union in the U.S., in U.S. dollars and made payable to Equitable
Life. All checks are accepted subject to collection. Contributions must be sent
to Equitable Life at our Processing Office address designated for contributions.
Your initial contribution must be accompanied by a completed application which
is acceptable to us. In the event the application information or the application
is otherwise not acceptable, we may retain your contribution for a period not
exceeding five Business Days while an attempt is made to obtain the required
information. If the required information cannot be obtained within those five
Business Days, the Processing Office will inform the agent, on behalf of the
applicant, of the reasons for the delay and return the contribution immediately
to the applicant, unless the applicant specifically consents to our retaining
the contribution until the required information is received by the Processing
Office.
Section 1035 Exchanges
You may apply the values of an existing non-qualified life insurance or deferred
annuity contract to purchase an Accumulator 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 6.
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 Accumulator Certificate on a monthly or quarterly basis.
The minimum amount that will be deducted is $100 monthly and $300 quarterly. AIP
subsequent contributions may be made to any Investment Option available under
your Certificate. 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 Fund based on the Accumulation Unit Value for that Investment
Fund computed on the Transaction Date. A
17
<PAGE>
contribution allocated to the Guaranteed Period Account will have the Guaranteed
Rate for the specified Guarantee Period offered on the Transaction Date.
Self-Directed Allocation
You allocate your contributions to one or up to all of the available Investment
Options. Allocations among the Investment Options must be in whole percentages.
Allocation percentages can be changed at any time by writing to our Processing
Office, or by telephone. The change will be effective on the Transaction Date
and will remain in effect for future contributions unless another change is
requested.
At Annuitant ages 76 and above, allocations to Guarantee Periods must be limited
to those with maturities of five years or less and with maturity dates no later
than the February 15th immediately following the Annuity Commencement Date.
Principal Assurance Allocation
This option (for Annuitant issue ages 20 through 75) assures that your Maturity
Value in a specified Guarantee Period will equal your initial contribution on
the Guarantee Period's Expiration Date, while at the same time allowing you to
invest in the Investment Funds. It may be elected only at issue of your
Certificate and assumes no withdrawals or transfers from the Guarantee Period.
The maturity year generally may not be later than 10 years nor earlier than
seven years from the Contract Date. In order to accomplish this strategy, we
will allocate a portion of your initial contribution to the selected Guarantee
Period. See "Guaranteed Rates and Price Per $100 of Maturity Value" in Part 2.
The balance of your initial contribution and all subsequent contributions must
be allocated under "Self-Directed Allocation" as described above.
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
3 under "Dollar Cost Averaging."
FREE LOOK PERIOD
You have the right to examine the Accumulator Certificate for a period of 10
days after you receive it, and to return it to us for a refund. You cancel it by
sending it to our Processing Office. The free look 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, and any positive or negative market value adjustment, through the date
we receive your Certificate at our Processing Office. Some states may require
that we calculate the refund differently. If you cancel your Certificate during
the free look period, we may require that you wait six months before you may
apply for a Certificate with us again.
We follow these same procedures if you change your mind before you receive your
Certificate, but after a contribution has been made. See "Part 6: Tax Aspects of
the Certificates" for possible consequences of cancelling your Certificate
during the free look period.
ANNUITY ACCOUNT VALUE
Your Annuity Account Value is the sum of the amounts in the Investment Options.
Annuity Account Value in Investment Funds
The Annuity Account Value in an Investment Fund on any Business Day is equal to
the number of Accumulation Units in that Investment Fund times the Accumulation
Unit Value for the Investment Fund for that date. The number of Accumulation
Units in an Investment Fund at any time is equal to the sum of Accumulation
Units purchased by contributions and transfers less the sum of Accumulation
Units redeemed for withdrawals, transfers or deductions for charges.
The number of Accumulation Units purchased or sold in any Investment Fund equals
the dollar amount of the transaction divided by the Accumulation Unit Value for
that Investment Fund for the applicable Transaction Date.
The number of Accumulation Units will not vary because of any later change in
the Accumulation Unit Value. The Accumulation Unit Value varies with the
investment performance of the corresponding Portfolios of each respective trust,
which in turn reflects the investment income and realized and unrealized capital
gains and losses of the Portfolios, as well as each 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 Guarantee
Period, using the Guaranteed Rate in effect for new allocations to such
Guarantee Period on such date. (This is equivalent to the Guaranteed Period
Amount increased or decreased by the full market value adjustment.) The Annuity
Account Value, therefore, may be higher or lower than the contributions (less
withdrawals) accumulated at the Guaranteed Rate. At the Expiration Date the
Annuity Account Value in the Guaranteed Period Account will equal the Maturity
Value. See "Part 2: The Guaranteed Period Account."
18
<PAGE>
TRANSFERS AMONG INVESTMENT OPTIONS
At any time prior to the Annuity Commencement Date, you may transfer all or
portions of your Annuity Account Value among the Investment Options, subject to
the following restrictions.
o Transfers out of a Guarantee Period other than at the Expiration Date will
result in a market value adjustment. See "Part 2: The Guaranteed Period
Account."
o At Annuitant ages 76 and above, transfers to Guarantee Periods must be
limited to those with maturities of five years or less and with maturity
dates no later than the February 15th immediately following the Annuity
Commencement Date.
o Transfers may not be made to a Guarantee Period with an Expiration Date in
the current calendar year, or if the Guaranteed Rate is 3%.
Transfer requests must be made directly to our Processing Office. Your request
for a transfer should specify your Certificate number, the amounts or
percentages to be transferred and the Investment Options to and from which the
amounts are to be transferred. Your transfer request may be in writing or by
telephone.
For telephone transfer requests, procedures have been established by Equitable
Life that are considered to be reasonable and are designed to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting on
telephone instructions and providing written confirmation. In light of the
procedures established, Equitable Life will not be liable for following
telephone instructions that it reasonably believes to be genuine.
We may restrict, in our sole discretion, the use of an agent acting under a
power of attorney, such as a market timer, on behalf of more than one
Certificate Owner to effect transfers. Any agreements to use market timing
services to effect transfers are subject to our rules then in effect and must be
on a form satisfactory to us.
A transfer request will be effective on the Transaction Date and the transfer to
or from Investment Funds will be made at the Accumulation Unit Value next
computed after the Transaction Date. All transfers will be confirmed in writing.
DOLLAR COST AVERAGING
We offer two Dollar Cost Averaging programs as described below. The main
objective of Dollar Cost Averaging is to attempt to shield your investment from
short-term price fluctuations. Since approximately the same dollar amounts are
transferred from the Alliance Money Market Fund to other Investment Funds
periodically, more Accumulation Units are purchased in an Investment Fund if the
value per Accumulation Unit is low and fewer Accumulation Units are purchased if
the value per Accumulation Unit is high. Therefore, a lower average value per
Accumulation Unit may be achieved over the long term. This plan of investing
allows you to take advantage of market fluctuations but does not assure a profit
or protect against a loss in declining markets.
Dollar Cost Averaging may not be elected while the rebalancing program
(discussed below) or the Systematic Withdrawal option (described under
"Withdrawal Options" below) 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 Alliance Money Market Fund
into the other Investment Funds monthly over a period of twelve months, we offer
a Special Dollar Cost Averaging program under which the mortality and expense
risks and administration charges normally deducted from the Alliance Money
Market Fund will not be deducted. See "Charges Deducted from the Investment
Funds" in Part 4.
General Dollar Cost Averaging
If you have at least $5,000 of Annuity Account Value in the Alliance Money
Market Fund, you may choose to have a specified dollar amount or percentage of
your Annuity Account Value transferred from the Alliance Money Market Fund to
other Investment Funds on a monthly, quarterly or annual basis. This program may
be elected at any time.
The minimum amount that may be transferred on each Transaction Date is $250. The
maximum amount which may be transferred is equal to the Annuity Account Value in
the Alliance Money Market Fund at the time the program is elected, divided by
the number of transfers scheduled to be made each Contract Year.
The transfer date will be the same calendar day of the month as the Contract
Date (other than the 29th, 30th or 31st). 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
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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). The Annuity
Account Value allocated to each selected Investment Fund will grow or decline in
value at different rates during each time period. Rebalancing automatically
reallocates the Annuity Account Value in the chosen Investment Funds at the end
of each period to the specified allocation percentages. Rebalancing is intended
to transfer specified portions of the Annuity Account Value from those chosen
Investment Funds that have increased in value to those chosen Investment Funds
that have declined in value. 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.
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 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 Death Benefit and Guaranteed Minimum Income Benefit. The
combined benefit (Plan A) for which there is a charge is available for Annuitant
issue ages 20 through 75. You elect Plan A in the application. Once elected, the
benefit may not be changed. See "Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit Charge" in Part 4. The baseBUILDER provides a
degree of protection while you live (Income Benefit) as well as for your
beneficiary should you die. If you do not elect the combined benefit, the
Guaranteed Minimum Death Benefit is still provided under the Certificate at a
lower charge. The combined benefit (Plan A) is not currently available in New
York.
If the Annuitant is age 76 or older and you are interested in the Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit, ask your
agent for a copy of the prospectus supplement describing this benefit.
DEATH BENEFIT
When the Annuitant Dies
Generally, upon receipt of proof satisfactory to us of the Annuitant's death
prior to the Annuity Commencement Date, we will pay the death benefit to the
beneficiary named in your Certificate. You designate the beneficiary at the time
you apply for the Certificate. While the Certificate is in effect, you may
change your beneficiary by writing to our Processing Office. The change will be
effective on the date the written submission was signed. The death benefit
payable will be determined as of the date we receive such proof of death and any
required instructions as to the method of payment.
The death benefit applicable to Certificates issued in all states except New
York is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds, or, if greater, the
Guaranteed Minimum Death Benefit defined below; and
(2) the death benefit provided with respect to the Guaranteed Period
Account, which is equal to the Annuity Account Value in the Guaranteed
Period Account or, if greater, the sum of the Guaranteed Period Amounts
in each Guarantee Period. See "Part 2: The Guaranteed Period Account."
GUARANTEED MINIMUM DEATH BENEFIT
Your Guaranteed Minimum Death Benefit is the minimum amount payable with respect
to the Investment Funds upon the death of the Annuitant.
Applicable for Annuitant Issue Ages 20 through 79
6% to Age 80 Benefit -- On the Contract Date, the Guaranteed Minimum Death
Benefit is equal to the portion of the initial contribution allocated to the
Investment Funds. Thereafter, the Guaranteed Minimum Death Benefit is credited
with interest at 6% (3% for amounts in the Alliance Money Market and Alliance
Intermediate Government Securities Funds, except as indicated below) on each
Contract Date anniversary through the Annuitant's age 80 (or at the Annuitant's
death, if earlier), and 0% thereafter, and is adjusted for any subsequent
contributions and transfers into the Investment Funds and transfers and
withdrawals from such Funds. The Guaranteed Minimum Death Benefit interest
applicable to amounts in the Alliance Money Market Fund under the Special Dollar
Cost Averaging program (described above) will be 6%.
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Applicable for Annuitant Issue Ages 80 through 83
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
portion of the initial contribution allocated to the Investment Funds.
Thereafter, the Guaranteed Minimum Death Benefit is equal to such portion of the
initial contribution plus (a) any subsequent contributions and transfers into
the Investment Funds, less (b) any transfers and withdrawals from such Funds.
Withdrawals and transfers will reduce your Guaranteed Minimum Death Benefit, see
"How Withdrawals and Transfers Affect Your Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit" below.
For the death benefit applicable to Certificates issued in New York, see
Appendix III.
See Appendix IV for an example of the calculation of the Guaranteed Minimum
Death Benefit.
HOW DEATH BENEFIT PAYMENT IS MADE
We will pay the death benefit to the beneficiary in the form of the annuity
benefit you have chosen under your Certificate. If no annuity benefit has been
chosen at the time of the Annuitant's death, the beneficiary will receive the
death benefit in a lump sum. However, subject to any exceptions in the
Certificate, Equitable Life's rules then in effect and any other applicable
requirements under the Code, the beneficiary may elect to apply the death
benefit to one or more annuity benefits offered by Equitable Life. See "Annuity
Benefits and Payout Annuity Options" below. Note that if you are both the
Certificate Owner and the Annuitant, only a life annuity or an annuity that does
not extend beyond the life expectancy of the beneficiary may be elected.
Successor Annuitant
If you are both the Certificate Owner and the Annuitant and you elect your
spouse to be both the sole primary beneficiary and the successor
Annuitant/Certificate Owner, then no death benefit is payable until your
surviving spouse's death.
On the Processing Date following your death, if the successor
Annuitant/Certificate Owner election was elected at issue of your Certificate
and is in effect at your death, the Guaranteed Minimum Death Benefit will be
reset at the greater of the then current Guaranteed Minimum Death Benefit and
the then current Annuity Account Value in the Investment Funds. In determining
whether the Guaranteed Minimum Death Benefit will continue to grow, we will use
the age (as of the Processing Date) of the successor Annuitant/Certificate
Owner.
WHEN THE CERTIFICATE OWNER DIES BEFORE THE ANNUITANT
When you are not the Annuitant and you die before the Annuity Commencement Date,
the beneficiary named to receive the death benefit upon the Annuitant's death
will automatically succeed as Certificate Owner (unless you name a different
person as a successor Owner in a written form acceptable to us and send it to
our Processing Office). The Certificate provides that the original Certificate
Owner's entire interest in the Certificate be completely distributed to the
named beneficiary by the fifth anniversary of such Owner's death (unless an
annuity benefit is elected and payments begin within one year after the
Certificate Owner's death and are made over the beneficiary's life or over a
period not to exceed the beneficiary's life expectancy). If an annuity benefit
has not been elected, as described above, on the fifth anniversary of your
death, we will pay any Annuity Account Value remaining on such date, less any
applicable withdrawal charge. If the successor Certificate Owner is your
surviving spouse, no distributions are required as long as both the surviving
spouse and the Annuitant are living.
GUARANTEED MINIMUM INCOME BENEFIT
The Guaranteed Minimum Income Benefit provides a minimum amount of guaranteed
lifetime income with respect to the Investment Funds when you apply your Annuity
Account Value in the Investment Funds under your Accumulator Certificate to an
Income Manager (Life Annuity with a Period Certain) payout annuity certificate.
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 your 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 in the Investment Funds 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 Funds. Because it is based on conservative actuarial factors, the
level of lifetime income that it guarantees may often be less than the level
that would be provided by application of your Annuity Account Value at current
annuity purchase factors. It should therefore be regarded as a safety net.
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If you have any Annuity Account Value in the Guaranteed Period Account under
your Accumulator Certificate as of the Transaction Date that you exercise your
Guaranteed Minimum Income Benefit, such Annuity Account Value will also be
applied (at current annuity purchase factors) toward the purchase of payments
under the Income Manager (Life Annuity with a Period Certain) payout annuity
certificate. Such Annuity Account Value will increase the payments provided by
the Guaranteed Minimum Income Benefit. A market value adjustment may apply.
Illustrated below are Guaranteed Minimum Income Benefit amounts per $100,000 of
initial contribution, for a male Annuitant age 60 (at issue) on Contract Date
anniversaries as indicated below, assuming allocation only to the Investment
Funds (excluding the Alliance Money Market and Alliance Intermediate Government
Securities Funds), no subsequent contributions, transfers or withdrawals.
- -------------------------------------------------------------
GUARANTEED MINIMUM INCOME BENEFIT
CONTRACT DATE -- ANNUAL INCOME PAYABLE FOR LIFE
ANNIVERSARY AT ELECTION WITH 10 YEAR PERIOD CERTAIN
- -------------------------------------------------------------
7 $ 8,992
10 12,160
15 18,358
- -------------------------------------------------------------
Withdrawals and transfers will reduce your Guaranteed Minimum Income Benefit,
see "How Withdrawals and Transfers Affect Your Guaranteed Minimum Death Benefit
and Guaranteed Minimum Income Benefit" below.
The Guaranteed Minimum Income Benefit may be exercised only within 30 days
following the seventh or later Contract Date anniversary under your Accumulator
Certificate. However, it may not be exercised earlier than the Annuitant's age
60, nor later than the Annuitant's age 83; except that for Annuitant's issue
ages 20 through 44, it may be exercised following the 15th or later Contract
Date anniversary.
When you exercise your Guaranteed Minimum Income Benefit, you will receive an
Income Manager (Life Annuity with a Period Certain) payout annuity certificate
and extinguish your rights in your Accumulator Certificate, with at least the
minimum annual income specified and a period certain based on the Annuitant's
age at the time the benefit is exercised as follows:
- -------------------------------------------------------------
LEVEL PAYMENTS*
ANNUITANT'S AGE AT ELECTION PERIOD CERTAIN YEARS
- -------------------------------------------------------------
60 through 80 10
81 9
82 8
83 7
- -------------------
* Other forms and period certains may also be available.
- -------------------------------------------------------------
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
your Guaranteed Minimum Income Benefit, we will send you an eligibility notice
illustrating how much income could be provided on the Contract Date anniversary.
You may then notify us within 30 days following the Contract Date anniversary if
you want to exercise your Guaranteed Minimum Income Benefit by submitting the
proper form and returning your Accumulator Certificate. The amount of income you
actually receive will be determined on the Transaction Date that we receive your
properly completed exercise notice.
You may also apply your Cash Value at any time to an Income Manager (Life
Annuity with a Period Certain) payout annuity certificate, and you may always
apply your Annuity Account Value to any of our other life annuity benefits. The
annuity benefits are discussed below. These benefits differ from the Income
Manager payout annuity certificates and may provide higher or lower income
levels, but do not have all the features of 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 election (discussed above) was
elected at issue of the Certificate and is in effect at your death, the
Guaranteed Minimum Income Benefit will continue to be available on the Contract
Date anniversaries specified above based on the Contract Date of the Accumulator
Certificate, provided the Guaranteed Minimum Income Benefit is exercised as
specified above based on the age of the successor Annuitant/Certificate Owner.
WITHDRAWAL OPTIONS
The Accumulator is an annuity contract, even though you may elect to receive
your benefits in a non-annuity form. You may take withdrawals from your
Certificate before the Annuity Commencement Date and while the Annuitant is
alive. Two withdrawal options are available: Lump Sum Withdrawals and Systematic
Withdrawals. Withdrawals in excess of the 15% free corridor amount may result in
withdrawal charges. See "Part 4: Deductions and Charges." Withdrawals may also
be taxable and subject to tax penalty. See "Part 6: Tax Aspects of the
Certificates."
Amounts withdrawn from the Guaranteed Period Account, other than at the
Expiration Date, will result in a market value adjustment. See "Market Value
Adjustment for Transfers, Withdrawals or Surrender Prior to the Expiration Date"
in Part 2.
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As a deterrent to early withdrawal (generally prior to age 59 1/2) the Code
provides certain penalties. We may also be required to withhold income taxes
from the amount distributed. These rules are outlined in "Part 6: Tax Aspects of
the Certificates."
LUMP SUM WITHDRAWALS
You may take Lump Sum Withdrawals at any time subject to a minimum withdrawal
amount of $1,000. A request to withdraw more than 90% of the Cash Value as of
the Transaction Date will result in the termination of the Certificate and will
be treated as a surrender of the Certificate for its Cash Value. See
"Surrendering the Certificates to Receive the Cash Value" below.
To make a Lump Sum Withdrawal, you must submit a request satisfactory to us
which specifies the Investment Options from which the Lump Sum Withdrawal will
be taken. If we have received the information we require, the requested
withdrawal will become effective on the Transaction Date and proceeds will
usually be mailed within seven calendar days thereafter, but we may delay
payment as described in "When Payments Are Made" below. If we receive only
partially completed information, our Processing Office will contact you for
specific instructions before your request can be processed.
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals provide level percentage or level amount payouts. You may
choose to receive Systematic Withdrawals on a monthly, quarterly or annual
basis. You select a dollar amount or percentage of the Annuity Account Value to
be withdrawn, subject to a maximum of 1.2% monthly, 3.6% quarterly and 15.0%
annually, but in no event may any payment be less than $250. If at the time a
Systematic Withdrawal is to be made, the withdrawal amount would be less than
$250, no payment will be made and your Systematic Withdrawal election will
terminate.
You select the date of the month when the withdrawals will be made, but you may
not choose a date later than the 28th day of the month. If no date is selected,
withdrawals will be made on the same calendar day of the month as the Contract
Date. The commencement of payments under the Systematic Withdrawal option may
not be elected to start sooner than 28 days after issue of the Certificate.
You may elect Systematic Withdrawals at any time by completing the proper form
and sending it to our Processing Office. You may change the payment frequency of
your Systematic Withdrawals once each Contract Year or cancel this withdrawal
option at any time by sending notice in a form satisfactory to us. The notice
must be received at our Processing Office at least seven calendar days prior to
the next scheduled withdrawal date. You may also change the amount or percentage
of your Systematic Withdrawals once in each Contract Year. However, you may not
change the amount or percentage in any Contract Year where you have previously
taken another withdrawal under the Lump Sum Withdrawals option described above.
Unless you specify otherwise, Systematic Withdrawals will be withdrawn on a pro
rata basis from your Annuity Account Value in the Investment Funds. If there is
insufficient value or no value in the Investment Funds, any additional amount of
the withdrawal required or the total amount of the withdrawal, as applicable,
will be withdrawn from the Guarantee Periods in order of the earliest Expiration
Date(s) first.
HOW WITHDRAWALS AND TRANSFERS AFFECT YOUR GUARANTEED MINIMUM DEATH BENEFIT AND
GUARANTEED MINIMUM INCOME BENEFIT
Your current Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit benefit base will be reduced on a dollar-for-dollar basis as long as the
sum of your withdrawals and transfers from the Investment Funds in any Contract
Year is 6% or less of the beginning of Contract Year Guaranteed Minimum Death
Benefit. Once a withdrawal or transfer is made that causes cumulative
withdrawals and transfers from the Investment Funds in a Contract Year to exceed
6% of the beginning of Contract Year Guaranteed Minimum Death Benefit, that
withdrawal or transfer and any subsequent withdrawals and transfers in that
Contract Year will cause a pro rata reduction to occur.
Reduction on a dollar-for-dollar basis means your current Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit benefit base will be reduced
by the dollar amount of the withdrawal. Reduction on a pro rata basis means that
we calculate the percentage of the Annuity Account Value as of the Transaction
Date that is being withdrawn and we reduce your current Guaranteed Minimum Death
Benefit and Guaranteed Minimum Income Benefit benefit base by that same
percentage. For example, if your Annuity Account Value is $10,000 and you
withdraw $4,000, you have withdrawn 40% ($4,000/$10,000) of your Annuity Account
Value. If your Guaranteed Minimum Death Benefit was $20,000 prior to the
withdrawal, it would be reduced by $8,000 ($20,000 x .40) and your new
Guaranteed Minimum Death Benefit after the withdrawal would be $12,000 ($20,000
- - $8,000).
The timing of your withdrawals and whether they exceed the 6% threshold
described above can have a significant impact on your Guaranteed Minimum Death
Benefit or Guaranteed Minimum Income Benefit.
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GUARANTEED MINIMUM INCOME BENEFIT
BENEFIT BASE
The Guaranteed Minimum Income Benefit benefit base is equal to the portion of
the initial contribution allocated to the Investment Funds on the Contract Date.
Thereafter, the Guaranteed Minimum Income Benefit benefit base is credited with
interest at 6% (3% for amounts in the Alliance Money Market and Alliance
Intermediate Government Securities Funds, except as indicated below) on each
Contract Date anniversary through the Annuitant's age 80, and 0% thereafter, and
is adjusted for any subsequent contributions and transfers into the Investment
Funds and transfers and withdrawals from such Funds. The Guaranteed Minimum
Income Benefit benefit base interest applicable to amounts in the Alliance Money
Market Fund under the Special Dollar Cost Averaging program (described above)
will be 6%. The Guaranteed Minimum Income Benefit benefit base will also be
reduced by any withdrawal charge remaining on the Transaction Date that you
exercise your Guaranteed Minimum Income Benefit.
Your Guaranteed Minimum Income Benefit benefit base is applied to guaranteed
minimum annuity purchase factors to determine the Guaranteed Minimum Income
Benefit. The guaranteed minimum annuity factors are based on (i) interest at
2.5% if the Guaranteed Minimum Income Benefit is exercised within 30 days
following a Contract Date anniversary in years 7 through 9 and at 3% if
exercised within 30 days following the 10th or later Contract Date anniversary,
and (ii) mortality tables that assume increasing longevity. These interest and
mortality factors are generally more conservative than the basis underlying
current annuity 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.
CASH VALUE
The Cash Value under the Certificate fluctuates daily with the investment
performance of the Investment Funds you have selected and reflects any upward or
downward market value adjustment. See "Part 2: The Guaranteed Period Account."
We do not guarantee any minimum Cash Value except for amounts in a Guarantee
Period held to the Expiration Date. On any date before the Annuity Commencement
Date while the Certificate is in effect, the Cash Value is equal to the Annuity
Account Value less any withdrawal charge. The free corridor amount will not
apply when calculating the withdrawal charge applicable upon a surrender. See
"Part 4: Deductions and Charges."
SURRENDERING THE CERTIFICATES TO RECEIVE THE CASH VALUE
You may surrender a Certificate to receive the Cash Value at any time while the
Annuitant is living and before the Annuity Commencement Date. For a surrender to
be effective, we must receive your written request and the Certificate at our
Processing Office. The Cash Value will be determined on the Transaction Date.
All benefits under the Certificate will be terminated as of that date.
You may receive the Cash Value in a single sum payment or apply it under one or
more of the annuity benefits described below. We will usually pay the Cash Value
within seven calendar days, but we may delay payment as described in "When
Payments Are Made" below.
For the tax consequences of surrenders, see "Part 6: Tax Aspects of the
Certificates."
WHEN PAYMENTS ARE MADE
Under applicable law, application of proceeds from the Investment Funds to a
variable annuity, payment of a death benefit from the Investment Funds, payment
of any portion of the Annuity Account Value (less any applicable withdrawal
charge) from the Investment Funds, and, upon surrender, payment of the Cash
Value from the Investment Funds will be made within seven calendar days after
the Transaction Date. Payments or application of proceeds from the Investment
Funds can be deferred for any period during which (1) the New York Stock
Exchange is closed or trading on it is restricted, (2) sales of securities or
determination of the fair value of an Investment Fund's assets is not reasonably
practicable because of an emergency, or (3) the SEC, by order, permits us to
defer payment in order to protect persons with interest in the Investment Funds.
We can defer payment of any portion of the Annuity Account Value in the
Guaranteed Period Account (other than for death benefits) for up to six months
while you are living. We may also defer payments for any amount attributable to
a contribution made in the form of a check for a reasonable amount of time (not
to exceed 15 days) to permit the check to clear.
ANNUITY BENEFITS AND PAYOUT ANNUITY OPTIONS
The Accumulator Certificates offer annuity benefits and Income Manager payout
annuity options, described below, for providing retirement income.
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ANNUITY BENEFITS
Annuity benefits under the Accumulator provide periodic payments over a
specified period of time which may be fixed or may be based on the Annuitant's
life. Annuity forms of payment are calculated as of the Annuity Commencement
Date, which is on file with our Processing Office. You can change the Annuity
Commencement Date by writing to our Processing Office 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 Guarantee Periods that are applied to an annuity benefit prior to
an Expiration Date will result in a market value adjustment. See "Market Value
Adjustment for Transfers, Withdrawals or Surrender Prior to the Expiration Date"
in Part 2.
Annuity Forms
o Life Annuity: An annuity which guarantees payments for the rest of the
Annuitant's life. Payments end with the last monthly payment before the
Annuitant's death. Because there is no death benefit associated with this
annuity form, it provides the highest monthly payment of any of the life
income annuity options, so long as the Annuitant is living.
o Life Annuity -- Period Certain: This annuity form also guarantees payments
for the rest of the Annuitant's life. In addition, if the Annuitant dies
before a specified period of time (the "certain period") has ended, payments
will continue to the beneficiary for the balance of the certain period.
Certain periods may be 5, 10, 15 or 20 years. A life annuity with a certain
period of 10 years is the normal form of annuity under the Certificates.
o Life Annuity -- Refund Certain: This annuity form guarantees payments to you
for the rest of your life. In addition, if you die before the amount applied
to purchase this annuity option has been recovered, payments will continue to
your beneficiary until that amount has been recovered. This option is
available only as a fixed annuity.
o Period Certain Annuity: This annuity form guarantees payments for a specific
period of time, usually 5, 10, 15 or 20 years, and does not involve life
contingencies.
o Joint and Survivor Life Annuity: This annuity form guarantees life income to
you and, after your death, continuation of income to the survivor.
The life annuity -- period certain and the life annuity -- refund certain are
available on either a single life or joint and survivor life basis.
The annuity forms outlined above are available in both fixed and variable form,
unless otherwise indicated. Fixed annuity payments are guaranteed by us and will
be based either on the tables of guaranteed annuity payments in your Certificate
or on our then current annuity rates, whichever is more favorable for the
Annuitant. Variable income annuities may be funded through the Investment Funds
through the purchase of annuity units. The amount of each variable annuity
payment may fluctuate, depending upon the performance of the Investment Funds.
That is because the annuity unit value rises and falls depending on whether the
actual rate of net investment return (after deduction of charges) is higher or
lower than the assumed base rate. See "Annuity Unit Values" in the SAI. Variable
income annuities may also be available by separate prospectus through Investment
Funds of other separate accounts we offer.
For all Annuitants, the normal form of annuity provides for fixed payments. We
may offer other forms not outlined here. Your agent can provide details.
For each annuity benefit, we will issue a separate written agreement putting the
benefit into effect. Before we pay any annuity benefit, we require the return of
the Certificate.
The amount of the annuity payments will depend on the amount applied to purchase
the annuity, the type of annuity chosen and, in the case of a life annuity form,
the Annuitant's age (or the Annuitant's and joint Annuitant's ages) and in
certain instances, the sex of the Annuitant(s). Once an annuity form is chosen
and payments have commenced, no change can be made.
If, at the time you elect an annuity form, the amount to be applied is less than
$2,000 or the initial payment under the form elected is less than $20 monthly,
we reserve the right to pay the Annuity Account Value in a single sum rather
than as payments under the annuity form chosen.
INCOME MANAGER PAYOUT ANNUITY OPTIONS
Under Accumulator Certificates, you may apply your Annuity Account Value to an
Income Manager (Life Annuity with a Period Certain) payout annuity certificate
or an Income Manager (Period Certain) payout annuity certificate. The Income
Manager (Life Annuity with a Period Certain) payout annuity certificates provide
guaranteed level or increasing payments for the Annuitant's life or for the
Annuitant's life and the life of a joint Annuitant. The
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Income Manager (Period Certain) payout annuity certificate provides level
payments for a specified period. The Certificate Owner and Annuitant must meet
the issue age and payment requirements.
If you apply a part of the Annuity Account Value under an Income Manager payout
annuity certificate, it will be considered a withdrawal and may be subject to
withdrawal charges. See "Withdrawal Options" above. If 100% of the Annuity
Account Value is applied from an Accumulator Certificate at a time when the
dollar amount of the withdrawal charge is greater than 2% of remaining
contributions (after withdrawals), such withdrawal charge will not be deducted.
However, a new withdrawal charge schedule will apply under the new certificate.
For purposes of the new certificate withdrawal charge schedule, the year in
which your Annuity Account Value is applied under the new certificate will be
"Contract Year 1." If 100% of the Annuity Account Value is applied from the
Accumulator when the dollar amount of the withdrawal charge is 2% or less, such
withdrawal charge will not be deducted and there will be no withdrawal charge
schedule under the new certificate. You should consider the timing of your
purchase as it relates to the potential for withdrawal charges under the new
certificate. No subsequent contributions will be permitted under the Income
Manager payout annuity certificate.
You may also apply your Annuity Account Value to purchase the Income Manager
(Period Certain) payout annuity certificate once withdrawal charges are no
longer in effect under the Accumulator Certificate. No withdrawal charges will
apply under this Income Manager (Period Certain) payout annuity certificate.
The Income Manager payout annuities are described in our prospectus for the
Income Manager. Copies of the most current version are available from your
agent. To purchase an Income Manager payout annuity certificate, we also require
the return of your Accumulator Certificate. An Income Manager payout annuity
certificate will be issued to put one of the payout annuity options into effect.
Depending upon your circumstances, this may be accomplished on a tax-free basis.
Consult your tax adviser.
ASSIGNMENT
The Certificates may be assigned at any time before the Annuity Commencement
Date and for any purpose other than as collateral or security for a loan.
Equitable Life will not be bound by an assignment unless it is in writing and we
have received it at our Processing Office. In some cases, an assignment may have
adverse tax consequences. See "Part 6: Tax Aspects of the Certificates."
SERVICES WE PROVIDE
o REGULAR REPORTS
o Statement of your Certificate values as of the last day of the calendar
year;
o Three additional reports of your Certificate values each year;
o Annual and semi-annual statements of each trust; and
o Written confirmation of financial transactions.
o TOLL-FREE TELEPHONE SERVICES
o Call 1-800-789-7771 for a recording of daily Accumulation Unit Values and
Guaranteed Rates applicable to the Guarantee Periods. Also call during our
regular business hours to speak to one of our customer service
representatives.
o PROCESSING OFFICE
o FOR CONTRIBUTIONS SENT BY REGULAR MAIL:
Equitable Life Income Management Group
Post Office Box 13014
Newark, NJ 07188-0014
o FOR CONTRIBUTIONS SENT BY EXPRESS MAIL:
Equitable Life
c/o First Chicago National Processing Center
300 Harmon Meadow Boulevard, 3rd Floor
Attn: Box 13014
Secaucus, NJ 07094
o FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY REGULAR MAIL:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
o FOR ALL OTHER COMMUNICATIONS (E.G., REQUESTS FOR TRANSFERS, WITHDRAWALS)
SENT BY EXPRESS MAIL:
Equitable Life
Income Management Group
200 Plaza Drive, 4th Floor
Secaucus, NJ 07096
DISTRIBUTION OF THE CERTIFICATES
As the distributor of the Certificates, Equitable Distributors, Inc. (EDI), an
indirect, wholly owned subsidiary of Equitable Life, has responsibility for
sales and marketing functions for the Certificates. EDI also serves as the
principal underwriter of the Separate Account under the 1940 Act. EDI is
registered with the SEC as a broker-dealer under the Exchange Act and is a
member of the National Association of Securities
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Dealers, Inc. EDI's principal business address is 1290 Avenue of the Americas,
New York, New York 10104. EDI was paid a fee of $1,204,370 for 1996 and $126,914
for 1995 for its services under its "Distribution Agreement" with Equitable Life
and the Separate Account.
The Certificates will be sold by registered representatives of EDI and its
affiliates, who are also our licensed insurance agents. Broker-dealer sales
compensation for EDI and its affiliates will generally not exceed six percent of
total contributions made under a Certificate. EDI may also receive compensation
and reimbursement for its marketing services under the terms of its distribution
agreement with Equitable Life. Broker-dealers receiving sales compensation will
generally pay a portion thereof to their registered representatives as
commissions related to sales of the Certificates. The offering of the
Certificates is intended to be continuous.
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- --------------------------------------------------------------------------------
PART 4: DEDUCTIONS AND CHARGES
- --------------------------------------------------------------------------------
CHARGES DEDUCTED FROM THE ANNUITY ACCOUNT VALUE
We allocate the entire amount of each contribution to the Investment Options you
select, subject to certain restrictions. We then periodically deduct certain
amounts from your Annuity Account Value. Unless otherwise indicated, the charges
described below and under "Charges Deducted from the Investment Funds" below
will not be increased by us for the life of the Certificates. We may reduce
certain charges under group or sponsored arrangements. See "Group or Sponsored
Arrangements" below. Charges are deducted proportionately from all the
Investment Funds in which your Annuity Account Value is invested on a pro rata
basis, except as noted below.
Withdrawal Charge
A withdrawal charge will be imposed as a percentage of each contribution made to
the extent that a withdrawal exceeds the free corridor amount, or if the
Certificate is surrendered to receive its Cash Value. We determine the
withdrawal charge separately for each contribution in accordance with the table
below.
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%
The applicable withdrawal charge percentage is determined by the Contract Year
in which the withdrawal is made or the Certificate is surrendered, beginning
with "Contract Year 1" with respect to each contribution withdrawn or
surrendered. For each contribution, the Contract Year in which we receive that
contribution is "Contract Year 1."
The withdrawal charge is deducted from the Investment Options from which each
such withdrawal is made in proportion to the amount being withdrawn from each
Investment Option.
Free Corridor Amount
The free corridor amount is 15% of the Annuity Account Value at the beginning of
the Contract Year minus any amount previously withdrawn during that Contract
Year.
Any withdrawal requested that exceeds the free corridor amount will be subject
to the withdrawal charge. The 15% free corridor amount is not applicable to a
surrender.
For purposes of calculating the withdrawal charge, (1) we treat contributions as
being withdrawn on a first-in first-out basis, and (2) amounts withdrawn up to
the free corridor amount are not considered a withdrawal of any contributions.
Although we treat contributions as withdrawn before earnings for purposes of
calculating the withdrawal charge, the Federal income tax law treats earnings as
withdrawn first. See "Part 6: Tax Aspects of the Certificates."
The withdrawal charge is to help cover sales expenses.
For Certificates issued to a charitable remainder trust (CRT), the free corridor
amount will be changed to be the greater of (1) the current Annuity Account
Value, less contributions that have not been withdrawn (earnings in the
Certificate) and (2) the free corridor amount defined above. If you are
considering an annuity for use in a CRT, see "Charitable Remainder Trusts" in
Part 6 concerning recent IRS announcements on the use of annuities in CRTs.
Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit
Charge (Plan A)
We deduct a charge annually on each Processing Date for providing the Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit (Plan A).
The charge is equal to a percentage of the Guaranteed Minimum Death Benefit in
effect on the Processing Date. The percentage is equal to 0.45%.
Guaranteed Minimum Death Benefit Only Benefit Charge (Plan B)
We deduct a charge annually on each Processing Date for providing the Guaranteed
Minimum Death Benefit Only Benefit (Plan B). The charge is equal to a percentage
of the Guaranteed Minimum Death Benefit in effect on the Processing Date. The
percentage is equal to 0.20%.
Charges for State Premium and Other Applicable Taxes
We deduct a charge for applicable taxes, such as state or local premium taxes,
that might be imposed in your state. Generally we deduct this charge from the
amount applied to provide an annuity benefit. In certain states, however, we may
deduct the charge for taxes from contributions. The current tax charge that
might be imposed varies by state and ranges from 0% to 3.5% (the rate is 1% in
Puerto Rico and 5% in the Virgin Islands).
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CHARGES DEDUCTED FROM THE INVESTMENT FUNDS
Mortality and Expense Risks Charge
We will deduct a daily charge from the assets in each Investment Fund to
compensate us for mortality and expense risks. The daily charge is at the rate
of 0.002477%, which is equivalent to an annual rate of 0.90%, on the assets in
each Investment Fund.
The mortality risk assumed is the risk that Annuitants as a group will live for
a longer time than our actuarial tables predict. As a result, we would be paying
more in annuity income than we planned. We also assume a risk that the mortality
assumptions reflected in our guaranteed annuity payment tables, shown in each
Certificate, will differ from actual mortality experience. Lastly, we assume a
mortality risk to the extent that at the time of death, the Guaranteed Minimum
Death Benefit exceeds the Cash Value of the Certificate. The expense risk
assumed is the risk that it will cost us more to issue and administer the
Certificates than we expect.
Administration Charge
We will deduct a daily charge from the assets in each Investment Fund, to
compensate us for administration expenses under the Certificates. The daily
charge is at a rate of 0.000692% (equivalent to an annual rate of 0.25%) on the
assets in each Investment Fund. We reserve the right to increase this charge to
an annual rate of 0.35%, the maximum permitted under the Certificates.
HR TRUST CHARGES TO PORTFOLIOS
Investment advisory fees charged daily against HR Trust's assets, the 12b-1 fee,
direct operating expenses of HR Trust (such as trustees' fees, expenses of
independent auditors and legal counsel, bank and custodian charges and liability
insurance), and certain investment-related expenses of HR Trust (such as
brokerage commissions and other expenses related to the purchase and sale of
securities), are reflected in each Portfolio's daily share price. The maximum
investment advisory fees paid annually by the Portfolios cannot be changed
without a vote by shareholders. They are as follows:
- -------------------------------------------------------------
AVERAGE DAILY ASSETS
--------------------------------------------
FIRST NEXT NEXT NEXT
$750 $750 $1 $2.5 THERE-
MILLION MILLION BILLION BILLION AFTER
- ----------------------------------------------------------------------------
Alliance
Conservative
Investors 0.475% 0.425% 0.375% 0.350% 0.325%
Alliance Growth
Investors 0.550% 0.500% 0.450% 0.425% 0.400%
Alliance Growth
& Income 0.550% 0.525% 0.500% 0.480% 0.470%
Alliance Common
Stock 0.475% 0.425% 0.375% 0.355% 0.345%*
Alliance Global 0.675% 0.600% 0.550% 0.530% 0.520%
Alliance
International 0.900% 0.825% 0.800% 0.780% 0.770%
Alliance
Aggressive
Stock 0.625% 0.575% 0.525% 0.500% 0.475%
Alliance Small
Cap Growth 0.900% 0.850% 0.825% 0.800% 0.775%
Alliance Money
Market 0.350% 0.325% 0.300% 0.280% 0.270%
Alliance
Intermediate
Government
Securities 0.500% 0.475% 0.450% 0.430% 0.420%
Alliance High
Yield 0.600% 0.575% 0.550% 0.530% 0.520%
- -------------------
* On assets in excess of $10 billion, the management fee for the Alliance Common
Stock Portfolio is reduced to 0.335% of average daily net assets.
- --------------------------------------------------------------------------------
Investment advisory fees are established under HR Trust's investment advisory
agreements between HR Trust and its investment adviser, Alliance.
The Rule 12b-1 Plan provides that the HR Trust, on behalf of each Portfolio may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily intended
to result in the sale of the Class IB shares. This fee will not be increased for
the life of the Certificates. EDI is currently waiving a portion of the 12b-1
fee with respect to the Alliance Small Cap Growth Portfolio. Fees and expenses
are described more fully in the HR Trust prospectus.
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EQ TRUST CHARGES TO PORTFOLIOS
Investment management fees charged daily against EQ Trust's assets, the 12b-1
fee, other direct operating expenses of EQ Trust (such as trustees' fees,
expenses of independent auditors and legal counsel, administrative service fees,
custodian fees, and liability insurance), and certain investment-related
expenses of EQ Trust (such as brokerage commissions and other expenses related
to the purchase and sale of securities), are reflected in each Portfolio's daily
share price. The investment management fees paid annually by the Portfolios
cannot be changed without a vote by shareholders. They are as follows:
- --------------------------------------------------------------
AVERAGE DAILY
NET ASSETS
----------------------
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%
- --------------------------------------------------------------
Investment management fees are established under EQ Trust's Investment
Management Agreement between EQ Trust and its investment manager, EQ Financial.
EQ Financial has entered into expense limitation agreements with EQ Trust, with
respect to each Portfolio, pursuant to which EQ Financial has agreed to waive or
limit its fees and to assume other expenses so that the total operating expenses
of each Portfolio are limited to: 0.55% of the respective average daily net
assets of the BT Equity 500 Index Portfolio; 0.60% for the BT Small Company
Index Portfolio; 0.80% for the BT International Equity Index Portfolio; 0.85%
for the MFS Research, MFS Emerging Growth Companies, Merrill Lynch Basic Value
Equity, EQ/Putnam Growth & Income Value and T. Rowe Price Equity Income
Portfolios; 0.90% for the EQ/Putnam Balanced Portfolio; 1.00% for Warburg Pincus
Small Company Value Portfolio; 1.20% for the Merrill Lynch World Strategy and T.
Rowe Price International Stock Portfolios; and 1.75% for the Morgan Stanley
Emerging Markets Equity Portfolio. See the prospectus for EQ Trust for more
information.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may pay
annually up to 0.25% of the average daily net assets of a Portfolio attributable
to its Class IB shares in respect of activities primarily intended to result in
the sale of the Class IB shares. This fee will not be increased for the life of
the Certificates. Fees and expenses are described more fully in the EQ Trust
prospectus.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the withdrawal
charge, or the mortality and expense risks charge, or change the minimum initial
contribution requirements. We may also change the Guaranteed Minimum Death
Benefit and the Guaranteed Minimum Income Benefit. We may offer Investment Funds
investing in Class IA shares of HR Trust and EQ Trust, which are not subject to
12b-1 fees. Group arrangements include those in which a trustee or an employer,
for example, purchases contracts covering a group of individuals on a group
basis. Sponsored arrangements include those in which an employer allows us to
sell Certificates to its employees or retirees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the size
and stability of the group among other factors. We take all these factors into
account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or sponsored arrangements that
have been set up solely to buy Certificates or that have been in existence less
than six months will not qualify for reduced charges.
We may also establish different Guaranteed Rates for the Guarantee Periods under
different classes of Certificates for group or sponsored arrangements.
We will make these and any similar reductions according to our rules in effect
when a Certificate is approved for issue. We may change these rules from time to
time. Any variation in the withdrawal charge will reflect differences in costs
or services and will not be unfairly discriminatory.
Group and sponsored arrangements may be governed by the Code, the Employee
Retirement Income Security Act of 1974 (ERISA), or both. We make no
representations as to the impact of those and other applicable laws on such
programs. WE RECOMMEND THAT EMPLOYERS, TRUSTEES, AND OTHERS PURCHASING OR MAKING
CERTIFICATES AVAILABLE FOR PURCHASE UNDER SUCH PROGRAMS SEEK THE ADVICE OF THEIR
OWN LEGAL AND BENEFITS ADVISERS.
OTHER DISTRIBUTION ARRANGEMENTS
Charges may be reduced or eliminated when sales are made in a manner that
results in savings of sales and administrative expenses, such as sales through
persons who are compensated by clients for recommending investments and receive
no commission or reduced commissions in connection with the sale of the
Certificates. In no event will a reduction or elimination of charges be
permitted where it would be unfairly discriminatory.
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- --------------------------------------------------------------------------------
PART 5: VOTING RIGHTS
- --------------------------------------------------------------------------------
HR TRUST AND EQ TRUST VOTING RIGHTS
As explained previously, contributions allocated to the Investment Funds are
invested in shares of the corresponding Portfolios of HR Trust and EQ Trust.
Since we own the assets of the Separate Account, we are the legal owner of the
shares and, as such, have the right to vote on certain matters. Among other
things, we may vote:
o to elect each trust's Board of Trustees,
o to ratify the selection of independent auditors for each trust, and
o on any other matters described in each trust's current prospectus or
requiring a vote by shareholders under the 1940 Act.
Because HR Trust is a Massachusetts business trust and EQ Trust is a Delaware
business trust, annual meetings are not required. Whenever a shareholder vote is
taken, we will give Certificate Owners the opportunity to instruct us how to
vote the number of shares attributable to their Certificates. If we do not
receive instructions in time from all Certificate Owners, we will vote the
shares of a Portfolio for which no instructions have been received in the same
proportion as we vote shares of that Portfolio for which we have received
instructions. We will also vote any shares that we are entitled to vote directly
because of amounts we have in an Investment Fund in the same proportions that
Certificate Owners vote.
Each share of each trust is entitled to one vote. Fractional shares will be
counted. Voting generally is on a Portfolio-by-Portfolio basis except that
shares will be voted on an aggregate basis when universal matters, such as
election of Trustees and ratification of independent auditors, are voted upon.
However, if the Trustees determine that shareholders in a Portfolio are not
affected by a particular matter, then such shareholders generally would not be
entitled to vote on that matter.
VOTING RIGHTS OF OTHERS
Currently, we control each trust. EQ Trust shares currently are sold only to our
separate accounts. HR Trust shares are held by other separate accounts of ours
and by separate accounts of insurance companies affiliated and unaffiliated with
us. Shares held by these separate accounts will probably be voted according to
the instructions of the owners of insurance policies and contracts issued by
those insurance companies. While this will dilute the effect of the voting
instructions of the Accumulator Certificate Owners, we currently do not foresee
any disadvantages arising out of this. HR Trust's Board of Trustees intends to
monitor events in order to identify any material irreconcilable conflicts that
possibly may arise and to determine what action, if any, should be taken in
response. If we believe that HR Trust's response to any of those events
insufficiently protects our Certificate Owners, we will see to it that
appropriate action is taken to protect our Certificate Owners.
SEPARATE ACCOUNT VOTING RIGHTS
If actions relating to the Separate Account require Certificate Owner approval,
Certificate Owners will be entitled to one vote for each Accumulation Unit they
have in the Investment Funds. Each Certificate Owner who has elected a variable
annuity payout may cast the number of votes equal to the dollar amount of
reserves we are holding for that annuity in an Investment Fund divided by the
Accumulation Unit Value for that Investment Fund. We will cast votes
attributable to any amounts we have in the Investment Funds in the same
proportion as votes cast by Certificate Owners.
CHANGES IN APPLICABLE LAW
The voting rights we describe in this prospectus are created under applicable
Federal securities laws. To the extent that those laws or the regulations
promulgated under those laws eliminate the necessity to submit matters for
approval by persons having voting rights in separate accounts of insurance
companies, we reserve the right to proceed in accordance with those laws or
regulations.
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PART 6: TAX ASPECTS OF THE CERTIFICATES
- --------------------------------------------------------------------------------
This Part of the prospectus generally covers our understanding of the current
Federal income tax rules that apply to a non-qualified annuity purchased with
only after-tax dollars. This part does not apply to Qualified Plan Certificates
discussed in Appendix II.
This prospectus does not provide detailed tax information and does not address
issues such as state income and other taxes, 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 Accumulator Certificates.
TAX CHANGES
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities. In addition, the Treasury Department may amend existing
regulations, issue new regulations, or adopt new interpretations of existing
laws. State tax laws or, if you are not a United States resident, foreign tax
laws, may affect the tax consequences to you or the beneficiary. These laws may
change from time to time without notice and, as a result, the tax consequences
may be altered. There is no way of predicting whether, when or in what form any
such change would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
TAXATION OF NON-QUALIFIED ANNUITIES
Equitable Life has designed the Accumulator Certificate to qualify as an
"annuity" for purposes of Federal income tax law. Gains in the Annuity Account
Value of the Certificate generally will not be taxable to an individual until a
distribution occurs, either by a withdrawal of part or all of its value or as a
series of periodic payments. However, there are some exceptions to this rule:
(1) if a Certificate fails the investment diversification requirements; (2) if
an individual transfers a Certificate as a gift to someone other than a spouse
(or divorced spouse), any gain in its Annuity Account Value will be taxed at the
time of transfer; (3) the assignment or pledge of any portion of the value of a
Certificate will be treated as a distribution of that portion of the
Certificate; and (4) when an insurance company (or its affiliate) issues more
than one non-qualified deferred annuity certificate or contract during any
calendar year to the same taxpayer, the certificates or contracts are required
to be aggregated in computing the taxable amount of any distribution.
Corporations, partnerships, trusts and other non-natural persons generally
cannot defer the taxation of current income credited to the Certificate unless
an exception under the Code applies.
Withdrawals
Prior to the Annuity Commencement Date, any withdrawals which do not terminate
your total interest in the Certificate are taxable to you as ordinary income to
the extent there has been a gain in the Annuity Account Value and is subject to
income tax withholding. See "Federal and State Income Tax Withholding" below.
The balance of the distribution is treated as a return of the "investment" or
"basis" in the Certificate and is not taxable. Generally, the investment or
basis in the Certificate equals the contributions made, less any amounts
previously withdrawn which were not taxable. If your Accumulator Certificate was
issued as a result of a tax-free exchange of another non-qualified life
insurance or deferred annuity contract as described in "Methods of Payment:
Section 1035 Exchanges" in Part 3, your investment in that original contract
generally is treated as the basis in the Accumulator 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 Certificate, the distribution is taxable to the
extent it exceeds the investment in the Certificate.
Annuity Payments
Once annuity payments begin, a portion of each payment is considered to be a
tax-free recovery of investment based on the ratio of the investment to the
expected return under the Certificate. The remainder of each payment will be
taxable. In the case of a variable annuity, special rules apply if the payments
received in a year are less than the amount permitted to be recovered tax free.
In the case of a life annuity, after the total investment has been recovered,
future payments are fully taxable. If payments cease as a result of death, a
deduction for any unrecovered investment will be allowed.
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Early Distribution Penalty Tax
In addition to income tax, a penalty tax of 10% applies to the taxable portion
of a distribution unless the distribution is (1) made on or after the date the
taxpayer attains age 59 1/2, (2) made on or after the taxpayer's death, (3)
attributable to the disability of the taxpayer, (4) part of a series of
substantially equal installments as an annuity for the life (or life expectancy)
of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer
and a beneficiary, or (5) with respect to income allocable to amounts
contributed to an annuity certificate or contract prior to August 14, 1982 which
are transferred to the Certificate in a tax-free exchange.
Payments as a Result of Death
If, as a result of the Annuitant's death, the beneficiary is entitled to receive
the death benefit described in Part 3, the beneficiary is generally subject to
the same tax treatment as would apply to you, had you surrendered the
Certificate (discussed above).
If the beneficiary elects to take the death benefit in the form of a life income
or installment option, the election should be made within 60 days after the day
on which a lump sum death benefit first becomes payable and before any benefit
is actually paid. The tax computation will reflect your investment in the
Certificate.
The Certificate provides a minimum guaranteed death benefit that in certain
circumstances may be greater than either the contributions made or the Annuity
Account Value. This provision provides investment protection against an untimely
termination of a Certificate on the death of an Annuitant at a time when the
Certificate's Annuity Account Value might otherwise have provided a lower
benefit. Although we do not believe that the provision of this benefit should
have any adverse tax effect, it is possible that the IRS could take a contrary
position and could assert that some portion of the charges for the minimum
guaranteed death benefit should be treated for Federal income tax purposes as a
partial withdrawal from the Certificate. If this were so, such a deemed
withdrawal could be taxable, and for Certificate Owners under age 59 1/2, also
subject to tax penalty.
Special distribution requirements apply upon the death of the owner of a
non-qualified annuity. That is, in the case of a contract where the owner and
annuitant are different, even though the annuity contract could continue because
the annuitant has not died, Federal tax law requires that the person who
succeeds as owner of the contract take distribution of the contract within a
specified period of time.
CHARITABLE 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.
FEDERAL AND STATE INCOME TAX WITHHOLDING
Equitable Life is required to withhold Federal income tax on the taxable portion
of annuity payments, unless the recipient elects not to be subject to income tax
withholding. The rate of withholding will depend on the type of distribution
and, in certain cases, the amount of the distribution. Special withholding rules
apply to foreign recipients and United States citizens residing outside the
United States. If a recipient does not have sufficient income tax withheld or
does not make sufficient estimated income tax payments, however, the recipient
may incur penalties under the estimated income tax rules. Recipients should
consult their tax advisers to determine whether they should elect out of
withholding. Requests not to withhold Federal income tax must be made in writing
prior to receiving benefits under the Certificate. Our Processing Office will
provide forms for this purpose. No election out of withholding is valid unless
the recipient provides us with the correct taxpayer identification number and a
United States residence address.
Certain states have indicated that income tax withholding will apply to payments
from the Certificates made to residents. In some states, a recipient may elect
out of state withholding. Generally, an election out of Federal withholding will
also be considered an election out of state withholding. If you need more
information concerning a particular state or any required forms, call our
Processing Office at the toll-free number and consult your tax adviser.
Periodic payments are generally subject to wage-bracket type withholding (as if
such payments were payments of wages by an employer to an employee) unless the
recipient elects no withholding. If a recipient does not elect out of
withholding or does not specify the number of withholding exemptions,
withholding will generally be made as if the recipient is married and claiming
three withholding exemptions. There is an annual threshold of taxable income
from periodic annuity payments which is exempt from withholding based on this
assumption. For 1997, a recipient of periodic payments (e.g., monthly or annual
payments) which total less than a $14,400 taxable amount will generally be
exempt from Federal income tax withholding, unless the recipient specifies a
different choice of
33
<PAGE>
withholding exemption. A withholding election may be revoked at any time and
remains effective until revoked. If a recipient fails to provide a correct
taxpayer identification number, withholding is made as if the recipient is
single with no exemptions.
A recipient of a non-periodic distribution (total or partial) will generally be
subject to withholding at a flat 10% rate. A recipient who provides a United
States residence address and a correct taxpayer identification number will
generally be permitted to elect not to have tax withheld.
All recipients receiving periodic and non-periodic payments will be further
notified of the withholding requirements and of their right to make withholding
elections.
OTHER WITHHOLDING
As a general rule, if death benefits are payable to a person two or more
generations younger than you, a Federal generation skipping tax may be payable
with respect to the benefit at rates similar to the maximum estate tax rate in
effect at the time. The generation skipping tax provisions generally apply to
transfers which would also be subject to the gift and estate tax rules.
Individuals are generally allowed an aggregate generation skipping tax exemption
of $1 million. Because these rules are complex, you should consult with your tax
adviser for specific information, especially where benefits are passing to
younger generations, as opposed to a spouse or child.
If we believe a benefit may be subject to generation skipping tax we may be
required to withhold for such tax unless we receive acceptable written
confirmation that no such tax is payable.
SPECIAL RULES FOR CERTIFICATES ISSUED IN PUERTO RICO
Under current law Equitable Life treats income from Accumulator Certificates as
U.S.-source. A Puerto Rico resident is subject to U.S. taxation on such
U.S.-source income. Only Puerto Rico-source income of Puerto Rico residents is
excludable from U.S. taxation. Income from Accumulator Certificates is also
subject to Puerto Rico tax. The computation of the taxable portion of amounts
distributed from a Certificate may differ in the two jurisdictions. Therefore,
an individual might have to file both U.S. and Puerto Rico tax returns, showing
different amounts of income for each. Puerto Rico generally provides a credit
against Puerto Rico tax for U.S. tax paid. Depending on an individual's personal
situation and the timing of the different tax liabilities, an individual may not
be able to take full advantage of this credit.
Please consult your tax adviser to determine the applicability of these rules to
your own tax situation.
IMPACT OF TAXES TO EQUITABLE LIFE
The Certificates provide that Equitable Life may charge the Separate Account for
taxes. Equitable Life can set up reserves for such taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers among the Investment Funds or between the Guaranteed Period Account
and one or more Investment Funds are not taxable.
34
<PAGE>
- --------------------------------------------------------------------------------
PART 7: INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated financial statements and consolidated financial statement
schedules of Equitable Life at December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 included in Equitable Life's
Annual Report on Form 10-K, incorporated by reference in the prospectus, have
been examined by Price Waterhouse LLP, independent accountants, whose reports
thereon are incorporated herein by reference. Such consolidated financial
statements and consolidated financial statement schedules have been incorporated
herein by reference in reliance upon the reports of Price Waterhouse LLP given
upon their authority as experts in accounting and auditing.
35
<PAGE>
- --------------------------------------------------------------------------------
PART 8: INVESTMENT PERFORMANCE
- --------------------------------------------------------------------------------
This Part presents performance data for each of the Investment Funds included in
the tables below. The performance data are calculated by two methods. The first
method presented in the tables under "Adjusted Historical Performance Data,"
reflects all applicable fees and charges, including the Combined Guaranteed
Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge, but not the
charge for tax such as premium taxes.
The second method presented in the tables under "Rate of Return Data for
Investment Funds," also reflects all applicable fees and charges, but does not
reflect the withdrawal charge, the Combined Guaranteed Minimum Death Benefit and
Guaranteed Minimum Income Benefit Charge, or the charge for tax such as premium
taxes. These additional charges would effectively reduce the rates of return
credited to a particular Certificate.
The Certificates were not offered prior to May 1, 1997. Accordingly, the
performance data for the Investment Funds have been adjusted for expenses, as
described herein, that would have been incurred had these Certificates been
available prior to such date.
HR Trust Portfolios
The performance data shown for the Investment Funds investing in Class IB shares
of HR Trust Portfolios (other than the Alliance Small Cap Growth Portfolio which
commenced operations on May 1, 1997) are based on the actual investment results
of the Portfolios and have been adjusted for the fees and charges applicable
under the Certificates. However, the investment results for the Alliance Growth
& Income, Alliance International, Alliance Conservative Investors and Alliance
Intermediate Government Securities Portfolios (under which Class IB shares were
only recently available) and for the other Portfolios prior to October 1996,
when Class IB shares were not available under such Portfolios, do not reflect
12b-1 fees, which would effectively reduce such investment performance.
The performance data for the Alliance Money Market and Alliance Common Stock
Investment Funds that invest in corresponding HR Trust Portfolios, for periods
prior to March 22, 1985, reflect the investment results of two open-end
management separate accounts (the "predecessor separate accounts") which were
reorganized in unit investment trust form. The "Since Inception" figures for
these Investment Funds are based on the date of inception of the predecessor
separate accounts. These performance data have been adjusted to reflect the
maximum investment advisory fee payable for the corresponding Portfolio of HR
Trust, as well as an assumed charge of 0.06% for direct operating expenses.
EQ Trust Portfolios
The Investment Funds of the Separate Account that invest in Class IB shares of
Portfolios of EQ Trust have only recently been established. EQ Trust commenced
operations on May 1, 1997. In this connection, see the discussion immediately
following the tables below.
See "Part 2: The Guaranteed Period Account" for information on the Guaranteed
Period Account.
ADJUSTED HISTORICAL PERFORMANCE DATA
The performance data in the following tables illustrate the average annual total
return of the Investment Funds over the periods shown, assuming a single initial
contribution of $1,000 and the surrender of the Certificate at the end of each
period. These tables (which reflect the first calculation method described
above) are prepared for use when we advertise the performance of the Separate
Account. An Investment Fund's average annual total return is the annual rate of
growth of the Investment Fund that would be necessary to achieve the ending
value of a contribution kept in the Investment Fund for the period specified.
Each calculation assumes that the $1,000 contribution was allocated to only one
Investment Fund, no transfers or subsequent contributions were made and no
amounts were allocated to any other Investment Option under the Certificate.
In order to calculate annualized rates of return, we divide the Cash Value of a
Certificate which is surrendered on December 31, 1996 by the $1,000 contribution
made at the beginning of each period illustrated. The result of that calculation
is the total growth rate for the period. Then we annualize that growth rate to
obtain the average annual percentage increase (decrease) during the period
shown. When we "annualize," we assume that a single rate of return applied each
year during the period will produce the ending value, taking into account the
effect of compounding.
36
<PAGE>
ADJUSTED HISTORICAL PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN UNDER A CERTIFICATE SURRENDERED ON
DECEMBER 31, 1996*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
------------------------------------------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
- ------------------------------------------ ----------------- ----------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
HR TRUST
Alliance Conservative Investors (3.01)% 3.61% 5.20% -- 6.60%
Alliance Growth Investors 4.24 8.24 8.65 -- 12.44
Alliance Growth & Income 11.70 11.01 -- -- 8.04
Alliance Common Stock 15.76 14.24 13.64 14.14% 13.57
Alliance Global 6.20 9.72 11.42 -- 9.26
Alliance International 1.54 -- -- -- 13.25
Alliance Aggressive Stock 13.71 12.66 9.70 16.91 18.36
Alliance Money Market (2.95) 1.89 2.15 4.23 5.43
Alliance Intermediate Government
Securities (4.43) 0.85 3.47 -- 4.85
Alliance High Yield 14.39 9.69 12.59 -- 9.69
</TABLE>
- -------------------
See footnotes below.
- --------------------------------------------------------------------------------
The table below illustrates the growth of an assumed investment of $1,000, with
fees and charges deducted on the standardized basis described above for the
first method of calculation.
ADJUSTED HISTORICAL PERFORMANCE DATA
GROWTH OF $1,000 UNDER A CERTIFICATE SURRENDERED ON DECEMBER 31, 1996*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
------------------------------------------------------------------------------------
INVESTMENT ONE THREE FIVE TEN SINCE
FUND YEAR YEARS YEARS YEARS INCEPTION**
- ------------------------------------------ ----------------- ----------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
HR TRUST
Alliance Conservative Investors $ 970 $1,112 $1,288 -- $ 1,668
Alliance Growth Investors 1,042 1,268 1,514 -- 2,555
Alliance Growth & Income 1,117 1,368 -- -- 1,362
Alliance Common Stock 1,158 1,491 1,895 $3,752 14,485
Alliance Global 1,062 1,321 1,717 -- 2,424
Alliance International 1,015 -- -- -- 1,132
Alliance Aggressive Stock 1,137 1,430 1,589 4,770 6,388
Alliance Money Market 971 1,058 1,112 1,514 2,332
Alliance Intermediate Government
Securities 956 1,026 1,186 -- 1,328
Alliance High Yield 1,144 1,320 1,809 -- 2,522
</TABLE>
- -------------------
* The tables reflect the withdrawal charge and charges under a Certificate with
the 0.45% Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit Charge.
** The "Since Inception" dates for the Portfolios of HR Trust are as follows:
Alliance Conservative Investors (October 2, 1989); Alliance Growth Investors
(October 2, 1989); Alliance Growth & Income (October 1, 1993); Alliance
Common Stock (January 13, 1976); Alliance Global (August 27, 1987); Alliance
International (April 3, 1995); Alliance Aggressive Stock (January 27, 1986);
Alliance Money Market (July 13, 1981); Alliance Intermediate Government
Securities (April 1, 1991); and Alliance High Yield (January 2, 1987).
- --------------------------------------------------------------------------------
Additional investment performance information appears in the attached HR Trust
and EQ Trust prospectuses.
The Alliance Small Cap Growth Portfolio of HR Trust commenced operations on May
1, 1997. Historical performance of a composite of six other advisory accounts
managed by Alliance is described in the attached HR Trust prospectus. According
to that prospectus, these accounts have substantially the same investment
objectives and policies, and are managed in accordance with essentially the same
investment strategies and techniques, as those of the Alliance Small Cap Growth
Portfolio. It should be noted that these accounts are not subject to certain of
the requirements and restrictions to which the Alliance Small Cap Growth
Portfolio is subject and that they are managed for tax-exempt clients of
Alliance. The investment performance information included in the HR Trust
prospectus for all Portfolios other than the Alliance Small Cap Growth Portfolio
is based on actual historical performance.
37
<PAGE>
The investment performance data for HR Trust's Alliance Small Cap Growth
Portfolio and for each of the Portfolios of EQ Trust, contained in the HR Trust
and the EQ Trust prospectuses, are provided by those prospectuses to illustrate
the past performance of each respective Portfolio adviser in managing
substantially similar investment vehicles as measured against specified market
indices and do not represent the past or future performance of any Portfolio.
None of the performance data contained in the HR Trust and EQ Trust prospectuses
reflects fees and charges imposed under your Certificate, which fees and charges
would reduce such performance figures. Therefore, the performance data for each
of the Portfolios described in the EQ Trust prospectus and for the Alliance
Small Cap Growth Portfolio in the HR Trust prospectus may be of limited use and
are not intended to be a substitute for actual performance of the corresponding
Portfolios, nor are such results an estimate or guarantee of future performance
for these Portfolios.
RATE OF RETURN DATA FOR INVESTMENT FUNDS
The following tables (which reflect the second calculation method described
above) provide you with information on rates of return on an annualized,
cumulative and year-by-year basis.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends. Cumulative rates of return
reflect performance over a stated period of time. Annualized rates of return
represent the annual rate of growth that would have produced the same cumulative
return, if performance had been constant over the entire period.
BENCHMARKS
Market indices are not subject to any charges for investment advisory fees,
brokerage commission or other operating expenses typically associated with a
managed portfolio. Nor do they reflect other charges such as the mortality and
expense risks charge and the administration charge, or any withdrawal charge
under the Certificates. Comparisons with these benchmarks, therefore, are of
limited use. We include them because they are widely known and may help you to
understand the universe of securities from which each Portfolio is likely to
select its holdings. Benchmark data reflect the reinvestment of dividend income.
PORTFOLIO INCEPTION DATES AND COMPARATIVE BENCHMARKS:
ALLIANCE CONSERVATIVE INVESTORS: October 2, 1989; 70% Lehman Treasury Bond
Composite Index and 30% Standard & Poor's 500 Index.
ALLIANCE GROWTH INVESTORS: October 2, 1989; 30% Lehman Government/Corporate Bond
Index and 70% Standard & Poor's 500 Index.
ALLIANCE GROWTH & INCOME: October 1, 1993; 75% Standard & Poor's 500 Index and
25% Value Line Convertible Index.
ALLIANCE COMMON STOCK: January 13, 1976; Standard & Poor's 500 Index.
ALLIANCE GLOBAL: August 27, 1987; Morgan Stanley Capital International World
Index.
ALLIANCE INTERNATIONAL: April 3, 1995; Morgan Stanley Capital International
Europe, Australia, Far East Index.
ALLIANCE AGGRESSIVE STOCK: January 27, 1986; 50% Standard & Poor's Mid-Cap Total
Return Index and 50% Russell 2000 Small Stock Index.
ALLIANCE MONEY MARKET: July 13, 1981; Salomon Brothers Three-Month T-Bill Index.
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES: April 1, 1991; Lehman Intermediate
Government Bond Index.
ALLIANCE HIGH YIELD: January 2, 1987; Merrill Lynch Master High Yield.
The Lipper Variable Insurance Products Performance Analysis Survey (Lipper)
records the performance of a large group of variable annuity products, including
managed separate accounts of insurance companies. According to Lipper Analytical
Services, Inc., the data are presented net of investment management fees, direct
operating expenses and asset-based charges applicable under annuity contracts.
Lipper data provide a more accurate picture than market benchmarks of the
Accumulator performance relative to other variable annuity products.
38
<PAGE>
<TABLE>
<CAPTION>
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
- ------------------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE INVESTORS 3.99% 5.47% 6.08% -- -- -- 7.77%
Lipper Income 8.95 8.91 9.55 -- -- -- 9.55
Benchmark 8.78 10.14 9.64 -- -- -- 10.42
ALLIANCE GROWTH INVESTORS 11.24 9.98 9.47 -- -- -- 14.22
Lipper Flexible Portfolio 12.51 9.26 9.30 -- -- -- 9.99
Benchmark 16.94 15.84 13.02 -- -- -- 12.73
ALLIANCE GROWTH & INCOME 18.70 12.69 -- -- -- -- 11.47
Lipper Growth & Income 19.96 15.39 -- -- -- -- 14.78
Benchmark 21.28 17.93 -- -- -- -- 17.24
ALLIANCE COMMON STOCK 22.76 15.85 14.38 14.48% 15.16% 14.16% 13.90
Lipper Growth 18.78 14.80 12.39 13.08 14.04 13.60 13.42
Benchmark 22.96 19.66 15.20 15.28 16.79 14.55 14.63
ALLIANCE GLOBAL 13.20 11.42 12.18 -- -- -- 10.42
Lipper Global 17.89 8.49 10.29 -- -- -- 3.65
Benchmark 13.48 12.91 10.82 -- -- -- 7.44
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 10.90
Lipper International 13.36 -- -- -- -- -- 14.33
Benchmark 6.05 -- -- -- -- -- 8.74
ALLIANCE AGGRESSIVE STOCK 20.71 14.31 10.53 17.23 -- -- 18.79
Lipper Small Company Growth 16.55 12.70 17.53 16.29 -- -- 16.47
Benchmark 17.85 14.14 14.80 14.29 -- -- 13.98
ALLIANCE MONEY MARKET 4.05 3.80 3.11 4.68 5.87 -- 6.07
Lipper Money Market 3.82 3.60 2.93 4.52 5.72 -- 5.89
Benchmark 5.25 5.07 4.37 5.67 6.72 -- 6.97
ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES 2.57 2.80 4.38 -- -- -- 5.75
Lipper Gen. U.S. Government 1.57 3.99 5.21 -- -- -- 6.76
Benchmark 4.06 5.37 6.23 -- -- -- 7.43
ALLIANCE HIGH YIELD 21.39 11.41 13.32 -- -- -- 10.13
Lipper High Yield 12.46 7.93 11.47 -- -- -- 9.13
Benchmark 11.06 9.59 12.76 -- -- -- 11.24
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1996:*
- -------------------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS 20 YEARS INCEPTION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE CONSERVATIVE INVESTORS 3.99% 17.34% 34.32% -- -- -- 72.02%
Lipper Income 8.95 29.47 58.37 -- -- -- 94.21
Benchmark 8.78 33.60 58.40 -- -- -- 105.23
ALLIANCE GROWTH INVESTORS 11.24 33.03 57.18 -- -- -- 162.01
Lipper Flexible Portfolio 12.51 30.84 56.65 -- -- -- 100.79
Benchmark 16.94 55.46 84.42 -- -- -- 138.49
ALLIANCE GROWTH & INCOME 18.70 43.09 -- -- -- -- 42.30
Lipper Growth & Income 19.96 53.82 -- -- -- -- 56.73
Benchmark 21.28 63.99 -- -- -- -- 67.75
ALLIANCE COMMON STOCK 22.76 55.49 95.76 286.77% 731.08% 1,313.81% 1,429.67
Lipper Growth 18.78 51.65 80.51 243.70 627.03 1,185.21 1,298.19
Benchmark 22.96 71.34 102.85 314.34 925.25 1,416.26 1,655.74
ALLIANCE GLOBAL 13.20 38.31 77.66 -- -- -- 152.53
Lipper Global 17.89 28.45 63.87 -- -- -- 39.73
Benchmark 13.48 43.95 67.12 -- -- -- 95.62
ALLIANCE INTERNATIONAL 8.54 -- -- -- -- -- 19.76
Lipper International 13.36 -- -- -- -- -- 26.53
Benchmark 6.05 -- -- -- -- -- 15.78
ALLIANCE AGGRESSIVE STOCK 20.71 49.35 64.99 390.16 -- -- 556.01
Lipper Small Company Growth 16.55 43.42 142.70 352.31 -- -- 428.32
Benchmark 17.85 48.69 99.38 280.32 -- -- 318.19
ALLIANCE MONEY MARKET 4.05 11.83 16.52 57.94 135.33 -- 148.77
Lipper Money Market 3.82 11.18 15.58 55.73 130.46 -- 141.99
Benchmark 5.25 15.99 23.86 73.61 165.31 -- 184.26
ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES 2.57 8.63 23.89 -- -- -- 37.89
Lipper Gen. U.S. Government 1.57 12.45 28.92 -- -- -- 45.71
Benchmark 4.06 16.98 35.30 -- -- -- 51.07
ALLIANCE HIGH YIELD 21.39 38.28 86.89 -- -- -- 162.22
Lipper High Yield 12.46 25.77 72.39 -- -- -- 142.30
Benchmark 11.06 31.63 82.29 -- -- -- 190.43
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
YEAR-BY-YEAR RATES OF RETURN*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE
CONSERVATIVE
INVESTORS -- -- -- -- -- 2.79% 5.14% 18.51% 4.50% 9.54% (5.20)% 19.02% 3.99%
ALLIANCE GROWTH
INVESTORS -- -- -- -- -- 3.53 9.39 47.19 3.69 13.95 (4.27) 24.92 11.24
ALLIANCE GROWTH &
INCOME -- -- -- -- -- -- -- -- -- (0.55) (1.72) 22.65 18.70
ALLIANCE COMMON
STOCK** (3.09)% 31.90% 16.02% 6.21% 21.03% 24.16 (9.17) 36.30 2.03 23.29 (3.26) 30.93 22.76
ALLIANCE GLOBAL -- -- -- (13.62) 9.61 25.29 (7.15) 29.06 (1.65) 30.60 4.02 17.45 13.20
ALLIANCE
INTERNATIONAL -- -- -- -- -- -- -- -- -- -- -- 10.34 8.54
ALLIANCE
AGGRESSIVE
STOCK -- -- 33.83 6.06 (0.03) 41.86 6.92 84.73 (4.28) 15.41 (4.92) 30.13 20.71
ALLIANCE MONEY
MARKET** 9.59 7.22 5.39 5.41 6.09 7.93 6.99 4.97 2.37 1.78 2.82 4.53 4.05
ALLIANCE
INTERMEDIATE
GOVERNMENT
SECURITIES -- -- -- -- -- -- -- 11.30 4.38 9.27 (5.47) 12.03 2.57
ALLIANCE HIGH
YIELD -- -- -- 3.49 8.48 3.93 (2.26) 23.03 11.02 21.74 (3.90) 18.54 21.39
</TABLE>
- -------------------
* Returns do not reflect the withdrawal charge the Combined Guaranteed Minimum
Death Benefit and Guaranteed Minimum Income Benefit Charge and any charge for
tax such as premium taxes.
<TABLE>
<CAPTION>
** Prior to 1984 the Year-by-Year Rates of Return
were: 1976 1977 1978 1979 1980 1981 1982 1983
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALLIANCE COMMON STOCK 8.20% (10.28)% 6.99% 28.35% 48.39% (6.94)% 16.22% 24.67%
ALLIANCE MONEY MARKET -- -- -- -- -- 5.71 11.72 7.70
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMUNICATING PERFORMANCE DATA
In reports or other communications or in advertising material, we may describe
general economic and market conditions affecting the Separate Account and, each
respective trust and may present the performance of the Investment Funds or
compare it with (1) that of other insurance company separate accounts or mutual
funds included in the rankings prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc., VARDS or similar investment services that monitor the
performance of insurance company separate accounts or mutual funds, (2) other
appropriate indices of investment securities and averages for peer universes of
funds which are shown under "Benchmarks" and "Portfolio Inception Dates and
Comparative Benchmarks" in this Part 8 or (3) data developed by us derived from
such indices or averages. The Morningstar Variable Annuity/Life Report consists
of nearly 700 variable life and annuity funds, all of which report their data
net of investment management fees, direct operating expenses and separate
account charges. VARDS is a monthly reporting service that monitors
approximately 760 variable life and variable annuity funds on performance and
account information. Advertisements or other communications furnished to present
or prospective Certificate Owners may also include evaluations of an Investment
Fund or Portfolio by financial publications that are nationally recognized such
as Barron's, Morningstar's Variable Annuity Sourcebook, Business Week, Chicago
Tribune, Forbes, Fortune, Institutional Investor, Investment Adviser, Investment
Dealer's Digest, Investment Management Weekly, Los Angeles Times, Money, Money
Management Letter, Kiplinger's Personal Finance, Financial Planning, National
Underwriter, Pension & Investments, USA Today, Investor's Daily, The New York
Times, and The Wall Street Journal.
ALLIANCE MONEY MARKET FUND AND ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
YIELD INFORMATION
The current yield and effective yield of the Alliance Money Market Fund and
Alliance Intermediate Government Securities Fund may appear in reports
41
<PAGE>
and promotional material to current or prospective Certificate Owners.
Alliance Money Market Fund
Current yield for the Alliance Money Market Fund will be based on net changes in
a hypothetical investment over a given seven-day period, exclusive of capital
changes, and then "annualized" (assuming that the same seven-day result would
occur each week for 52 weeks). "Effective yield" is calculated in a manner
similar to that used to calculate current yield, but when annualized, any income
earned by the investment is assumed to be reinvested. The "effective yield" will
be slightly higher than the "current yield" because any earnings are compounded
weekly. Alliance Money Market Fund yields and effective yields assume the
deduction of all Certificate charges and expenses other than the withdrawal
charge, Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit Charge and any charge for tax such as premium tax. The yields and
effective yields for the Alliance Money Market Fund when used for the Special
Dollar Cost Averaging program assume no Certificate charges are deducted. See
"Part 4: Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund Yield Information" in the SAI.
Alliance Intermediate Government Securities Fund
Current yield for the Alliance Intermediate Government Securities Fund will be
based on net changes in a hypothetical investment over a given 30-day period,
exclusive of capital changes, and then "annualized" (assuming that the same
30-day result would occur each month for 12 months). "Effective yield" is
calculated in a manner similar to that used to calculate current yield, but when
annualized, any income earned by the investment is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current yield" because any
earnings are compounded monthly.
Alliance Intermediate Government Securities Fund yields and effective yields
assume the deduction of all Certificate charges and expenses other than the
withdrawal charge, Combined Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit Charge and any charge for tax such as premium tax. See
"Part 4: Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund Yield Information" in the SAI.
42
<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 Guarantee Period 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.
43
<PAGE>
APPENDIX II: QUALIFIED PLAN CERTIFICATES
- --------------------------------------------------------------------------------
AVAILABILITY OF THE CERTIFICATES
When issued in connection with a qualified plan, the Certificates are available
for Annuitant issue ages 20 through 70.
CONTRIBUTIONS UNDER THE CERTIFICATES
When issued with the appropriate endorsement, Accumulator Certificates may be
used as an investment vehicle for a defined contribution plan maintained by an
employer and which is a tax-qualified plan within the meaning of Section 401(a)
for the Code.
When issued in connection with such a qualified plan, we will only accept
employer contributions from a trust under a plan qualified under Section 401(a)
of the Code. If the plan contains a cash or deferred arrangement within the
meaning of Section 401(k) of the Code, contributions may include employee pretax
and employer matching or other employer contributions, but not employee
after-tax contributions to the plan.
The minimum initial contribution is $5,000. Subsequent Contributions of at least
$1,000 may be made at any time until the Annuitant attains age 71.
METHODS OF PAYMENT
Automatic Investment Program
AIP, discussed in Part 3 of the prospectus, is not available for subsequent
contributions under Certificates issued to qualified plans.
CERTIFICATE OWNER, ANNUITANT AND BENEFICIARY
The Certificate Owner must be the trustee of a trust for a qualified plan
maintained by the employer. The Annuitant must be the participant/employee and
the beneficiary under the Certificate must be the Certificate Owner.
PURCHASE CONSIDERATIONS
Any trustee considering a purchase of the Accumulator should discuss with its
tax adviser whether this is an appropriate investment vehicle for the employer's
plan. The form of Certificate and this prospectus should be reviewed in full,
and the following factors, among others, should be noted. This Certificate
accepts transfer contributions only and not regular, ongoing payroll
contributions. For 401(k) plans, no employee after-tax contributions are
accepted. Further, Equitable will not perform or provide any plan recordkeeping
services with respect to this Certificate. The plan's administrator will be
solely responsible for performing or providing for all such services. There is
no loan feature offered under the Certificates, so if the plan provides for
loans and a participant takes a loan from the plan, other plan assets must be
used as the source of the loan and any loan repayments must be credited to other
investment vehicles and/or accounts available under the plan.
Finally, because the method of purchasing the Certificates and the features of
the Certificates may appeal more to plan participants who are older and tend to
be highly paid, and because certain features of the Certificates are available
only to plan participants who meet certain minimum and/or maximum age
requirements, plan trustees should discuss with their advisers whether the
purchase of the Certificates would cause the plan to engage in prohibited
discrimination in contributions, benefits or otherwise.
BASEBUILDER BENEFITS
If the Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum Income
Benefit described in Part 3 of the prospectus is elected, the Guaranteed Minimum
Income Benefit may be exercised only after the trustee of the qualified plan
changes ownership of the Certificate to the Annuitant and the Annuitant, as the
new Owner, converts such Certificate in a direct rollover to a traditional
individual retirement annuity (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.
ANNUITY BENEFITS AND PAYOUT ANNUITY OPTIONS
The only annuity benefits available under a Certificate issued in connection
with a qualified plan are a Life Annuity 10 Year Period Certain, or a Joint and
Survivor Life Annuity 10 Year Period Certain. Income Manager payout annuity
options are available only after the Certificate is rolled over into a
traditional IRA certificate. See "Annuity Benefits and Payout Annuity Options"
in Part 3 of the prospectus.
44
<PAGE>
APPENDIX III: DEATH BENEFIT FOR CERTIFICATES ISSUED IN NEW YORK
- --------------------------------------------------------------------------------
The death benefit applicable to Certificates issued in New York is equal to the
Annuity Account Value or, if greater, the Guaranteed Minimum Death Benefit.
GUARANTEED MINIMUM DEATH BENEFIT
Applicable for Annuitant issue ages 20 through 79
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
initial contribution. Thereafter, the Guaranteed Minimum Death Benefit is reset
through the Annuitant's age 80, to the Annuity Account Value on a Contract Date
anniversary if higher than the then current Guaranteed Minimum Death Benefit,
and is adjusted for any subsequent contributions and withdrawals. In no event
will the Guaranteed Minimum Death Benefit at the Annuitant's death be less than
the Annuity Account Value in the Investment Funds, plus the sum of the
Guaranteed Period Amounts in each Guarantee Period. See "Guarantee Periods" in
Part 2.
Applicable for Annuitant issue ages 80 through 83
On the Contract Date, the Guaranteed Minimum Death Benefit is equal to the
initial contribution. Thereafter, the initial contribution is adjusted for any
subsequent contributions, and any withdrawals. In no event will the Guaranteed
Minimum Death Benefit at the Annuitant's death be less than the Annuity Account
Value in the Investment Funds, plus the sum of the Guaranteed Period Amounts in
each Guarantee Period. See "Guarantee Periods" in Part 2.
Withdrawals will cause a reduction in your current Guaranteed Minimum Death
Benefit on a pro rata basis. Reduction on a pro rata basis means that we
calculate the percentage of the Annuity Account Value as of the Transaction Date
of the withdrawal, and we reduce your current Guaranteed Minimum Death Benefit
by that same percentage. For an example of the calculation, see "How Withdrawals
and Transfers Affect Your Guaranteed Minimum Death Benefit and Guaranteed
Minimum Income Benefit" in Part 3.
45
<PAGE>
APPENDIX IV: GUARANTEED MINIMUM DEATH BENEFIT EXAMPLE
- --------------------------------------------------------------------------------
Under the Certificates the death benefit for Certificates issued in all states
except New York is equal to the sum of:
(1) the Annuity Account Value in the Investment Funds or, if greater, the
Guaranteed Minimum Death Benefit (see "Guaranteed Minimum Death
Benefit" in Part 3); and
(2) the death benefit provided with respect to the Guaranteed Period
Account (see "Death Benefit" in Part 3).
See Appendix III for the description of the death benefit applicable to
Certificates issued in New York.
The following is an example illustrating the calculation of the Guaranteed
Minimum Death Benefit. Assuming $100,000 is allocated to the Investment Funds
(with no allocation to the Alliance Money Market and Alliance Intermediate
Government Securities Funds), no subsequent contributions, no transfers and no
withdrawals, the Guaranteed Minimum Death Benefit for an Annuitant age 45 would
be calculated as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
END OF NON-NEW YORK NEW YORK
CONTRACT ANNUITY GUARANTEED MINIMUM GUARANTEED MINIMUM
YEAR ACCOUNT VALUE DEATH BENEFIT(1) DEATH BENEFIT
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $105,000 $106,000 $105,000(2)
2 $115,500 $112,360 $115,500(2)
3 $132,825 $119,102 $132,825(2)
4 $106,260 $126,248 $132,825(3)
5 $116,886 $133,823 $132,825(3)
6 $140,263 $141,852 $140,263(2)
7 $140,263 $150,363 $140,263(3)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Annuity Account Values for Contract Years 1 through 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% TO AGE 80 BENEFIT
(1) For Contract Years 1 through 7, the Guaranteed Minimum Death Benefit equals
the initial contribution increased by 6%.
NEW YORK
(2) At the end of Contract Years 1, 2, and 3 and again at the end of Contract
Year 6, the Guaranteed Minimum Death Benefit is equal to the current
Annuity Account Value.
(3) At the end of Contract Years 4, 5 and 7, the Guaranteed Minimum Death
Benefit is equal to the Guaranteed Minimum Death Benefit at the end of the
prior year since it is equal to or higher than the current Annuity Account
Value.
46
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
- --------------------------------------------------------------------------------
Part 1: Accumulation Unit Values 2
- --------------------------------------------------------------------------------
Part 2: Annuity Unit Values 2
- --------------------------------------------------------------------------------
Part 3: Custodian and Independent Accountants 3
- --------------------------------------------------------------------------------
Part 4: Alliance Money Market Fund and Alliance Intermediate
Government Securities Fund Yield Information 3
- --------------------------------------------------------------------------------
Part 5: Long-Term Market Trends 4
- --------------------------------------------------------------------------------
Part 6: Key Factors in Retirement Planning 6
- --------------------------------------------------------------------------------
Part 7: Financial Statements 9
- --------------------------------------------------------------------------------
HOW TO OBTAIN AN INCOME MANAGER ACCUMULATOR STATEMENT OF
ADDITIONAL INFORMATION FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Income Manager Accumulator SAI dated
December 31, 1997:
--------------------------------------------------------------
Name
--------------------------------------------------------------
Address
--------------------------------------------------------------
City State Zip
--------------------------------------------------------------
(IMASAI)
47
<PAGE>
SUPPLEMENT DATED DECEMBER 31, 1997 TO
INCOME MANAGER(R) ROLLOVER IRA AND CHOICE INCOME
PLAN PROSPECTUS DATED OCTOBER 17, 1996, AS
PREVIOUSLY SUPPLEMENTED ON MAY 1, 1997
This supplement dated December 31, 1997, updates certain information in the
Rollover IRA and Choice Income Plan prospectus dated October 17, 1996, as
previously supplemented on May 1, 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, 1997 supplement. You should keep the
supplements and the prospectus for future reference. We have filed with the
Securities and Exchange Commission (SEC) a supplement dated December 31, 1997 to
our statement of additional information (SAI) dated May 1, 1997. If you do not
presently have a copy of the prospectus and May 1, 1997 supplement, you may
obtain additional copies, as well as copies of the SAI and SAI supplement, from
us, free of charge, if you write to Equitable Life, Income Management Group,
P.O. Box 1547, Secaucus, NJ 07096-1547, call (800) 789-7771 or if you only need
a copy of the SAI or SAI supplement, you may mail in the SAI request form
located at the end of this supplement. The SAI and SAI supplement have been
incorporated by reference into this supplement.
In this supplement, each section of the prospectus and/or May 1, 1997 supplement
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, 1997 supplement, unless
otherwise noted.
THROUGHOUT THE PROSPECTUS, THE DISCUSSION OF THE CHARGES, FEATURES AND
PROVISIONS OF THE CERTIFICATES WILL APPLY TO BOTH TRADITIONAL IRA CERTIFICATES
AND ROTH IRA CERTIFICATES, UNLESS OTHERWISE NOTED IN THIS SUPPLEMENT.
ON THE FIRST PAGE OF THE MAY 1, 1997 SUPPLEMENT WHERE PROSPECTUS COVER PAGE
REVISIONS ARE NOTED:
THE SECOND SENTENCE IN THE FIRST PARAGRAPH IS REPLACED BY THE FOLLOWING
SENTENCE:
These Investment Options include 24 variable investment funds (INVESTMENT
FUNDS) and each GUARANTEE PERIOD in the GUARANTEED PERIOD ACCOUNT.
THE INVESTMENT FUNDS CHART IS REPLACED BY THE FOLLOWING CHART:
<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
T. Rowe Price Equity Income Stock
- --------------------------------------------------------------------------------------------------------------
<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>
FOLLOWING THE INVESTMENT FUNDS CHART, THE SENTENCE ADDED TO THE END OF THE
FIFTH PARAGRAPH IS REPLACED BY THE FOLLOWING SENTENCE:
The Guarantee Periods currently available have Expiration Dates of February
15 in years 1999 through 2008 under the Rollover IRA and 1999 through 2012
under the Choice Income Plan. The Guarantee Period maturing on February 15,
2013 will become available under the IRA Assured Payment Option and IRA APO
Plus on January 2, 1998.
THROUGHOUT THE PROSPECTUS AND SUPPLEMENTS ANY REFERENCE TO THE INVESTMENT FUNDS
AND GUARANTEE PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET
FORTH ABOVE.
- --------------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States,
New York, New York 10104. All rights reserved. Income Manager is a registered
service mark of The Equitable Life Assurance Society of the United States.
IM-98-4 IRA
<PAGE>
ON PAGES 4 AND 5 OF THE PROSPECTUS UNDER "GENERAL TERMS"
REPLACE THE DEFINITION FOR "IRA" WITH THE FOLLOWING DEFINITION:
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 which
must also meet the requirements of Section 408A of the Code.
INSERT THE FOLLOWING DEFINITION AFTER THE DEFINITION OF "PROCESSING OFFICE":
ROTH IRA - An IRA which must be funded on an after-tax basis, the
distributions from which may be tax free under specified circumstances.
INSERT THE FOLLOWING DEFINITION AFTER THE DEFINITION OF "SEPARATE ACCOUNT":
TRADITIONAL IRA - An IRA which is generally purchased with pre-tax
contributions, the distributions from which are treated as taxable. The
Certificate you currently own is a Traditional IRA.
2
<PAGE>
PAGES 3 AND 4 OF THE MAY 1, 1997 SUPPLEMENT ARE REPLACED BY THE FOLLOWING
INFORMATION:
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them with other similar products. The table reflects
both the charges of the Separate Account and the expenses of HR Trust and EQ
Trust. Charges for applicable taxes such as state or local premium taxes may
also apply. For a complete description of the charges under the Certificate,
see "Part 7: Deductions and Charges." For a complete description of each
trust's charges and expenses, see the prospectuses for HR Trust and EQ Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. However, if there is insufficient
value in the Investment Funds, all or portion of the distribution fee and the
annual contract fee, if any, will be deducted from your Annuity Account Value
in the Guaranteed Period Account rather than from the Investment Funds. See
"Part 7: Deduction and Charges." A market value adjustment (either positive
or negative) also may be applicable as a result of a withdrawal, transfer or
surrender of amounts from a Guarantee Period. See "Part 4: The Guaranteed
Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
<S> <C>
DISTRIBUTION FEE (SALES LOAD) AS A PERCENTAGE OF EACH CONTRIBUTION RECEIVED DURING THE FIRST
CONTRACT YEAR (percentage deducted annually on each of the first seven Processing Dates)(1) ............0.20%
<CAPTION>
CONTRACT
YEAR
----
<S> <C> <C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon 1..........7.00%
surrender or for certain withdrawals. The applicable withdrawal charge percentage 2..........6.00
determined by the Contract Year in which the withdrawal is made or the Certificate 3..........5.00
is surrendered beginning with "Contract Year 1" with respect to each contribution 4..........4.00
is withdrawn or surrendered. For each contribution, the Contract Year in which 5..........3.00
we receive that contribution is "Contract Year 1")(2) 6..........2.00
7..........1.00
8+.........0.00
</TABLE>
<TABLE>
<CAPTION>
COMBINED GMDB
GMDB/GMIB ONLY
BENEFIT BENEFIT
(PLAN A) (PLAN B)
-------- --------
<S> <C> <C>
GMDB/GMIB CHARGES (percentage deducted annually on each Processing
Date as a percentage of the guaranteed minimum death benefit then in effect)(3) ..........0.45% 0.20%
ANNUAL CONTRACT FEE (DEDUCTED FROM ANNUITY ACCOUNT VALUE ON EACH PROCESSING DATE)(4)
- ------------------------------------------------------------------------------------
If the initial contribution is less than $25,000......................................................$30
If the initial contribution is $25,000 or more.........................................................$0
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- ------------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE.......................................................................0.90%
TOTAL ASSET BASED ADMINISTRATIVE CHARGE.................................................................0.25%
----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES...............................................................1.15%
====
</TABLE>
- ----------
Notes:
(1) The amount deducted is based on contributions that have not been withdrawn.
The distribution fee will not apply while the IRA Assured Payment Option or
IRA APO Plus is in effect. See "Part 7: Deductions and Charges,"
"Distribution Fee."
(2) Deducted upon a withdrawal with respect to amounts in excess of the 15% (10%
under the IRA Assured Payment Option and IRA APO Plus) free corridor amount,
and upon a surrender. See "Part 7: Deductions and Charges," "Withdrawal
Charge." We reserve the right to impose an administrative charge of the
lesser of $25 and 2.0% of the amount withdrawn for each Lump Sum Withdrawal
after the fifth in a Contract Year. See "Withdrawal Processing Charge" also
in Part 7.
(3) The guaranteed minimum death benefit (GMDB) is described under "Death
Benefit," "GMDB" and the guaranteed minimum income benefit (GMIB) is
described under "GMIB" both of which are in Part 5. The 0.45% charge covers
a 6% to Age 80 Benefit or, if a combined 6% to Age 70 Benefit is elected,
the charge is 0.30%. See "Part 7: Deductions and Charges," "Charges for
Combined GMDB/GMIB Benefit (Plan A) and Charges for GMDB Only Benefit (Plan
B)."
(4) This charge is incurred at the beginning of the Contract Year and deducted
on the Processing Date. See "Part 7: Deductions and Charges," "Annual
Contract Fee."
3
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
-----------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE
HR TRUST INVESTORS INVESTORS INCOME STOCK GLOBAL
--------- --------- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08%
---- ---- ---- ---- ----
TOTAL HR TRUST ANNUAL EXPENSES(5) 0.55% 0.59% 0.60% 0.41% 0.73%
==== ==== ==== ==== ====
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
ALLIANCE AGGRESSIVE SMALL MONEY GOVERNMENT HIGH
HR TRUST INTERNATIONAL STOCK CAP GROWTH MARKET SECURITIES YIELD
------------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.90% 0.55% 0.90% 0.35% 0.50% 0.60%
Other Expenses 0.18% 0.03% 0.10% 0.04% 0.09% 0.06%
---- ---- ---- ---- ---- ----
TOTAL HR TRUST ANNUAL EXPENSES(5) 1.08% 0.58% 1.00% 0.39% 0.59% 0.66%
==== ==== ==== ==== ==== ====
<CAPTION>
BT BT MFS MERRILL
BT SMALL INTERNATIONAL EMERGING LYNCH
EQUITY 500 COMPANY EQUITY GROWTH MFS BASIC VALUE
EQ TRUST 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(6) 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 EQ TRUST ANNUAL EXPENSES(7) 0.55% 0.60% 0.80% 0.85% 0.85% 0.85%
==== ==== ==== ==== ==== ====
<CAPTION>
MORGAN WARBURG
MERRILL STANLEY T. ROWE T. ROWE PINCUS
LYNCH EMERGING EQ/PUTNAM PRICE PRICE SMALL
WORLD MARKETS EQ/PUTNAM GROWTH & EQUITY INTERNATIONAL COMPANY
EQ TRUST STRATEGY EQUITY BALANCED INCOME INCOME STOCK VALUE
-------- ------ -------- ------ ------ ----- -----
<S> <C> <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(6) 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 EQ TRUST ANNUAL EXPENSES(7) 1.20% 1.75% 0.90% 0.85% 0.85% 1.20% 1.00%
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------------
Notes:
(5) The amounts shown for the Portfolios of HR Trust (other than Alliance Small
Cap Growth) have been restated to reflect advisory fees which went into
effect as of May 1, 1997. "Other Expenses" are based on average daily net
assets in each Portfolio during 1996. The amounts shown for the Alliance
Small Cap Growth Portfolio are estimated for 1997 as this Portfolio
commenced operations on May 1, 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 HR Trust. 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 "HR Trust Charges to Portfolios" in Part 7.
(6) The Class IB shares of EQ Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by EQ Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. The 12b-1 fee will
not be increased for the life of the Certificates.
(7) The EQ Trust Portfolios had no operations prior to May 1, 1997. Therefore,
the amounts shown for "Other Expenses" for these Portfolios are estimated.
The 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 Portfolios of EQ Trust commenced
operations on May 1, 1997. The Morgan Stanley Emerging Markets Equity
Portfolio commenced operations on August 20, 1997 (and was offered under the
prospectus as of September 2, 1997). The BT Equity 500 Index, BT Small
Company Index, and BT International Equity Index Portfolios commenced
operations on December 31, 1997. The maximum investment management and
advisory fees for each EQ Trust 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 but, pursuant to
agreement, cannot together with other fees exceed total annual expense
limitations (which are the respective amounts shown in "Total Annual
Expenses"). Absent the expense limitation, we estimate that the other
expenses for 1998 for each Portfolio would be 0.285% for BT Equity 500
Index; 0.231% for BT Small Company Index; 0.472% for BT International Equity
Index; 0.412% for EQ/Putnam Balanced; 0.262% for EQ/Putnam Growth & Income
Value; 0.242% for MFS Emerging Growth Companies; 0.234% for MFS Research;
0.247% for Merrill Lynch Basic Value Equity; 0.497% for Merrill Lynch World
Strategy; 0.461% for Morgan Stanley Emerging Markets Equity; 0.235% for T.
Rowe Price Equity Income; 0.422% for T. Rowe Priced International Stock; and
0.191% for Warburg Pincus Small Company Value. See "EQ Trust Charges to
Portfolios" in Part 7.
4
<PAGE>
ON PAGE 5 OF THE MAY 1, 1997 SUPPLEMENT UNDER "EXAMPLES" ADD THE FOLLOWING
INFORMATION TO THE EXAMPLES FOR THE "COMBINED GMDB/GMIB BENEFIT (PLAN A)
ELECTION" UNDER EQ TRUST:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BT Equity 500 Index $90.26 $125.78 -- -- $27.03 $83.14 -- --
BT Small Company Index 90.75 127.28 -- -- 27.52 84.63 -- --
BT International Equity Index 92.74 133.25 -- -- 29.51 90.62 -- --
</TABLE>
ON PAGE 6 OF THE MAY 1, 1997 SUPPLEMENT ADD THE FOLLOWING INFORMATION TO THE
EXAMPLES FOR THE "GMDB ONLY BENEFIT (PLAN B) ELECTION" UNDER EQ TRUST:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BT Equity 500 Index $90.26 $120.46 -- -- $24.38 $74.85 -- --
BT Small Company Index 90.75 121.96 -- -- 24.87 76.34 -- --
BT International Equity Index 92.74 127.95 -- -- 26.86 82.34 -- --
</TABLE>
ON PAGE 7 OF THE MAY 1, 1997 SUPPLEMENT REPLACE THE INFORMATION UNDER "CONDENSED
FINANCIAL INFORMATION" WITH THE FOLLOWING INFORMATION:
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on May 1, 1995. The
following table shows the Accumulation Unit Values, as of May 1, 1995 and the
last Business Day of the periods shown. No Accumulation Unit Values are shown
for the Alliance Small Cap Growth and Alliance High Yield Funds, and the
Investment Funds investing in Class IB shares of EQ Trust Portfolios as such
Funds were first offered in 1997.
<TABLE>
<CAPTION>
LAST BUSINESS DAY OF
-----------------------------------------------------------------------------------
HR TRUST MAY 1, 1995 DECEMBER 1995 DECEMBER 1996 NOVEMBER 1997
- -------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Alliance Conservative
Investors $ 14.647383 $ 16.549050 $ 17.209382 $ 19.050075
Alliance Growth Investors 20.073331 23.593613 26.260729 29.994648
Alliance Growth &
Income 10.376155 11.989601 14.231408 17.506722
Alliance Common Stock 102.335691 124.519251 152.955877 188.510944
Alliance Global 19.478146 22.293921 25.253538 27.481079
Alliance International 10.125278 11.033925 11.976127 11.606472
Alliance Aggressive Stock 44.025496 54.591448 65.938687 72.992152
Alliance Money Market 23.150932 23.830754 24.810781 25.757675
Alliance Intermediate
Government Securities 12.498213 13.424767 11.976127 14.506815
</TABLE>
ON PAGE 11 OF THE PROSPECTUS UNDER THE HEADING "WITHDRAWAL OPTIONS," THE
DISCUSSION OF MINIMUM DISTRIBUTION WITHDRAWALS APPLIES ONLY TO TRADITIONAL IRA
CERTIFICATES.
ON PAGE 7 OF THE MAY 1, 1997 SUPPLEMENT UNDER REVISIONS FOR "EQUITABLE LIFE"
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (THE HOLDING COMPANY). The largest shareholder the Holding
Company is AXA-UAP (AXA). As of September 30, 1997, AXA beneficially owned
59.0% 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 related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $272.7 billion of assets as of September 30, 1997.
5
<PAGE>
ON PAGE 8 OF THE MAY 1, 1997 SUPPLEMENT
UNDER THE REVISED HEADING "HR TRUST'S INVESTMENT ADVISOR," REPLACE THE
SENTENCE WITH THE FOLLOWING SENTENCE:
On September 30, 1997, Alliance was managing approximately $217.3 billion in
assets.
UNDER "EQ TRUST'S MANAGER AND ADVISERS" INSERT THE FOLLOWING SENTENCE AT THE
END OF THE THIRD PARAGRAPH:
EQ Financial has also entered into an investment advisory agreement with
Bankers Trust Company, who serves as adviser to the BT Equity 500 Index, BT
Small Company Index, and BT International Equity Index Portfolios.
ON PAGES 8 TO 10 OF THE MAY 1, 1997 SUPPLEMENT, AND ON PAGE 14 OF THE PROSPECTUS
UNDER "INVESTMENT POLICIES AND OBJECTIVES OF TRUST'S PORTFOLIOS" REPLACE THE
SECTION WITH THE FOLLOWING INFORMATION:
Each Portfolio has a different investment objective which it tries to achieve
by following separate investment policies. The policies and objectives of
each Portfolio will affect its return and its risks. There is no guarantee
that these objectives will be achieved. Set forth below is a summary of the
investment policies and objectives of each Portfolio. This summary is
qualified in its entirety by reference to the prospectuses for HR Trust and
EQ Trust, both of which accompany this supplement. Please read the
prospectuses for each of the trusts carefully before investing.
<TABLE>
<CAPTION>
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
- ------------------ ----------------- ---------
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded High total return without, in the
Investors equity and debt securities. adviser's opinion, undue risk to
principal
Alliance Growth Investors Diversified mix of publicly traded High total return consistent with
equity and fixed-income securities, the adviser's determination of
including at times common stocks reasonable risk
issued by intermediate- and
small-sized companies and at times
lower-quality fixed-income securities
commonly known as "junk bonds."
Alliance Growth & Income Primarily income producing common High total return through a
stocks and securities convertible combination of current income and
into common stocks. capital appreciation
Alliance Common Stock Primarily common stock and other Long-term growth of capital and
equity-type instruments. increasing income
Alliance Global Primarily equity securities of Long-term growth of capital
non-United 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 Long-term growth of capital
equity-type securities issued by quality
small- and intermediate-sized companies with
strong growth prospects and in covered
options on those securities.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
- ------------------ ----------------- ---------
<S> <C> <C>
Alliance Small Cap Growth Primarily U.S. common stocks and Long-term growth of capital
other 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. High level of current income while
dollar-denominated money market preserving assets and maintaining
instruments. liquidity
Alliance Intermediate Primarily debt securities issued or High current income consistent
Government Securities guaranteed as to principal and with relative stability of
interest by the U.S. government or principal
any of its agencies or
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 return by maximizing current
high-yield, fixed-income securities income and, to the extent
which generally involve greater consistent with that objective,
volatility of price and risk of capital appreciation
principal and income than
higher-quality fixed-income
securities. Lower-quality debt
securities are commonly known as
"junk bonds."
EQ TRUST PORTFOLIO
- ------------------
BT Equity 500 Index Invest in a statistically selected Replicate as closely as possible
sample of the 500 stocks included in (before the deduction of Portfolio
the Standard & Poor's 500 Composite expenses) the total return of the
Stock Price Index ("S&P 500"). S&P 500
BT Small Company Index Invest in a statistically selected Replicate as closely as possible
sample of the 2,000 stocks included (before the deduction of Portfolio
in the Russell 2000 Small Stock Index expenses) the total return of the
("Russell 2000"). Russell 2000
BT International Equity Invest in a statistically selected Replicate as closely as possible
Index sample of the securities of companies (before the deduction of Portfolio
included in the Morgan Stanley expenses) the total return of the
Capital International Europe, EAFE
Australia, Far East Index ("EAFE"),
although 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 Long-term growth of capital
Companies assets under normal circumstances) in
common stocks of emerging growth companies
that the Portfolio adviser believes are
early in their life cycle but which have
the potential to become major enterprises.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
EQ TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
- ------------------ ----------------- ---------
<S> <C> <C>
MFS Research A substantial portion of assets Long-term growth of capital and
invested in common stock or future income
securities convertible into common
stock of companies believed by the
Portfolio adviser to possess better
than average prospects for long-term
growth.
Merrill Lynch Basic Value Investment in securities, primarily Capital appreciation and,
Equity equities, that the Portfolio adviser secondarily, income
believes are under-valued and
therefore represent basic investment
value.
Merrill Lynch World Investment primarily in a portfolio High total investment return
Strategy of equity and fixed-income
securities, including convertible
securities, of U.S. and foreign
issuers.
Morgan Stanley Emerging Primarily equity securities of Long-term capital appreciation
Markets Equity emerging market country issuers with
a focus on those in which the Portfolio's
adviser believes the economies are
developing strongly and in which the
markets are becoming more sophisticated.
EQ/Putnam Balanced A well-diversified portfolio of Balanced investment
stocks and bonds that will produce both
capital growth and current income.
EQ/Putnam Growth & Income Primarily common stocks that offer Capital growth and, secondarily,
Value potential for capital growth and may, current income
consistent with the Portfolio's investment
objective, invest in common stocks that
offer potential for current income.
T. Rowe Price Equity Income Primarily dividend paying common Substantial dividend income and
stocks of established companies. also capital appreciation
T. Rowe Price International Primarily common stocks of Long-term growth of capital
Stock established non-United States
companies.
Warburg Pincus Small Primarily in a portfolio of equity Long-term capital appreciation
Company Value securities of small capitalization
companies (i.e., companies having market
capitalizations of $1 billion or less at
the time of initial purchase) that the
Portfolio adviser considers to be
relatively undervalued.
</TABLE>
8
<PAGE>
ON PAGE 25 OF THE PROSPECTUS UNDER THE HEADING "CONTRIBUTIONS UNDER THE
CERTIFICATES" INSERT THE FOLLOWING PARAGRAPH AFTER THE FIFTH PARAGRAPH OF THE
SECTION:
We will not accept "regular" IRA contributions to Roth IRAs. Rollover and
direct custodian-to-custodian transfer contributions can be made any time
during your lifetime provided you meet certain requirements. See "Part 9: Tax
Aspects of the Certificates."
ON PAGES 25 AND 26 OF THE PROSPECTUS UNDER THE HEADING "METHODS OF PAYMENTS"
INSERT THE FOLLOWING SUB-SECTION AFTER THE LAST PARAGRAPH OF THE SECTION:
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 a Traditional IRA Certificate on a monthly or
quarterly basis. 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 made to any Investment Option available
under your Certificate. 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 bank account debited. That date, or the
next Business Day if that day is a non-Business Day, will be the Transaction
Date. AIP is not available for Roth IRA Certificates.
You may cancel AIP at any time by notifying our Processing Office in writing
at least two business day 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.
ON PAGE 26 OF THE PROSPECTUS UNDER THE HEADING "FREE LOOK PERIOD" INSERT THE
FOLLOWING PARAGRAPH AFTER THE LAST PARAGRAPH OF THIS SECTION:
In the case of a complete conversion of an existing Traditional IRA
Certificate to a Roth IRA Certificate, you may cancel your Roth IRA
Certificate and return to a Traditional IRA Certificate by following the
instructions in the request for full conversion form available from our
Processing Office or your agent.
ON PAGE 28 OF THE PROSPECTUS BEFORE THE "DEATH BENEFIT" SECTION INSERT THE
FOLLOWING:
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). The Annuity Account Value
allocated to each selected Investment Fund will grow or decline in value at
different rates during each time period. Rebalancing automatically
reallocates the Annuity Account Value in the chosen Investment Funds at the
end of each period to the specified allocation percentages. Rebalancing is
intended to transfer specified portions of the Annuity Account Value from
those chosen Investment Funds that have increased in value to those chosen
Investment Funds that have declined in value. 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.
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 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.
9
<PAGE>
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. You
must then submit a new request in a written form satisfactory to us to start
the rebalancing program again.
Rebalancing may not be elected if a Dollar Cost Averaging program (described
on page 28 of the prospectus) is in effect.
IN "PART 6: DISTRIBUTION METHODS UNDER THE CERTIFICATES" ANY DISCUSSION OF
MINIMUM DISTRIBUTION WITHDRAWALS APPLIES ONLY TO TRADITIONAL IRA CERTIFICATES.
ON PAGE 39 OF THE PROSPECTUS UNDER THE HEADING "MINIMUM DISTRIBUTION
WITHDRAWALS" ADD THE FOLLOWING INFORMATION:
(Available under Traditional IRA Certificates)
ON PAGE 17 OF THE MAY 1, 1997 SUPPLEMENT UNDER "EQ TRUST CHARGES TO PORTFOLIOS"
ADD THE FOLLOWING INFORMATION TO THE TABLE:
AVERAGE DAILY NET ASSETS
------------------------
BT Equity 500 Index 0.25%
BT Small Company Index 0.25%
BT International Equity Index 0.35%
ADD THE FOLLOWING SENTENCE TO THE END OF THE PARAGRAPH WHICH FOLLOWS THE
ABOVE TABLE:
EQ Financial has also agreed to waive or limit its fees and to assume other
expenses so that the total operating expenses of each Bankers Trust Portfolio
are limited to: 0.55% of the respective average daily net assets of the BT
Equity 500 Index Portfolio; 0.60% for the BT Small Company Index Portfolio;
and 0.80% for the BT International Equity Index Portfolio.
ON PAGES 17 AND 18 OF THE MAY 1, 1997 SUPPLEMENT, AND ON PAGES 45 THROUGH 51 OF
THE PROSPECTUS, REPLACE "PART 9: TAX ASPECTS OF THE CERTIFICATES" WITH THE
FOLLOWING INFORMATION:
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 pretax 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-IRAs are issued and funded
in connection with employer-sponsored retirement plans. There are also
Education IRAs, which are not discussed herein because they are not available
in individual retirement annuity form. As the Rollover Roth IRA is an
individual retirement annuity, the term "Roth IRA" refers to a Roth
individual retirement annuity unless the context requires otherwise.
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.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES (TRADITIONAL IRAS)
This prospectus contains the information which the Internal Revenue Service
(IRS) requires to be disclosed to an individual before he or she purchases a
Traditional IRA.
10
<PAGE>
The Rollover IRA Certificate is designed to qualify as a Traditional IRA
under Section 408(b) of the Code. Your rights under the Rollover IRA cannot
be forfeited.
This prospectus covers some of the special tax rules that apply to individual
retirement arrangements. You should be aware that a Traditional IRA is
subject to certain restrictions in order to qualify for its special treatment
under the Federal tax law.
This prospectus provides our general understanding of applicable Federal
income tax rules, but does not provide detailed tax information and does not
address issues such as state income and other taxes or Federal gift and
estate taxes. Please consult a tax adviser when considering the tax aspects
of the Traditional IRA Certificates.
Further information on Traditional IRA tax matters can be obtained from any
IRS district office. Additional information regarding IRAs, including a
discussion of required distributions, can be found in IRS Publication 590,
entitled "Individual Retirement Arrangements (IRAs)," which is generally
updated annually.
The Rollover IRA Certificate has been approved by the IRS as to form for use
as a Traditional IRA. This IRS approval is a determination only as to the
form of the annuity, and does not represent a determination of the merits of
the annuity as an investment, and may not address certain features under the
Rollover IRA Certificates.
Cancellation
You can cancel a Certificate issued as a Traditional IRA by following the
directions in Part 5 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 "Tax-Free Transfers and
Rollovers" 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 5. The immediately
following discussion relates to "regular" Traditional IRA contributions. For
the reasons noted in "Tax-Free Transfers and Rollovers" below, you should
consult with your tax adviser before making any subsequent contributions to a
Traditional IRA which is intended to serve as a "conduit" IRA.
Generally, $2,000 is the maximum amount of deductible and nondeductible
contributions which may be made to all IRAs (including Roth IRAs) by an
individual in any taxable year. The above limit may be less when the
individual's earnings are below $2,000. This limit does not apply to rollover
contributions or direct custodian-to-custodian transfers into a Traditional
IRA.
Where married individuals file joint income tax returns, their 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.
11
<PAGE>
The amount of Traditional IRA contributions for a tax year that an individual
can deduct depends on whether the individual is 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 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 the individual is single and covered by a retirement plan during any part
of the taxable year, the deduction for IRA contributions phases out with AGI
between $30,000 and $40,000. This amount will be indexed every year until
2005. If the individual is married and files a joint return, and the
individual is 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. 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, the individual
determines AGI and subtracts $30,000 if the individual is a single person,
$50,000 if the individual is married and files a joint return with the
spouse. The resulting amount is the individual's Excess AGI. The individual
then determines 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
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 an
individual attains age 70 1/2 or any tax year after that. A working spouse
age 70 1/2 or over, however, can contribute up to the lesser of $2,000 or
100% of "earned income" to a spousal individual retirement arrangement for a
nonworking spouse until the year in which the nonworking spouse reaches age
70 1/2.
An individual not eligible to deduct part or all of the Traditional IRA
contribution may still make nondeductible contributions on which earnings
will accumulate on a tax-deferred basis. The deductible and nondeductible
contributions to the individual's 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. Individuals must keep their
own records of deductible and nondeductible contributions in order to prevent
double taxation on the distribution of previously taxed amounts. See
"Distributions from Traditional IRA Certificates" below.
An individual making nondeductible contributions in any taxable year, or any
individual who has made nondeductible contributions to a Traditional IRA in
prior years and is receiving amounts from any Traditional IRA must file the
required information with the IRS. Moreover, individuals making nondeductible
Traditional IRA contributions must retain all income tax returns and records
pertaining to such contributions until interests in all Traditional IRAs are
fully distributed.
12
<PAGE>
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 the individual's Federal
income tax return for the tax year (including extensions) is not includable
in income and therefore is not subject to the 10% penalty tax on early
distributions (discussed below under "Penalty Tax on Early Distributions"),
provided any earnings attributable to the excess contribution are also
withdrawn and no tax deduction is taken for the excess contribution. The
withdrawn earnings on the excess contribution, however, would be includable
in the individual's gross income and would be subject to the 10% penalty tax.
If excess contributions are not withdrawn before the time for filing the
individual's Federal income tax return for 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 includable in gross income and would not be
subject to the 10% penalty tax. Lastly, excess "regular" contributions may
also be removed by underutilizing the allowable contribution limits for a
later year.
If excess rollover contributions are not withdrawn before the time for filing
the individual's Federal tax return for the year (including extensions) and
the excess contribution occurred as a result of incorrect information
provided by the plan, any such excess amount can be withdrawn if no tax
deduction was taken for the excess contribution. As above, excess rollover
contributions withdrawn under those circumstances would not be includable in
gross income and would not be subject to the 10% penalty tax.
TAX-FREE TRANSFERS AND ROLLOVERS
Tax-free 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.
13
<PAGE>
Under the conditions and limitations of the Code, an individual 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 the individual.
Distributions include withdrawals from your Certificate, surrender of your
Certificate and annuity payments from your Certificate. Death benefits are
also distributions. Except as discussed below, the amount of any distribution
from a Traditional IRA is fully includable as ordinary income by the
individual in gross income.
If the individual has made nondeductible IRA contributions to any Traditional
IRA (whether or not this particular arrangement), those contributions are
recovered tax free when distributions are received. The individual must keep
records of all such nondeductible contributions. At the end of each tax year
in which the individual has received a distribution from any traditional
individual retirement arrangement, the individual determines 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 the individual 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 amount received is rolled over
to another traditional individual retirement arrangement (see "Tax-Free
Transfers and Rollovers" 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 the
owner's interest in the IRA over the owner's life expectancy. Whether the
correct amount has been distributed is calculated on a year-by-year basis;
there are no provisions in the Code to allow amounts taken in excess of the
required amount to be carried over or carried back and credited to other
years.
Generally, an individual must take the first required minimum distribution
with respect to the calendar year in which the individual turns age 70 1/2.
The individual has the choice to take the first required minimum distribution
during the calendar year he or she turns age 70 1/2, or to delay taking it
until the three-month (January 1 - April 1) period in the next calendar year.
(Distributions must commence no later than the "Required Beginning Date,"
which is the April 1st of the calendar year following the calendar year in
which the individual turns age 70 1/2.) If the individual chooses to delay
taking the first annual minimum distribution, then the individual will have
to take two minimum distributions in that year -- the delayed one for the
first year and the one actually for that year. Once minimum distributions
begin, they must be made at some time every year.
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There are two approaches to taking minimum distributions -- "account based"
or "annuity based" -- and there are a number of distribution options in both
of these categories. These choices are intended to give individuals a great
deal of flexibility to provide for themselves and their families.
An account-based minimum distribution approach may be a lump sum payment, or
periodic withdrawals made over a period which does not extend beyond the
individual's life expectancy or the joint life expectancies of the individual
and a designated beneficiary. An annuity-based approach involves application
of the Annuity Account Value to an annuity for the life of the individual or
the joint lives of the individual and a designated beneficiary, or for a
period certain not extending beyond applicable life expectancies.
You should discuss with your tax adviser which minimum distribution options
are best for your own personal situation. Individuals who are participants in
more than one tax-favored retirement plan may be able to choose different
distribution options for each plan.
Your required minimum distribution for any taxable year is calculated by
taking into account the required minimum distribution from each of your
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.
An individual may recompute his or her minimum distribution amount each year
based on the individual's current life expectancy as well as that of the
spouse. No recomputation is permitted, however, for a beneficiary other than
a spouse.
An individual who has been computing minimum distributions with respect to
Traditional IRA funds on an account-based approach (discussed above) may
subsequently apply such funds to a life annuity-based payout, provided that
the individual had elected to recalculate life expectancy annually (and the
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 the individual dies after
distribution in the form of an annuity has begun, or after the Required
Beginning Date, payment of the remaining interest must be made at least as
rapidly as under the method used prior to the individual's death. (The IRS
has indicated that an exception to the rule that payment of the remaining
interest must be made at least as rapidly as under the method used prior to
the individual's death applies if the beneficiary of the Traditional IRA is
the surviving spouse. In some circumstances, the 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.)
If an individual dies before the Required Beginning Date and before
distributions in the form of an annuity begin, distributions of the
individual's entire interest under the Certificate must be completed within
five years after death, unless payments to a designated beneficiary begin
within one year of the individual's death and are made over the beneficiary's
life or over a period certain which does not extend beyond the beneficiary's
life expectancy.
If the surviving spouse is the designated beneficiary, the spouse may delay
the commencement of such payments up until the individual would have attained
70 1/2. In the alternative, a surviving spouse may elect to roll over the
inherited Traditional IRA into the surviving spouse's own Traditional IRA.
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TAXATION OF DEATH BENEFITS
Distributions received by a beneficiary are generally given the same tax
treatment the individual would have received if distribution had been made to
the individual.
If you elect to have your spouse be the sole primary beneficiary and to be
the successor Annuitant and Certificate Owner, then your surviving spouse
automatically becomes both the successor Certificate Owner and Annuitant, and
no death benefit is payable until the surviving spouse's death.
GUARANTEED MINIMUM DEATH BENEFIT
The Code provides that no part of an individual retirement account may be
invested in life insurance contracts. Treasury Regulations provide that an
individual retirement account may be invested in an annuity contract which
provides a death benefit of the greater of premiums paid or the contract's
cash value. Your Certificate provides a minimum death benefit guarantee that
in certain circumstances may be greater than either of contributions made or
the Annuity Account Value. Although there is no ruling regarding the type of
minimum death benefit guarantee provided by the Certificate, Equitable Life
believes that the Certificate's minimum death benefit guarantee should not
adversely affect the qualification of the Certificate as 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 IRA ASSURED PAYMENT OPTION AND IRA 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 IRA Assured Payment Option or IRA 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 IRA
Assured Payment Option and IRA 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 IRA Assured Payment Option
and IRA 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 Rollover IRA 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 IRA Assured Payment Option and IRA APO
Plus will not be available if you have previously made a different election.
Recalculation is no longer required once the only payments you or your spouse
receive are under the Life Contingent Annuity. The value of such an annuity
will change in the event of your death or the death of your spouse. For this
reason, it is important that we be informed if you or your spouse dies before
the Life Contingent Annuity has started payments so that a lower valuation
can be made. Otherwise a higher tax value may result in an overstatement of
the amount that would be necessary to satisfy your required minimum
distribution amount.
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Allocations of funds to the Life Contingent Annuity may prevent the
Certificate from later receiving "conduit" Traditional IRA treatment. See
"Tax-Free Transfers and Rollovers" above.
PROHIBITED TRANSACTION
A Traditional IRA may not be borrowed against or used as collateral for a
loan or other obligation. If the Traditional IRA is borrowed against or used
as collateral, its tax-favored status will be lost as of the first day of the
tax year in which the event occurred. If this happens, the individual must
include in Federal gross income for that year an amount equal to the fair
market value of the 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 the
individual has not reached age 59 1/2 before the first day of that tax year.
See "Penalty Tax on Early Distributions" below.
PENALTY TAX ON EARLY DISTRIBUTIONS
The taxable portion of 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 Traditional 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 IRA Assured Payment Option
with level payments, both of which are described in Part 6. 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 IRA Assured Payment Option level
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 IRA Assured Payment Option level
payments begin, the distributions should not be stopped or changed until the
later of your attaining age 59 1/2 or five years after the date of the first
distribution, or the penalty tax, including an interest charge for the prior
penalty avoidance, may apply to all prior distributions under this option.
Also, it is possible that the IRS could view any additional withdrawal or
payment you take from your Certificate as changing your pattern of
Substantially Equal Payment Withdrawals or IRA Assured Payment Option
payments for purposes of determining whether the penalty applies.
Where a taxpayer under age 59 1/2 purchases 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.
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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 prospectus contains the information which the IRS requires to be
disclosed to you before you purchase a Roth IRA. This section of Part 9
covers some of the special tax rules that apply to Roth IRAs.
The Rollover Roth IRA is designed to qualify as a Roth individual retirement
annuity under Sections 408A and 408(b) of the Code. Your interest in the Roth
IRA cannot be forfeited. You or your beneficiaries who survive you are the
only ones who can receive the benefits or payments.
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.
We have received favorable opinion letters from the IRS approving the forms
of the individual Contract and group certificates for the Rollover IRA as a
Traditional IRA. Such IRS approval is a determination only that the form of
the contract or certificate meets the requirements for an individual
retirement annuity and does not represent a determination of the merits of
the contract or certificate as an investment. The IRS does not yet have a
procedure in place for approving the form of Roth IRAs.
Cancellation
You can cancel a Certificate issued as a Roth IRA by following the directions
in Part 5 under "Free Look Period." You can cancel a Rollover Roth IRA
Certificate issued as a result of a full conversion of a Rollover 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 5. 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.
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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 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 rollovers 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.)
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 ROLLOVER CONTRIBUTIONS TO A ROTH IRA FOR ANY
TAXABLE YEAR IN WHICH YOUR 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.
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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 Rollover 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).
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 is highly possible 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.
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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,
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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 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
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.
Withholding may also apply to taxable amounts paid under a free look or
cancellation. 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.
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.
22
<PAGE>
Periodic payments are generally subject to wage-bracket type withholding (as
if such payments were payments of wages by an employer to an employee) unless
the recipient elects no withholding. If a recipient does not elect out of
withholding or does not specify the number of withholding exemptions,
withholding will generally be made as if the recipient is married and
claiming three withholding exemptions. There is an annual threshold of
taxable income from periodic annuity payments which is exempt from
withholding based on this assumption. For 1997, a recipient of periodic
payments (e.g., monthly or annual payments) which total less than a $14,400
taxable amount will generally be exempt from Federal income tax withholding,
unless the recipient specifies a different choice of withholding exemption. A
withholding election may be revoked at any time and remains effective until
revoked. If a recipient fails to provide a correct taxpayer identification
number, withholding is made as if the recipient is single with no exemptions.
A recipient of a non-periodic distribution (total or partial) will generally
be subject to withholding at a flat 10% rate. A recipient who provides a
United States residence address and a correct taxpayer identification number
will generally be permitted to elect not to have tax withheld.
All recipients receiving periodic and non-periodic payments will be further
notified of the withholding requirements and of their right to make
withholding elections.
OTHER WITHHOLDING
As a general rule, if death benefits are payable to a person two or more
generations younger than you, a Federal generation skipping tax may be
payable with respect to the benefit at rates similar to the maximum estate
tax rate in effect at the time. The generation skipping tax provisions
generally apply to transfers which would also be subject to the gift and
estate tax rules. Individuals are generally allowed an aggregate generation
skipping tax exemption of $1 million. Because these rules are complex, you
should consult with your tax adviser for specific information, especially
where benefits are passing to younger generations, as opposed to a spouse or
child.
If we believe a benefit may be subject to generation skipping tax we may be
required to withhold for such tax unless we receive acceptable written
confirmation that no such tax is payable.
IMPACT OF TAXES TO EQUITABLE LIFE
The Certificates provide that Equitable Life may charge the Separate Account
for taxes. Equitable Life can set up reserves for such taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers among the Investment Funds or between the Guaranteed Period Account
and one or more Investment Funds are not taxable.
TAX CHANGES
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities and individual retirement arrangements. In addition,
the Treasury Department may amend existing regulations, issue new
regulations, or adopt new interpretations of existing laws. State tax laws
or, if you are not a United States resident, foreign tax laws, may affect the
tax consequences to you or the beneficiary. These laws may change from time
to time without notice and, as a result, the tax consequences may be altered.
There is no way of predicting whether, when or in what form any such change
would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
23
<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 and Alliance Intermediate
Government Securities Fund Yield Information 3
Part 6: Long-Term Market Trends 5
Part 7: Financial Statements 7
HOW TO OBTAIN A ROLLOVER IRA STATEMENT OF ADDITIONAL INFORMATION
FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me a Rollover IRA SAI dated May 1, 1997 as supplemented on December
31, 1997 for the Rollover IRA and Choice Income Plan Prospectus dated October
17, 1996, as supplemented on May 1, 1997 and December 31, 1997.
|_| SAI and SAI Supplement |_| SAI Supplement only
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
IM-98-4 IRA
24
<PAGE>
SUPPLEMENT DATED DECEMBER 31, 1997 TO
INCOME MANAGER(R) ACCUMULATOR(SM) PROSPECTUS
DATED OCTOBER 17, 1996, AS PREVIOUSLY SUPPLEMENTED ON MAY 1, 1997
This supplement dated December 31, 1997, updates certain information in the
Accumulator prospectus dated October 17, 1996, as previously supplemented on May
1, 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, 1997 supplement. You should keep the supplements and the prospectus for
future reference. We have filed with the Securities and Exchange Commission
(SEC) a supplement dated December 31, 1997 to our statement of additional
information (SAI) dated May 1, 1997. If you do not presently have a copy of the
prospectus and May 1, 1997 supplement, you may obtain additional copies, as well
as copies of the SAI and SAI supplement, from us, free of charge, if you write
to Equitable Life, Income Management Group, P.O. Box 1547, Secaucus, NJ
07096-1547, call (800) 789-7771 or if you only need a copy of the SAI or SAI
supplement, you may mail in the SAI request form located at the end of this
supplement. The SAI and SAI supplement have been incorporated by reference into
this supplement.
In this supplement, each section of the prospectus and/or May 1, 1997 supplement
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, 1997 supplement, unless
otherwise noted.
ON THE FIRST PAGE OF THE MAY 1, 1997 SUPPLEMENT WHERE PROSPECTUS COVER PAGE
REVISIONS ARE NOTED:
THE SECOND SENTENCE IN THE FIRST PARAGRAPH IS REPLACED BY THE FOLLOWING
SENTENCE:
These Investment Options include 24 variable investment funds (INVESTMENT
FUNDS) and each GUARANTEE PERIOD in the GUARANTEED PERIOD ACCOUNT.
THE INVESTMENT FUNDS CHART IS REPLACED BY THE FOLLOWING CHART:
<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 Morgan Stanley Emerging Markets MFS Emerging Growth Companies
Value Equity Warburg Pincus Small Company
MFS Research T. Rowe Price International Stock Value
Merrill Lynch Basic Value Equity
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
-------------------------------------------------------------------------------------------------------------
</TABLE>
FOLLOWING THE INVESTMENT FUNDS CHART, THE SENTENCE ADDED TO THE END OF THE
FIFTH PARAGRAPH IS REPLACED BY THE FOLLOWING SENTENCE:
The Guarantee Periods currently available have Expiration Dates of February
15 in years 1999 through 2008.
THROUGHOUT THE PROSPECTUS AND SUPPLEMENTS ANY REFERENCE TO THE INVESTMENT FUNDS
AND GUARANTEE PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET
FORTH ABOVE.
- --------------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States,
New York, New York 10104. All rights reserved.
Income Manager is a registered service mark and Accumulator is a
service mark of The Equitable Life Assurance Society of the United States.
IM-98-2 ACC
<PAGE>
PAGES 3 AND 4 OF THE MAY 1, 1997 SUPPLEMENT ARE REPLACED BY THE FOLLOWING
INFORMATION:
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them with other similar products. The table reflects
both the charges of the Separate Account and the expenses of HR Trust and EQ
Trust. Charges for applicable taxes such as state or local premium taxes may
also apply. For a complete description of the charges under the Certificate,
see "Part 6: Deductions and Charges." For a complete description of each
trust's charges and expenses, see the prospectuses for HR Trust and EQ Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. However, if there is insufficient
value in the Investment Funds, all or portion of the distribution fee and the
annual contract fee, if any, will be deducted from your Annuity Account Value
in the Guaranteed Period Account rather than from the Investment Funds. See
"Part 6: Deduction and Charges." A market value adjustment (either positive
or negative) also may be applicable as a result of a withdrawal, transfer or
surrender of amounts from a Guarantee Period. See "Part 4: The Guaranteed
Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
----------------------------------------------------------------
<S> <C>
DISTRIBUTION FEE (SALES LOAD) AS A PERCENTAGE OF EACH CONTRIBUTION RECEIVED DURING THE FIRST
CONTRACT YEAR (percentage deducted annually on each of the first seven Processing Dates) (1) ...........0.20%
<CAPTION>
CONTRACT
YEAR
----
<S> <C> <C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon 1..........7.00%
surrender or for certain withdrawals. The applicable withdrawal charge percentage 2..........6.00
determined by the Contract Year in which the withdrawal is made or the Certificate 3..........5.00
is surrendered beginning with "Contract Year 1" with respect to each contribution 4..........4.00
is withdrawn or surrendered. For each contribution, the Contract Year in which 5..........3.00
we receive that contribution is "Contract Year 1") (2) 6..........2.00
7..........1.00
8+.........0.00
<CAPTION>
COMBINED GMDB
GMDB/GMIB ONLY
BENEFIT BENEFIT
(PLAN A) (PLAN B)
------- --------
<S> <C> <C>
GMDB/GMIB CHARGES (percentage deducted annually on each Processing
Date as a percentage of the guaranteed minimum death benefit then in effect) (3)...........0.45% 0.20%
ANNUAL CONTRACT FEE (DEDUCTED FROM ANNUITY ACCOUNT VALUE ON EACH PROCESSING DATE (4)
------------------------------------------------------------------------------------
If the initial contribution is less than $25,000.......................................................$30
If the initial contribution is $25,000 or more..........................................................$0
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
------------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE.......................................................................0.90%
TOTAL ASSET BASED ADMINISTRATIVE CHARGE.................................................................0.25%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES...............................................................1.15%
-----
</TABLE>
- -------------------------------
See footnotes on next page.
2
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
-----------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
HR TRUST CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE
INVESTORS INVESTORS INCOME STOCK GLOBAL
--------- --------- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08%
---- ---- ---- ---- ----
TOTAL HR TRUST ANNUAL EXPENSES(5) 0.55% 0.59% 0.60% 0.41% 0.73%
==== ==== ==== ==== ====
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
HR TRUST ALLIANCE AGGRESSIVE SMALL MONEY GOVERNMENT HIGH
INTERNATIONAL STOCK CAP GROWTH MARKET SECURITIES YIELD
------------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.90% 0.55% 0.90% 0.35% 0.50% 0.60%
Other Expenses 0.18% 0.03% 0.10% 0.04% 0.09% 0.06%
---- ---- ---- ---- ---- ----
TOTAL HR TRUST ANNUAL EXPENSES(5) 1.08% 0.58% 1.00% 0.39% 0.59% 0.66%
==== ==== ==== ==== ==== ====
<CAPTION>
BT BT MFS MERRILL
BT SMALL INTERNATIONAL EMERGING LYNCH
EQ TRUST EQUITY 500 COMPANY EQUITY GROWTH MFS BASIC VALUE
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(6) 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 EQ TRUST ANNUAL EXPENSES(7) 0.55% 0.60% 0.80% 0.85% 0.85% 0.85%
==== ==== ==== ==== ==== ====
<CAPTION>
MORGAN WARBURG
MERRILL STANLEY T. ROWE T. ROWE PINCUS
LYNCH EMERGING EQ/PUTNAM PRICE PRICE SMALL
EQ TRUST WORLD MARKETS EQ/PUTNAM GROWTH & EQUITY INTERNATIONAL COMPANY
STRATEGY EQUITY BALANCED INCOME INCOME STOCK VALUE
-------- ------ -------- ------ ------ ----- -----
<S> <C> <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(6) 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 EQ TRUST ANNUAL EXPENSES(7) 1.20% 1.75% 0.90% 0.85% 0.85% 1.20% 1.00%
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------------------------
Notes:
(1) The amount deducted is based on contributions that have not been withdrawn.
See "Part 6: Deductions and Charges," "Distribution Fee."
(2) Deducted upon a withdrawal with respect to amounts in excess of the 15% free
corridor amount, and upon a surrender. See "Part 6: Deductions and Charges,"
"Withdrawal Charge." We reserve the right to impose an administrative charge
of the lesser of $25 and 2.0% of the amount withdrawn for each Lump Sum
Withdrawal after the fifth in a Contract Year. See "Withdrawal Processing
Charge" also in Part 6.
(3) The guaranteed minimum death benefit (GMDB) is described under "Death
Benefit," "GMDB" and the guaranteed minimum income benefit (GMIB) is
described under "GMIB" both of which are in Part 5. See "Part 6: Deductions
and Charges," "Charges for Combined GMDB/GMIB Benefit (Plan A) and Charges
for GMDB Only Benefit (Plan B)."
(4) This charge is incurred at the beginning of the Contract Year and deducted
on the Processing Date. See "Part 6: Deductions and Charges," "Annual
Contract Fee."
(5) The amounts shown for the Portfolios of HR Trust (other than Alliance Small
Cap Growth) have been restated to reflect advisory fees which went into
effect as of May 1, 1997. "Other Expenses" are based on average daily net
assets in each Portfolio during 1996. The amounts shown for the Alliance
Small Cap Growth Portfolio are estimated for 1997 as this Portfolio
commenced operations on May 1, 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 HR Trust. 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 "HR Trust Charges to Portfolios" in Part 6.
(6) The Class IB shares of EQ Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by EQ Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. The 12b-1 fee will
not be increased for the life of the Certificates.
(7) The EQ Trust Portfolios had no operations prior to May 1, 1997. Therefore,
the amounts shown for "Other Expenses" for these Portfolios are estimated.
The 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 Portfolios of EQ Trust commenced
operations on May 1, 1997. The Morgan Stanley Emerging Markets Equity
Portfolio commenced operations on August 20, 1997 (and was offered under the
prospectus as of September 2, 1997). The BT Equity 500 Index, BT Small
Company Index, and BT International Equity Index Portfolios commenced
operations on December 31, 1997. The maximum investment management and
advisory fees for each EQ Trust 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 but, pursuant to
agreement, cannot together with other fees exceed total annual expense
limitations (which are the respective amounts shown in "Total Annual
Expenses"). Absent the expense limitation, we estimate that the other
expenses for 1998 for each Portfolio would be 0.285% for BT Equity 500
Index; 0.231% for BT Small Company Index; 0.472% for BT International Equity
Index; 0.412% for EQ/Putnam Balanced; 0.262% for EQ/Putnam Growth & Income
Value; 0.242% for MFS Emerging Growth Companies; 0.234% for MFS Research;
0.247% for Merrill Lynch Basic Value Equity; 0.497% for Merrill Lynch World
Strategy; 0.461% for Morgan Stanley Emerging Markets Equity; 0.235% for T.
Rowe Price Equity Income; 0.422% for T. Rowe Priced International Stock; and
0.191% for Warburg Pincus Small Company Value. See "EQ Trust Charges to
Portfolios" in Part 6.
3
<PAGE>
ON PAGE 5 OF THE MAY 1, 1997 SUPPLEMENT UNDER "EXAMPLES" ADD THE FOLLOWING
INFORMATION TO THE EXAMPLES FOR THE "COMBINED GMDB/GMIB (PLAN A) ELECTION" UNDER
EQ TRUST:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BT Equity 500 Index $90.26 $125.78 -- -- $27.03 $83.14 -- --
BT Small Company Index 90.75 127.28 -- -- 27.52 84.63 -- --
BT International Equity Index 92.74 133.25 -- -- 29.51 90.62 -- --
<CAPTION>
ON PAGE 6 OF THE MAY 1, 1997 SUPPLEMENT ADD THE FOLLOWING INFORMATION TO THE
EXAMPLES FOR THE "GMDB BENEFIT ONLY (PLAN B) ELECTION" UNDER EQ TRUST:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BT Equity 500 Index $90.26 $120.46 -- -- $24.38 $74.85 -- --
BT Small Company Index 90.75 121.96 -- -- 24.87 76.34 -- --
BT International Equity Index 92.74 127.95 -- -- 26.86 82.34 -- --
</TABLE>
ON PAGE 7 OF THE MAY 1, 1997 SUPPLEMENT REPLACE THE INFORMATION UNDER "CONDENSED
FINANCIAL INFORMATION" WITH THE FOLLOWING INFORMATION:
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on May 1, 1995. The
following table shows the Accumulation Unit Values, as of May 1, 1995 and the
last Business Day of the periods shown. No Accumulation Unit Values are shown
for the Alliance Small Cap Growth and Alliance High Yield Funds, and the
Investment Funds investing in Class IB shares of EQ Trust Portfolios as such
Funds were first offered in 1997.
<TABLE>
<CAPTION>
LAST BUSINESS DAY OF
-----------------------------------------------------------------------------------
HR TRUST MAY 1, 1995 DECEMBER 1995 DECEMBER 1996 NOVEMBER 1997
-------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Alliance Conservative
Investors $ 14.647383 $ 16.549050 $ 17.209382 $ 19.050075
Alliance Growth Investors 20.073331 23.593613 26.260729 29.994648
Alliance Growth &
Income 10.376155 11.989601 14.231408 17.506722
Alliance Common Stock 102.335691 124.519251 152.955877 188.510944
Alliance Global 19.478146 22.293921 25.253538 27.481079
Alliance International 10.125278 11.033925 11.976127 11.606472
Alliance Aggressive Stock 44.025496 54.591448 65.938687 72.992152
Alliance Money Market 23.150932 23.830754 24.810781 25.757675
Alliance Intermediate
Government Securities 12.498213 13.424767 11.976127 14.506815
</TABLE>
ON PAGE 7 OF THE MAY 1, 1997 SUPPLEMENT UNDER REVISIONS FOR "EQUITABLE LIFE"
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (THE HOLDING COMPANY). The largest shareholder the Holding
Company is AXA-UAP (AXA). As of September 30, 1997, AXA beneficially owned
59.0% 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 related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $272.7 billion of assets as of September 30, 1997.
4
<PAGE>
ON PAGE 8 OF THE MAY 1, 1997 SUPPLEMENT:
UNDER THE REVISED HEADING "HR TRUST'S INVESTMENT ADVISOR," REPLACE THE
SENTENCE WITH THE FOLLOWING SENTENCE:
On September 30, 1997, Alliance was managing approximately $217.3 billion in
assets.
UNDER "EQ TRUST'S MANAGER AND ADVISERS" INSERT THE FOLLOWING SENTENCE AT THE
END OF THE THIRD PARAGRAPH:
EQ Financial has also entered into an investment advisory agreement with
Bankers Trust Company, who serves as adviser to the BT Equity 500 Index, BT
Small Company Index, and BT International Equity Index Portfolios.
ON PAGES 8 TO 10 OF THE MAY 1, 1997 SUPPLEMENT, AND ON PAGE 13 OF THE PROSPECTUS
UNDER "INVESTMENT POLICIES AND OBJECTIVES OF TRUST'S PORTFOLIOS" REPLACE THE
SECTION WITH THE FOLLOWING INFORMATION:
Each Portfolio has a different investment objective which it tries to achieve
by following separate investment policies. The policies and objectives of
each Portfolio will affect its return and its risks. There is no guarantee
that these objectives will be achieved. Set forth below is a summary of the
investment policies and objectives of each Portfolio. This summary is
qualified in its entirety by reference to the prospectuses for HR Trust and
EQ Trust, both of which accompany this supplement. Please read the
prospectuses for each of the trusts carefully before investing.
<TABLE>
<CAPTION>
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded High total return without, in the
Investors equity and debt securities. adviser's opinion, undue risk to
principal
Alliance Growth Investors Diversified mix of publicly traded High total return consistent with
equity and fixed-income securities, the adviser's determination of
including at times common stocks reasonable risk
issued by intermediate - and
small-sized companies and at times
lower-quality fixed-income securities
commonly known as "junk bonds."
Alliance Growth & Income Primarily income producing common High total return through a
stocks and securities convertible combination of current income and
into common stocks. capital appreciation
Alliance Common Stock Primarily common stock and other Long-term growth of capital and
equity-type instruments. increasing income
Alliance Global Primarily equity securities of Long-term growth of capital
non-United 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 Long-term growth of capital
equity-type securities issued by
quality small-and intermediate-sized
companies with strong growth
prospects and in covered options on
those securities.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
Alliance Small Cap Growth Primarily U.S. common stocks and Long-term growth of capital
other 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. High level of current income while
dollar-denominated money market preserving assets and maintaining
instruments. liquidity
Alliance Intermediate Primarily debt securities issued or High current income consistent
Government Securities guaranteed as to principal and with relative stability of
interest by the U.S. government or principal
any of its agencies or
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 return by maximizing current
high-yield, fixed-income securities income and, to the extent
which generally involve greater consistent with that objective,
volatility of price and risk of capital appreciation
principal and income than
higher-quality fixed-income
securities. Lower-quality debt
securities are commonly known as
"junk bonds."
EQ TRUST PORTFOLIO
------------------
BT Equity 500 Index Invest in a statistically selected Replicate as closely as possible
sample of the 500 stocks included in (before the deduction of Portfolio
the Standard & Poor's 500 Composite expenses) the total return of the
Stock Price Index ("S&P 500"). S&P 500
BT Small Company Invest in a statistically selected Replicate as closely as possible sample
Index sample of the 2,000 stocks included (before the deduction of Portfolio
in the Russell 2000 Small Stock Index expenses) the total return of the EAFE
("Russell 2000").
BT International Equity Invest in a statistically selected Replicate as closely as possible
Index sample of the securities of companies (before the deduction of Portfolio
included in the Morgan Stanley expenses) the total return of the
Capital International Europe, EAFE
Australia, Far East Index ("EAFE"),
although 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 Long-term growth of capital
Companies assets under normal circumstances) in
common stocks of emerging growth
companies that the Portfolio adviser
believes are early in their life cycle
but which have the potential to become
major enterprises.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EQ TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
MFS Research A substantial portion of assets Long-term growth of capital and
invested in common stock or future income
securities convertible into common
stock of companies believed by the
Portfolio adviser to possess better
than average prospects for long-term
growth.
Merrill Lynch Basic Value Investment in securities, primarily Capital appreciation and,
Equity equities, that the Portfolio adviser secondarily, income
believes are under-valued and
therefore represent basic investment
value.
Merrill Lynch World Investment primarily in a portfolio High total investment return
Strategy of equity and fixed-income
securities, including convertible
securities, of U.S. and foreign
issuers.
Morgan Stanley Emerging Primarily equity securities of Long-term capital appreciation
Markets Equity emerging market country issuers with
a focus on those in which the
Portfolio's adviser believes the
economies are developing strongly
and in which the markets are
becoming more sophisticated.
EQ/Putnam Balanced A well-diversified portfolio of Balanced investment
stocks and bonds that will produce
both capital growth and current
income.
EQ/Putnam Growth & Income Primarily common stocks that offer Capital growth and, secondarily,
Value potential for capital growth and may, current income
consistent with the Portfolio's
investment objective, invest in
common stocks that offer potential
for current income.
T. Rowe Price Equity Income Primarily dividend paying common Substantial dividend income and
stocks of established companies. also capital appreciation
T. Rowe Price International Primarily common stocks of Long-term growth of capital
Stock established non-United States
companies.
Warburg Pincus Small Primarily in a portfolio of equity Long-term capital appreciation
Company Value securities of small capitalization
companies (i.e., companies having
market capitalizations of $1 billion
or less at the time of initial
purchase, that the Portfolio adviser
considers to be relatively undervalued.
</TABLE>
7
<PAGE>
ON PAGE 23 OF THE PROSPECTUS UNDER THE HEADING "METHODS OF PAYMENT" INSERT THE
FOLLOWING SUB-SECTION AFTER THE LAST PARAGRAPH OF THE SECTION:
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 Accumulator Certificate on a monthly or
quarterly basis. The minimum amount that will be deducted is $100 monthly and
$300 quarterly. AIP subsequent contributions may be made to any Investment
Option available under your Certificate. 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 bank 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 day 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.
ON PAGE 26 OF THE PROSPECTUS BEFORE THE "WITHDRAWAL OPTIONS" SECTION INSERT THE
FOLLOWING INFORMATION:
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 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). The Annuity Account Value
allocated to each selected Investment Fund will grow or decline in value at
different rates during each time period. Rebalancing automatically
reallocates the Annuity Account Value in the chosen Investment Funds at the
end of each period to the specified allocation percentages. Rebalancing is
intended to transfer specified portions of the Annuity Account Value from
those chosen Investment Funds that have increased in value to those chosen
Investment Funds that have declined in value. 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.
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 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 (described
on page 25 of the prospectus) is in effect.
8
<PAGE>
ON PAGE 15 OF THE MAY 1, 1997 SUPPLEMENT UNDER "EQ TRUST CHARGES TO PORTFOLIOS"
ADD THE FOLLOWING INFORMATION TO THE TABLE:
AVERAGE DAILY NET ASSETS
------------------------
BT Equity 500 Index 0.25%
BT Small Company Index 0.25%
BT International Equity Index 0.35%
ADD THE FOLLOWING SENTENCE TO THE END OF THE PARAGRAPH WHICH FOLLOWS THE
ABOVE TABLE:
EQ Financial has also agreed to waive or limit its fees and to assume other
expenses so that the total operating expenses of each Bankers Trust Portfolio
are limited to: 0.55% of the respective average daily net assets of the BT
Equity 500 Index Portfolio; 0.60% for the BT Small Company Index Portfolio;
and 0.80% for the BT International Equity Index Portfolio.
9
<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 and Alliance Intermediate
Government Securities Fund Yield Information 3
Part 5: Long-Term Market Trends 5
Part 6: Financial Statements 7
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI dated May 1, 1997 as supplemented December 31,
1997 for the Accumulator Prospectus dated October 17, 1996 as supplemented on
May 1, 1997 and December 31, 1997:
|_| SAI and SAI Supplement |_| SAI Supplement only
- ---------------------------------------------------------------------
Name
- ---------------------------------------------------------------------
Address
- ---------------------------------------------------------------------
City State Zip
10
<PAGE>
SUPPLEMENT DATED DECEMBER 31, 1997 TO
INCOME MANAGER(R) ROLLOVER IRA AND CHOICE INCOME PLAN PROSPECTUS
DATED MAY 1, 1996, AS PREVIOUSLY SUPPLEMENTED ON MAY 1, 1997
This supplement dated December 31, 1997, updates certain information in the
Rollover IRA and Choice Income Plan prospectus dated May 1, 1996, as previously
supplemented on May 1, 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, 1997 supplement. You should keep the supplements
and the prospectus for future reference. We have filed with the Securities and
Exchange Commission (SEC) a supplement dated December 31, 1997 to our statement
of additional information (SAI) dated May 1, 1997. If you do not presently have
a copy of the prospectus and May 1, 1997 supplement, you may obtain additional
copies, as well as copies of the SAI and SAI supplement, from us, free of
charge, if you write to Equitable Life, Income Management Group, P.O. Box 1547,
Secaucus, NJ 07096-1547, call (800) 789-7771 or if you only need a copy of the
SAI or SAI supplement, you may mail in the SAI request form located at the end
of this supplement. The SAI and SAI supplement have been incorporated by
reference into this supplement.
In this supplement, each section of the prospectus and/or May 1, 1997 supplement
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, 1997 supplement, unless
otherwise noted.
THROUGHOUT THE PROSPECTUS, THE DISCUSSION OF THE CHARGES, FEATURES AND
PROVISIONS OF THE CERTIFICATES WILL APPLY TO BOTH TRADITIONAL IRA CERTIFICATES
AND ROTH IRA CERTIFICATES, UNLESS OTHERWISE NOTED IN THIS SUPPLEMENT.
ON THE FIRST PAGE OF THE MAY 1, 1997 SUPPLEMENT WHERE PROSPECTUS COVER PAGE
REVISIONS ARE NOTED:
THE SECOND SENTENCE IN THE FIRST PARAGRAPH IS REPLACED BY THE FOLLOWING
SENTENCE:
These Investment Options include 24 variable investment funds (INVESTMENT
FUNDS) and each GUARANTEE PERIOD in the GUARANTEED PERIOD ACCOUNT.
THE INVESTMENT FUNDS CHART IS REPLACED BY THE FOLLOWING CHART:
<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
Merrill Lynch Basic Value Equity T. Rowe Price International Value
T. Rowe Price Equity Income Stock
- --------------------------------------------------------------------------------------------------------------
</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>
FOLLOWING THE INVESTMENT FUNDS CHART, THE SENTENCE ADDED TO THE END OF THE
FIFTH PARAGRAPH IS REPLACED BY THE FOLLOWING SENTENCE:
The Guarantee Periods currently available have Expiration Dates of February
15 in years 1999 through 2008 under the Rollover IRA and 1999 through 2012
under the Choice Income Plan. The Guarantee Period maturing on February 15,
2013 will become available under the IRA Assured Payment Option and IRA APO
Plus on January 2, 1998.
- --------------------------------------------------------------------------------
Copyright 1997 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-98-3 IRA
<PAGE>
THROUGHOUT THE PROSPECTUS AND SUPPLEMENTS ANY REFERENCE TO THE INVESTMENT FUNDS
AND GUARANTEE PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET
FORTH ABOVE.
ON PAGES 4 AND 5 OF THE PROSPECTUS UNDER "GENERAL TERMS"
REPLACE THE DEFINITION FOR "IRA" WITH THE FOLLOWING DEFINITION:
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 which
must also meet the requirements of Section 408A of the Code.
INSERT THE FOLLOWING DEFINITION AFTER THE DEFINITION OF "PROCESSING OFFICE":
ROTH IRA - An IRA which must be funded on an after-tax basis, the
distributions from which may be tax free under specified circumstances.
INSERT THE FOLLOWING DEFINITION AFTER THE DEFINITION OF "SEPARATE ACCOUNT":
TRADITIONAL IRA - An IRA which is generally purchased with pre-tax
contributions, the distributions from which are treated as taxable. The
Certificate you currently own is a Traditional IRA.
2
<PAGE>
PAGES 3 AND 4 OF THE MAY 1, 1997 SUPPLEMENT ARE REPLACED BY THE FOLLOWING
INFORMATION:
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them with other similar products. The table reflects
both the charges of the Separate Account and the expenses of HR Trust and EQ
Trust. Charges for applicable taxes such as state or local premium taxes may
also apply. For a complete description of the charges under the Certificate,
see "Part 7: Deductions and Charges." For a complete description of each
trust's charges and expenses, see the prospectuses for HR Trust and EQ Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. However, if there is insufficient
value in the Investment Funds, all or portion of the distribution fee and the
annual contract fee, if any, will be deducted from your Annuity Account Value
in the Guaranteed Period Account rather than from the Investment Funds. See
"Part 7: Deduction and Charges." A market value adjustment (either positive
or negative) also may be applicable as a result of a withdrawal, transfer or
surrender of amounts from a Guarantee Period. See "Part 4: The Guaranteed
Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
----------------------------------------------------------------
DISTRIBUTION FEE (SALES LOAD) AS A PERCENTAGE OF EACH CONTRIBUTION RECEIVED DURING THE FIRST
<S> <C>
CONTRACT YEAR (percentage deducted annually on each of the first seven Processing Dates) (1) .......0.20%
<CAPTION>
CONTRACT
YEAR
<S> <C> <C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon 1..........7.00%
surrender or for certain withdrawals. The applicable withdrawal charge percentage 2..........6.00
determined by the Contract Year in which the withdrawal is made or the Certificate 3..........5.00
is surrendered beginning with "Contract Year 1" with respect to each contribution 4..........4.00
is withdrawn or surrendered. For each contribution, the Contract Year in which 5..........3.00
we receive that contribution is "Contract Year 1") (2) 6..........2.00
7..........1.00
8+.........0.00
<S> <C>
TRANSFER CHARGE (3)..................................................................................$0.00
GUARANTEED MINIMUM DEATH BENEFIT CHARGE (percentage deducted annually on each
Processing Date as a percentage of the guaranteed minimum death benefit
then in effect) (4) ................................................................................0.20%
ANNUAL CONTRACT FEE (DEDUCTED FROM ANNUITY ACCOUNT VALUE ON EACH PROCESSING DATE) (5)
-------------------------------------------------------------------------------------
If the initial contribution is less than $25,000.....................................................$30
If the initial contribution is $25,000 or more........................................................$0
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
------------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE...................................................................0.90%
TOTAL ASSET BASED ADMINISTRATIVE CHARGE.............................................................0.25%
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES...........................................................1.15%
</TABLE>
- ---------------------------
Notes:
(1) The amount deducted is based on contributions that have not been withdrawn.
The distribution fee will not apply while the IRA Assured Payment Option of
IRA APO Plus is in effect. See "Part 7: Deductions and Charges,"
"Distribution Fee." Under Certificates issued prior to May 1, 1996, the
distribution fee is 0%.
(2) Deducted upon a withdrawal with respect to amounts in excess of the 15%
(10% under the IRA Assured Payment Option and IRA APO Plus) free corridor
amount, and upon a surrender. See "Part 7: Deductions and Charges,"
"Withdrawal Charge."
(3) We reserve the right to impose a charge in the future at a maximum of $25
for each transfers among the Investment Options in excess of five per
Contract Year.
(4) See "Part 7: Deductions and Charges," "Guaranteed Minimum Death Benefit
Charge." (5) This charge is incurred at the beginning of the Contract Year
and deducted on the Processing Date. See "Part 7: Deductions and Charges,"
"Annual Contract Fee."
3
<PAGE>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS IN EACH PORTFOLIO)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIOS
--------------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
HR TRUST CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE
INVESTORS INVESTORS INCOME STOCK GLOBAL
--------- --------- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08%
---- ---- ---- ---- ----
TOTAL HR TRUST ANNUAL EXPENSES(6) 0.55% 0.59% 0.60% 0.41% 0.73%
==== ==== ==== ==== ====
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
HR TRUST ALLIANCE AGGRESSIVE SMALL MONEY GOVERNMENT HIGH
INTERNATIONAL STOCK CAP GROWTH MARKET SECURITIES YIELD
------------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.90% 0.55% 0.90% 0.35% 0.50% 0.60%
Other Expenses 0.18% 0.03% 0.10% 0.04% 0.09% 0.06%
---- ---- ---- ---- ---- ----
TOTAL HR TRUST ANNUAL EXPENSES(6) 1.08% 0.58% 1.00% 0.39% 0.59% 0.66%
==== ==== ==== ==== ==== ====
<CAPTION>
BT BT MFS MERRILL
BT SMALL INTERNATIONAL EMERGING LYNCH
EQ TRUST EQUITY 500 COMPANY EQUITY GROWTH MFS BASIC VALUE
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(7) 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 EQ TRUST ANNUAL EXPENSES(8) 0.55% 0.60% 0.80% 0.85% 0.85% 0.85%
==== ==== ==== ==== ==== ====
<CAPTION>
MORGAN WARBURG
MERRILL STANLEY T. ROWE T. ROWE PINCUS
LYNCH EMERGING EQ/PUTNAM PRICE PRICE SMALL
EQ TRUST WORLD MARKETS EQ/PUTNAM GROWTH & EQUITY INTERNATIONAL COMPANY
STRATEGY EQUITY BALANCED INCOME INCOME STOCK VALUE
-------- ------ -------- ------ ------ ----- -----
<S> <C> <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(7) 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 EQ TRUST ANNUAL EXPENSES(8) 1.20% 1.75% 0.90% 0.85% 0.85% 1.20% 1.00%
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------------
Notes:
(6) The amounts shown for the Portfolios of HR Trust (other than Alliance Small
Cap Growth) have been restated to reflect advisory fees which went into
effect as of May 1, 1997. "Other Expenses" are based on average daily net
assets in each Portfolio during 1996. The amounts shown for the Alliance
Small Cap Growth Portfolio are estimated for 1997 as this Portfolio
commenced operations on May 1, 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 HR Trust. 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 "HR Trust Charges to Portfolios" in Part 7.
(7) The Class IB shares of EQ Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by EQ Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. The Rule 12b-1 Plan provides that EQ Trust, on behalf of each
Portfolio, may pay annually up to 0.25% of the average daily net assets of
a Portfolio attributable to its Class IB shares in respect of activities
primarily intended to result in the sale of the Class IB shares. The 12b-1
fee will not be increased for the life of the Certificates.
(8) The EQ Trust Portfolios had no operations prior to May 1, 1997. Therefore,
the amounts shown for "Other Expenses" for these Portfolios are estimated.
The 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 Portfolios of EQ Trust
commenced operations on May 1, 1997. The Morgan Stanley Emerging Markets
Equity Portfolio commenced operations on August 20, 1997 (and was offered
under the prospectus as of September 2, 1997). The BT Equity 500 Index, BT
Small Company Index, and BT International Equity Index Portfolios commenced
operations on December 31, 1997. The maximum investment management and
advisory fees for each EQ Trust 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
but, pursuant to agreement, cannot together with other fees exceed total
annual expense limitations (which are the respective amounts shown in
"Total Annual Expenses"). Absent the expense limitation, we estimate that
the other expenses for 1998 for each Portfolio would be 0.285% for BT
Equity 500 Index; 0.231% for BT Small Company Index; 0.472% for BT
International Equity Index; 0.412% for EQ/Putnam Balanced; 0.262% for
EQ/Putnam Growth & Income Value; 0.242% for MFS Emerging Growth Companies;
0.234% for MFS Research; 0.247% for Merrill Lynch Basic Value Equity;
0.497% for Merrill Lynch World Strategy; 0.461% for Morgan Stanley Emerging
Markets Equity; 0.235% for T. Rowe Price Equity Income; 0.422% for T. Rowe
Priced International Stock; and 0.191% for Warburg Pincus Small Company
Value. See "EQ Trust Charges to Portfolios" in Part 7.
4
<PAGE>
ON PAGE 5 OF THE MAY 1, 1997 SUPPLEMENT UNDER "EXAMPLES" ADD THE FOLLOWING
INFORMATION TO THE EXAMPLE OF "IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF
EACH PERIOD SHOWN, THE EXPENSES WOULD BE" UNDER EQ TRUST:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
BT Equity 500 Index $90.26 $120.46 -- --
BT Small Company Index 90.75 121.96 -- --
BT International Equity Index 92.74 127.95 -- --
</TABLE>
ON PAGE 6 OF THE MAY 1, 1997 SUPPLEMENT ADD THE FOLLOWING INFORMATION TO THE
EXAMPLE OF "IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD
SHOWN, THE EXPENSES WOULD BE" UNDER EQ TRUST:
<TABLE>
<CAPTION>
EQ TRUST 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
BT Equity 500 Index $24.38 $74.85 -- --
BT Small Company Index 24.87 76.34 -- --
BT International Equity Index 26.86 82.34 -- --
</TABLE>
ON PAGE 7 OF THE MAY 1, 1997 SUPPLEMENT REPLACE THE INFORMATION UNDER "CONDENSED
FINANCIAL INFORMATION" WITH THE FOLLOWING INFORMATION:
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on May 1, 1995. The
following table shows the Accumulation Unit Values, as of May 1, 1995 and the
last Business Day of the periods shown. No Accumulation Unit Values are shown
for the Alliance Small Cap Growth and Alliance High Yield Funds, and the
Investment Funds investing in Class IB shares of EQ Trust Portfolios as such
Funds were first offered in 1997.
<TABLE>
<CAPTION>
LAST BUSINESS DAY OF
-----------------------------------------------------------------------------------
HR TRUST MAY 1, 1995 DECEMBER 1995 DECEMBER 1996 NOVEMBER 1997
-------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Alliance Conservative
Investors $ 14.647383 $ 16.549050 $ 17.209382 $ 19.050075
Alliance Growth Investors 20.073331 23.593613 26.260729 29.994648
Alliance Growth &
Income 10.376155 11.989601 14.231408 17.506722
Alliance Common Stock 102.335691 124.519251 152.955877 188.510944
Alliance Global 19.478146 22.293921 25.253538 27.481079
Alliance International 10.125278 11.033925 11.976127 11.606472
Alliance Aggressive Stock 44.025496 54.591448 65.938687 72.992152
Alliance Money Market 23.150932 23.830754 24.810781 25.757675
Alliance Intermediate
Government Securities 12.498213 13.424767 11.976127 14.506815
</TABLE>
ON PAGE 11 OF THE PROSPECTUS UNDER THE HEADING "WITHDRAWAL OPTIONS," THE
DISCUSSION OF MINIMUM DISTRIBUTION WITHDRAWALS APPLIES ONLY TO TRADITIONAL IRA
CERTIFICATES.
ON PAGE 7 OF THE MAY 1, 1997 SUPPLEMENT UNDER REVISIONS FOR "EQUITABLE LIFE"
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (THE HOLDING COMPANY). The largest shareholder the Holding
Company is AXA-UAP (AXA). As of September 30, 1997, AXA beneficially owned
59.0% 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 related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $272.7 billion of assets as of September 30, 1997.
5
<PAGE>
ON PAGE 8 OF THE MAY 1, 1997 SUPPLEMENT
UNDER THE REVISED HEADING "HR TRUST'S INVESTMENT ADVISOR," REPLACE THE
SENTENCE WITH THE FOLLOWING SENTENCE:
On September 30, 1997, Alliance was managing approximately $217.3 billion in
assets.
UNDER "EQ TRUST'S MANAGER AND ADVISERS" INSERT THE FOLLOWING SENTENCE AT THE
END OF THE THIRD PARAGRAPH:
EQ Financial has also entered into an investment advisory agreement with
Bankers Trust Company, who serves as adviser to the BT Equity 500 Index, BT
Small Company Index, and BT International Equity Index Portfolios.
ON PAGE 8 OF THE MAY 1, 1997 SUPPLEMENT, AND ON PAGE 14 OF THE PROSPECTUS UNDER
"INVESTMENT POLICIES AND OBJECTIVES OF TRUST'S PORTFOLIOS" REPLACE THE SECTION
WITH THE FOLLOWING INFORMATION:
Each Portfolio has a different investment objective which it tries to
achieve by following separate investment policies. The policies and
objectives of each Portfolio will affect its return and its risks. There is
no guarantee that these objectives will be achieved. Set forth below is a
summary of the investment policies and objectives of each Portfolio. This
summary is qualified in its entirety by reference to the prospectuses for
HR Trust and EQ Trust, both of which accompany this supplement. Please read
the prospectuses for each of the trusts carefully before investing.
<TABLE>
<CAPTION>
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded High total return without, in the
Investors equity and debt securities. adviser's opinion, undue risk to
principal
Alliance Growth Investors Diversified mix of publicly traded High total return consistent with
equity and fixed-income securities, the adviser's determination of
including at times common stocks reasonable risk
issued by intermediate - and
small-sized companies and at times
lower-quality fixed-income securities
commonly known as "junk bonds."
Alliance Growth & Income Primarily income producing common High total return through a
stocks and securities convertible combination of current income and
into common stocks. capital appreciation
Alliance Common Stock Primarily common stock and other Long-term growth of capital and
equity-type instruments. increasing income
Alliance Global Primarily equity securities of Long-term growth of capital
non-United 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 Long-term growth of capital
equity-type securities issued by
quality small- and intermediate-sized
companies with strong growth prospects
and in covered options on those
securities.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
Alliance Small Cap Growth Primarily U.S. common stocks and Long-term growth of capital
other 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. High level of current income while
dollar-denominated money market preserving assets and maintaining
instruments. liquidity
Alliance Intermediate Primarily debt securities issued or High current income consistent
Government Securities guaranteed as to principal and with relative stability of
interest by the U.S. government or principal
any of its agencies or
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 return by maximizing current
high-yield, fixed-income securities income and, to the extent
which generally involve greater consistent with that objective,
volatility of price and risk of capital appreciation
principal and income than
higher-quality fixed-income
securities. Lower-quality debt
securities are commonly known as
"junk bonds."
EQ TRUST PORTFOLIO
------------------
BT Equity 500 Index Invest in a statistically selected Replicate as closely as possible
sample of the 500 stocks included in (before the deduction of Portfolio
the Standard & Poor's 500 Composite expenses) the total return of the
Stock Price Index ("S&P 500"). S&P 500
BT Small Company Index Invest in a statistically selected Replicate as closely as possible
sample of the 2,000 stocks included (before the deduction of Portfolio
in the Russell 2000 Small Stock Index expenses) the total return of the
("Russell 2000"). Russell 2000
BT International Equity Invest in a statistically selected Replicate as closely as possible
Index sample of the securities of companies (before the deduction of Portfolio
included in the Morgan Stanley expenses) the total return of the
Capital International Europe, EAFE
Australia, Far East Index ("EAFE"),
although 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 Long-term growth of capital
Companies assets under normal circumstances) in
common stocks of emerging growth
companies that the Portfolio adviser
believes are early in their life cycle
but which have the potential to become
major enterprises.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
EQ TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
MFS Research A substantial portion of assets Long-term growth of capital and
invested in common stock or future income
securities convertible into common
stock of companies believed by the
Portfolio adviser to possess better
than average prospects for long-term
growth.
Merrill Lynch Basic Value Investment in securities, primarily Capital appreciation and
Equity equities, that the Portfolio adviser secondarily, income
believes are under-valued and
therefore represent basic investment
value.
Merrill Lynch World Investment primarily in a portfolio High total investment return
Strategy of equity and fixed-income
securities, including convertible
securities, of U.S. and foreign
issuers.
Morgan Stanley Emerging Primarily equity securities of Long-term capital appreciation
Markets Equity emerging market country issuers with
a focus on those in which the
Portfolio's adviser believes the
economies are developing strongly and
in which the markets are becoming more
sophisticated.
EQ/Putnam Balanced A well-diversified portfolio of Balanced investment
stocks and bonds that will produce
both capital growth and current income.
EQ/Putnam Growth & Income Primarily common stocks that offer Capital growth and, secondarily,
Value potential for capital growth and may, current income
consistent with the Portfolio's
investment objective, invest in common
stocks that offer potential for current
income.
T. Rowe Price Equity Income Primarily dividend paying common Substantial dividend income and
stocks of established companies. also capital appreciation
T. Rowe Price International Primarily common stocks of Long-term growth of capital
Stock established non-United States
companies.
Warburg Pincus Small Primarily in a portfolio of equity Long-term capital appreciation
Company Value securities of small capitalization
companies (i.e., companies having
market capitalizations of $1 billion
or less at the time of initial
purchase) that the Portfolio adviser
considers to be relatively undervalued.
</TABLE>
8
<PAGE>
ON PAGE 25 OF THE PROSPECTUS UNDER THE HEADING "CONTRIBUTIONS UNDER THE
CERTIFICATES" INSERT THE FOLLOWING PARAGRAPH AFTER THE FIFTH PARAGRAPH OF THE
SECTION:
We will not accept "regular" IRA contributions to Roth IRAs. Rollover and
direct custodian-to-custodian transfer contributions can be made any time
during your lifetime provided you meet certain requirements. See Part 9: Tax
Aspects of the Certificates."
ON PAGES 25 AND 26 OF THE PROSPECTUS UNDER THE HEADING "METHODS OF PAYMENT"
INSERT THE FOLLOWING SUB- SECTION AFTER THE LAST PARAGRAPH OF THE SECTION:
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 a Traditional IRA Certificate on a monthly or
quarterly basis. The minimum amount that will be deducted is $100 monthly and
$300 quarterly (subject to the maximum of $2,000 annually for Traditional
IRAs). AIP subsequent contributions may be made to any Investment Option
available under your Certificate. 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 bank account debited. That date, or the
next Business Day if that day is a non-Business Day, will be the Transaction
Date. AIP is not available for Roth IRA Certificates.
You may cancel AIP at any time by notifying our Processing Office in writing
at least two business day 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.
ON PAGE 26 OF THE PROSPECTUS UNDER THE HEADING "FREE LOOK PERIOD" INSERT THE
FOLLOWING PARAGRAPH AFTER THE LAST PARAGRAPH OF THIS SECTION:
In the case of a complete conversion of an existing Traditional IRA
Certificate to a Roth IRA Certificate, you may cancel your Roth IRA
Certificate and return to a Traditional IRA Certificate by following the
instructions in the request for full conversion form available from our
Processing Office or your agent.
ON PAGE 28 OF THE PROSPECTUS BEFORE THE "DEATH BENEFIT" SECTION INSERT THE
FOLLOWING:
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). The Annuity Account Value
allocated to each selected Investment Fund will grow or decline in value at
different rates during each time period. Rebalancing automatically
reallocates the Annuity Account Value in the chosen Investment Funds at the
end of each period to the specified allocation percentages. Rebalancing is
intended to transfer specified portions of the Annuity Account Value from
those chosen Investment Funds that have increased in value to those chosen
Investment Funds that have declined in value. 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.
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 discuss the rebalancing program with your financial adviser before
electing such program.
9
<PAGE>
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. You
must then submit a new request in a written form satisfactory to us to start
the rebalancing program again.
Rebalancing may not be elected if a Dollar Cost Averaging program (described
on page 28 of the prospectus) is in effect.
IN "PART 6: DISTRIBUTION METHODS UNDER THE CERTIFICATES" ANY DISCUSSION OF
MINIMUM DISTRIBUTION WITHDRAWALS APPLIES ONLY TO TRADITIONAL IRA CERTIFICATES.
ON PAGE 38 OF THE PROSPECTUS UNDER THE HEADING "MINIMUM DISTRIBUTION
WITHDRAWALS" ADD THE FOLLOWING INFORMATION:
(Available under Traditional IRA Certificates)
ON PAGE 17 OF THE MAY 1, 1997 SUPPLEMENT UNDER "EQ TRUST CHARGES TO PORTFOLIOS"
ADD THE FOLLOWING INFORMATION TO THE TABLE:
AVERAGE DAILY NET ASSETS
------------------------
BT Equity 500 Index 0.25%
BT Small Company Index 0.25%
BT International Equity Index 0.35%
ADD THE FOLLOWING SENTENCE TO THE END OF THE PARAGRAPH WHICH FOLLOWS THE
ABOVE TABLE:
EQ Financial has also agreed to waive or limit its fees and to assume other
expenses so that the total operating expenses of each Bankers Trust Portfolio
are limited to: 0.55% of the respective average daily net assets of the BT
Equity 500 Index Portfolio; 0.60% for the BT Small Company Index Portfolio;
and 0.80% for the BT International Equity Index Portfolio.
ON PAGES 17 AND 18 OF THE MAY 1, 1997 SUPPLEMENT, AND ON PAGES 44 THROUGH 50 OF
THE PROSPECTUS, REPLACE THE INFORMATION IN "PART 9: TAX ASPECTS OF THE
CERTIFICATES" WITH THE FOLLOWING INFORMATION:
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 pretax 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-IRAs are issued and funded
in connection with employer-sponsored retirement plans. There are also
Education IRAs, which are not discussed herein because they are not available
in individual retirement annuity form. As the Rollover Roth IRA is an
individual retirement annuity, the term "Roth IRA" refers to a Roth
individual retirement annuity unless the context requires otherwise.
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.
10
<PAGE>
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES (TRADITIONAL IRAS)
This prospectus contains the information which the Internal Revenue Service
(IRS) requires to be disclosed to an individual before he or she purchases a
Traditional IRA.
The Rollover IRA Certificate is designed to qualify as a Traditional IRA
under Section 408(b) of the Code. Your rights under the Rollover IRA cannot
be forfeited.
This prospectus covers some of the special tax rules that apply to individual
retirement arrangements. You should be aware that a Traditional IRA is
subject to certain restrictions in order to qualify for its special treatment
under the Federal tax law.
This prospectus provides our general understanding of applicable Federal
income tax rules, but does not provide detailed tax information and does not
address issues such as state income and other taxes or Federal gift and
estate taxes. Please consult a tax adviser when considering the tax aspects
of the Traditional IRA Certificates.
Further information on Traditional IRA tax matters can be obtained from any
IRS district office. Additional information regarding IRAs, including a
discussion of required distributions, can be found in IRS Publication 590,
entitled "Individual Retirement Arrangements (IRAs)," which is generally
updated annually.
The Rollover IRA Certificate has been approved by the IRS as to form for use
as a Traditional IRA. This IRS approval is a determination only as to the
form of the annuity, and does not represent a determination of the merits of
the annuity as an investment, and may not address certain features under the
Rollover IRA Certificates.
Cancellation
You can cancel a Certificate issued as a Traditional IRA by following the
directions in Part 5 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 "Tax-Free Transfers and
Rollovers" 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 5. The immediately
following discussion relates to "regular" Traditional IRA contributions. For
the reasons noted in "Tax-Free Transfers and Rollovers" below, you should
consult with your tax adviser before making any subsequent contributions to a
Traditional IRA which is intended to serve as a "conduit" IRA.
Generally, $2,000 is the maximum amount of deductible and nondeductible
contributions which may be made to all IRAs (including Roth IRAs) by an
individual in any taxable year. The above limit may be less when the
individual's earnings are below $2,000. This limit does not apply to rollover
contributions or direct custodian-to-custodian transfers into a Traditional
IRA.
11
<PAGE>
Where married individuals file joint income tax returns, their 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 an individual
can deduct depends on whether the individual is 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 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 the individual is single and covered by a retirement plan during any part
of the taxable year, the deduction for IRA contributions phases out with AGI
between $30,000 and $40,000. This amount will be indexed every year until
2005. If the individual is married and files a joint return, and the
individual is 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. 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, the individual
determines AGI and subtracts $30,000 if the individual is a single person,
$50,000 if the individual is married and files a joint return with the
spouse. The resulting amount is the individual's Excess AGI. The individual
then determines 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
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 an
individual attains age 70 1/2 or any tax year after that. A working spouse
age 70 1/2 or over, however, can contribute up to the lesser of $2,000 or
100% of "earned income" to a spousal individual retirement arrangement for a
nonworking spouse until the year in which the nonworking spouse reaches age
70 1/2.
12
<PAGE>
An individual not eligible to deduct part or all of the Traditional IRA
contribution may still make nondeductible contributions on which earnings
will accumulate on a tax-deferred basis. The deductible and nondeductible
contributions to the individual's 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. Individuals must keep their
own records of deductible and nondeductible contributions in order to prevent
double taxation on the distribution of previously taxed amounts. See
"Distributions from Traditional IRA Certificates" below.
An individual making nondeductible contributions in any taxable year, or any
individual who has made nondeductible contributions to a Traditional IRA in
prior years and is receiving amounts from any Traditional IRA must file the
required information with the IRS. Moreover, individuals making nondeductible
Traditional IRA contributions must retain all income tax returns and records
pertaining to such contributions until interests in all Traditional IRAs are
fully distributed.
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 the individual's Federal
income tax return for the tax year (including extensions) is not includable
in income and therefore is not subject to the 10% penalty tax on early
distributions (discussed below under "Penalty Tax on Early Distributions"),
provided any earnings attributable to the excess contribution are also
withdrawn and no tax deduction is taken for the excess contribution. The
withdrawn earnings on the excess contribution, however, would be includable
in the individual's gross income and would be subject to the 10% penalty tax.
If excess contributions are not withdrawn before the time for filing the
individual's Federal income tax return for 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 includable in gross income and would not be
subject to the 10% penalty tax. Lastly, excess "regular" contributions may
also be removed by underutilizing the allowable contribution limits for a
later year.
If excess rollover contributions are not withdrawn before the time for filing
the individual's Federal tax return for the year (including extensions) and
the excess contribution occurred as a result of incorrect information
provided by the plan, any such excess amount can be withdrawn if no tax
deduction was taken for the excess contribution. As above, excess rollover
contributions withdrawn under those circumstances would not be includable in
gross income and would not be subject to the 10% penalty tax.
TAX-FREE TRANSFERS AND ROLLOVERS
Tax-free 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
13
<PAGE>
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, an individual 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 the individual.
Distributions include withdrawals from your Certificate, surrender of your
Certificate and annuity payments from your Certificate. Death benefits are
also distributions. Except as discussed below, the amount of any distribution
from a Traditional IRA is fully includable as ordinary income by the
individual in gross income.
If the individual has made nondeductible IRA contributions to any Traditional
IRA (whether or not this particular arrangement), those contributions are
recovered tax free when distributions are received. The individual must keep
records of all such nondeductible contributions. At the end of each tax year
in which the individual has received a distribution from any traditional
individual retirement arrangement, the individual determines 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 the individual 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 amount received is rolled over
to another traditional individual retirement arrangement (see "Tax-Free
Transfers and Rollovers" 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.
14
<PAGE>
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 the
owner's interest in the IRA over the owner's life expectancy. Whether the
correct amount has been distributed is calculated on a year-by-year basis;
there are no provisions in the Code to allow amounts taken in excess of the
required amount to be carried over or carried back and credited to other
years.
Generally, an individual must take the first required minimum distribution
with respect to the calendar year in which the individual turns age 70 1/2.
The individual has the choice to take the first required minimum distribution
during the calendar year he or she turns age 70 1/2, or to delay taking it
until the three-month (January 1 - April 1) period in the next calendar year.
(Distributions must commence no later than the "Required Beginning Date,"
which is the April 1st of the calendar year following the calendar year in
which the individual turns age 70 1/2.) If the individual chooses to delay
taking the first annual minimum distribution, then the individual will have
to take two minimum distributions in that year -- the delayed one for the
first year and the one actually for that year. Once minimum distributions
begin, they must be made at some time every year.
There are two approaches to taking minimum distributions -- "account based"
or "annuity based" -- and there are a number of distribution options in both
of these categories. These choices are intended to give individuals a great
deal of flexibility to provide for themselves and their families.
An account-based minimum distribution approach may be a lump sum payment, or
periodic withdrawals made over a period which does not extend beyond the
individual's life expectancy or the joint life expectancies of the individual
and a designated beneficiary. An annuity-based approach involves application
of the Annuity Account Value to an annuity for the life of the individual or
the joint lives of the individual and a designated beneficiary, or for a
period certain not extending beyond applicable life expectancies.
You should discuss with your tax adviser which minimum distribution options
are best for your own personal situation. Individuals who are participants in
more than one tax-favored retirement plan may be able to choose different
distribution options for each plan.
Your required minimum distribution for any taxable year is calculated by
taking into account the required minimum distribution from each of your
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.
An individual may recompute his or her minimum distribution amount each year
based on the individual's current life expectancy as well as that of the
spouse. No recomputation is permitted, however, for a beneficiary other than
a spouse.
An individual who has been computing minimum distributions with respect to
Traditional IRA funds on an account-based approach (discussed above) may
subsequently apply such funds to a life annuity-based payout, provided that
the individual had elected to recalculate life expectancy annually (and the
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.
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<PAGE>
Except as described in the next sentence, if the individual dies after
distribution in the form of an annuity has begun, or after the Required
Beginning Date, payment of the remaining interest must be made at least as
rapidly as under the method used prior to the individual's death. (The IRS
has indicated that an exception to the rule that payment of the remaining
interest must be made at least as rapidly as under the method used prior to
the individual's death applies if the beneficiary of the Traditional IRA is
the surviving spouse. In some circumstances, the 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.)
If an individual dies before the Required Beginning Date and before
distributions in the form of an annuity begin, distributions of the
individual's entire interest under the Certificate must be completed within
five years after death, unless payments to a designated beneficiary begin
within one year of the individual's death and are made over the beneficiary's
life or over a period certain which does not extend beyond the beneficiary's
life expectancy.
If the surviving spouse is the designated beneficiary, the spouse may delay
the commencement of such payments up until the individual would have attained
70 1/2. In the alternative, a surviving spouse may elect to roll over the
inherited 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 the individual would have received if distribution had been made to
the individual.
If you elect to have your spouse be the sole primary beneficiary and to be
the successor Annuitant and Certificate Owner, then your surviving spouse
automatically becomes both the successor Certificate Owner and Annuitant, and
no death benefit is payable until the surviving spouse's death.
GUARANTEED MINIMUM DEATH BENEFIT
The Code provides that no part of an individual retirement account may be
invested in life insurance contracts. Treasury Regulations provide that an
individual retirement account may be invested in an annuity contract which
provides a death benefit of the greater of premiums paid or the contract's
cash value. Your Certificate provides a minimum death benefit guarantee that
in certain circumstances may be greater than either of contributions made or
the Annuity Account Value. Although there is no ruling regarding the type of
minimum death benefit guarantee provided by the Certificate, Equitable Life
believes that the Certificate's minimum death benefit guarantee should not
adversely affect the qualification of the Certificate as 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 IRA ASSURED PAYMENT OPTION AND IRA 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 IRA Assured Payment Option or IRA 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 IRA
Assured Payment Option and IRA 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 IRA Assured Payment Option
and IRA 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.
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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 Rollover IRA 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 IRA Assured Payment Option and IRA 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
"Tax-Free Transfers and Rollovers" above.
PROHIBITED TRANSACTION
A Traditional IRA may not be borrowed against or used as collateral for a
loan or other obligation. If the Traditional IRA is borrowed against or used
as collateral, its tax-favored status will be lost as of the first day of the
tax year in which the event occurred. If this happens, the individual must
include in Federal gross income for that year an amount equal to the fair
market value of the 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 the
individual has not reached age 59 1/2 before the first day of that tax year.
See "Penalty Tax on Early Distributions" below.
PENALTY TAX ON EARLY DISTRIBUTIONS
The taxable portion of 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 Traditional 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 IRA Assured Payment Option
with level payments, both of which are described in Part 6. 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 IRA Assured Payment Option level
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 IRA Assured Payment Option level
payments begin, the distributions should not be stopped or changed until the
later of your attaining age 59 1/2 or five years after the date of the first
distribution, or the penalty tax, including an interest charge for the prior
penalty avoidance, may apply to all prior distributions under this option.
Also, it is possible that the IRS could view any additional withdrawal or
payment you take from your Certificate as changing your
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pattern of Substantially Equal Payment Withdrawals or IRA Assured Payment
Option payments for purposes of determining whether the penalty applies.
Where a taxpayer under age 59 1/2 purchases 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 prospectus contains the information which the IRS requires to be
disclosed to you before you purchase a Roth IRA. This section of Part 9
covers some of the special tax rules that apply to Roth IRAs.
The Rollover Roth IRA is designed to qualify as a Roth individual retirement
annuity under Sections 408A and 408(b) of the Code. Your interest in the Roth
IRA cannot be forfeited. You or your beneficiaries who survive you are the
only ones who can receive the benefits or payments.
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.
We have received favorable opinion letters from the IRS approving the forms
of the individual Contract and group certificates for the Rollover IRA as a
Traditional IRA. Such IRS approval is a determination only that the form of
the contract or certificate meets the requirements for an individual
retirement annuity and does not represent a determination of the merits of
the contract or certificate as an investment. The IRS does not yet have a
procedure in place for approving the form of Roth IRAs.
Cancellation
You can cancel a Certificate issued as a Roth IRA by following the directions
in Part 5 under "Free Look Period." You can cancel a Rollover Roth IRA
Certificate issued as a result of a full conversion of a Rollover 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.
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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 5. 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 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 rollovers 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.)
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.
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YOU CANNOT MAKE CONVERSION ROLLOVER CONTRIBUTIONS TO A ROTH IRA FOR ANY
TAXABLE YEAR IN WHICH YOUR 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 Rollover 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.
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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).
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 is highly possible 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.
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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 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.
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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
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.
Withholding may also apply to taxable amounts paid under a free look or
cancellation. 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.
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 1997, a recipient of periodic
payments (e.g., monthly or annual payments) which total less than a $14,400
taxable amount will generally be exempt from Federal income tax withholding,
unless the recipient specifies a different choice of withholding exemption. A
withholding election may be revoked at any time and remains effective until
revoked. If a recipient fails to provide a correct taxpayer identification
number, withholding is made as if the recipient is single with no exemptions.
A recipient of a non-periodic distribution (total or partial) will generally
be subject to withholding at a flat 10% rate. A recipient who provides a
United States residence address and a correct taxpayer identification number
will generally be permitted to elect not to have tax withheld.
All recipients receiving periodic and non-periodic payments will be further
notified of the withholding requirements and of their right to make
withholding elections.
OTHER WITHHOLDING
As a general rule, if death benefits are payable to a person two or more
generations younger than you, a Federal generation skipping tax may be
payable with respect to the benefit at rates similar to the maximum estate
tax rate in effect at the time. The generation skipping tax provisions
generally apply to transfers which would also be subject to the gift and
estate tax rules. Individuals are generally allowed an aggregate generation
skipping tax exemption of $1 million. Because these rules are complex, you
should consult with your tax adviser for
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specific information, especially where benefits are passing to younger
generations, as opposed to a spouse or child.
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If we believe a benefit may be subject to generation skipping tax we may be
required to withhold for such tax unless we receive acceptable written
confirmation that no such tax is payable.
IMPACT OF TAXES TO EQUITABLE LIFE
The Certificates provide that Equitable Life may charge the Separate Account
for taxes. Equitable Life can set up reserves for such taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers among the Investment Funds or between the Guaranteed Period Account
and one or more Investment Funds are not taxable.
TAX CHANGES
The United States Congress has in the past considered and may in the future
consider proposals for legislation that, if enacted, could change the tax
treatment of annuities and individual retirement arrangements. In addition,
the Treasury Department may amend existing regulations, issue new
regulations, or adopt new interpretations of existing laws. State tax laws
or, if you are not a United States resident, foreign tax laws, may affect the
tax consequences to you or the beneficiary. These laws may change from time
to time without notice and, as a result, the tax consequences may be altered.
There is no way of predicting whether, when or in what form any such change
would be adopted.
Any such change could have retroactive effects regardless of the date of
enactment. We suggest you consult your legal or tax adviser.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
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PAGE
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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 and Alliance Intermediate
Government Securities Fund Yield Information 3
Part 6: Long-Term Market Trends 4
Part 7: Financial Statements 6
HOW TO OBTAIN A ROLLOVER IRA STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me a Rollover IRA SAI dated May 1, 1997 as supplemented on December
31, 1997 for the Rollover IRA and Choice Income Plan Prospectus dated May 1,
1996, as supplemented on May 1, 1997 and December 31, 1997.
|_| SAI and SAI Supplement |_| SAI Supplement only
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
26
IM-98-3 IRA
<PAGE>
SUPPLEMENT DATED DECEMBER 31, 1997 TO
INCOME MANAGER(R) ACCUMULATOR(SM) PROSPECTUS
DATED MAY 1, 1996, AS PREVIOUSLY SUPPLEMENTED ON MAY 1, 1997
This supplement dated December 31, 1997, updates certain information in the
Accumulator prospectus dated May 1, 1996, as previously supplemented on May 1,
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, 1997 supplement. You should keep the supplements and the prospectus for
future reference. We have filed with the Securities and Exchange Commission
(SEC) a supplement dated December 31, 1997 to our statement of additional
information (SAI) dated May 1, 1997. If you do not presently have a copy of the
prospectus and May 1, 1997 supplement, you may obtain additional copies, as well
as copies of the SAI and SAI supplement, from us, free of charge, if you write
to Equitable Life, Income Management Group, P.O. Box 1547, Secaucus, NJ
07096-1547, call (800) 789-7771 or if you only need a copy of the SAI or SAI
supplement, you may mail in the SAI request form located at the end of this
supplement. The SAI and SAI supplement have been incorporated by reference into
this supplement.
In this supplement, each section of the prospectus and/or May 1, 1997 supplement
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, 1997 supplement, unless
otherwise noted.
ON THE FIRST PAGE OF THE MAY 1, 1997 SUPPLEMENT WHERE PROSPECTUS COVER PAGE
REVISIONS ARE NOTED:
THE SECOND SENTENCE IN THE FIRST PARAGRAPH IS REPLACED BY THE FOLLOWING
SENTENCE:
These Investment Options include 24 variable investment funds (INVESTMENT
FUNDS) and each GUARANTEE PERIOD in the GUARANTEED PERIOD ACCOUNT.
THE INVESTMENT FUNDS CHART IS REPLACED BY THE FOLLOWING CHART:
<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
Merrill Lynch Basic Value Equity T. Rowe Price International Value
T. Rowe Price Equity Income Stock
- --------------------------------------------------------------------------------------------------------------
</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>
FOLLOWING THE INVESTMENT FUNDS CHART, THE SENTENCE ADDED TO THE END OF THE
FIFTH PARAGRAPH IS REPLACED BY THE FOLLOWING SENTENCE:
The Guarantee Periods currently available have Expiration Dates of February
15 in years 1999 through 2008.
THROUGHOUT THE PROSPECTUS AND SUPPLEMENTS ANY REFERENCE TO THE INVESTMENT FUNDS
AND GUARANTEE PERIODS REFER TO THE INVESTMENT FUNDS AND GUARANTEE PERIODS SET
FORTH ABOVE.
- --------------------------------------------------------------------------------
Copyright 1997 The Equitable Life Assurance Society of the United States, New
York, New York 10104. All rights reserved. Income Manager is a registered
service mark and Accumulator is a service mark of The Equitable Life
Assurance Society of the United States.
IM-98-1 ACC
<PAGE>
PAGES 3 AND 4 OF THE MAY 1, 1997 SUPPLEMENT ARE REPLACED BY THE FOLLOWING
INFORMATION:
FEE TABLE
The purpose of this fee table is to assist you in understanding the various
costs and expenses you may bear directly or indirectly under the Certificate
so that you may compare them with other similar products. The table reflects
both the charges of the Separate Account and the expenses of HR Trust and EQ
Trust. Charges for applicable taxes such as state or local premium taxes may
also apply. For a complete description of the charges under the Certificate,
see "Part 6: Deductions and Charges." For a complete description of each
trust's charges and expenses, see the prospectuses for HR Trust and EQ Trust.
As explained in Part 4, the Guarantee Periods are not a part of the Separate
Account and are not covered by the fee table and examples. The only charge
shown in the Table which will be deducted from amounts allocated to the
Guarantee Periods is the withdrawal charge. However, if there is insufficient
value in the Investment Funds, all or portion of the distribution fee and the
annual contract fee, if any, will be deducted from your Annuity Account Value
in the Guaranteed Period Account rather than from the Investment Funds. See
"Part 6: Deduction and Charges." A market value adjustment (either positive
or negative) also may be applicable as a result of a withdrawal, transfer or
surrender of amounts from a Guarantee Period. See "Part 4: The Guaranteed
Period Account."
<TABLE>
<CAPTION>
OWNER TRANSACTION EXPENSES (DEDUCTED FROM ANNUITY ACCOUNT VALUE)
- ----------------------------------------------------------------
<S> <C>
DISTRIBUTION FEE (SALES LOAD) AS A PERCENTAGE OF EACH CONTRIBUTION RECEIVED DURING THE FIRST
CONTRACT YEAR (deducted annually on each of the first seven Processing Dates)(1) ..................0.20%
</TABLE>
<TABLE>
<CAPTION>
CONTRACT
YEAR
----
<S> <C> <C>
WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS (percentage deducted upon 1..........7.00%
surrender or for certain withdrawals. The applicable withdrawal charge percentage 2..........6.00
determined by the Contract Year in which the withdrawal is made or the Certificate 3..........5.00
is surrendered beginning with "Contract Year 1" with respect to each contribution 4..........4.00
is withdrawn or surrendered. For each contribution, the Contract Year in which 5..........3.00
we receive that contribution is "Contract Year 1")(2) 6..........2.00
7..........1.00
8+.........0.00
</TABLE>
<TABLE>
<S> <C>
TRANSFER CHARGE(3)...................................................................................$0.00
GUARANTEED MINIMUM DEATH BENEFIT CHARGE (percentage deducted annually on each
Processing Date as a percentage of the guaranteed minimum death benefit
then in effect)(4) ................................................................................0.35%
ANNUAL CONTRACT FEE (DEDUCTED FROM ANNUITY ACCOUNT VALUE ON EACH PROCESSING DATE)(5)
- ------------------------------------------------------------------------------------
If the initial contribution is less than $25,000.................................................$30
If the initial contribution is $25,000 or more....................................................$0
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF ASSETS IN EACH INVESTMENT FUND)
- ------------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE..................................................................0.90%
TOTAL ASSET BASED ADMINISTRATIVE CHARGE............................................................0.25%
-----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES..........................................................1.15%
=====
</TABLE>
- ------------------------------
See footnotes on next page.
2
<PAGE>
<TABLE>
<CAPTION>
HR TRUST AND EQ TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO)
- -----------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIOS
------------------------------------------------------------------------------
ALLIANCE ALLIANCE ALLIANCE ALLIANCE
HR TRUST CONSERVATIVE GROWTH GROWTH & COMMON ALLIANCE
INVESTORS INVESTORS INCOME STOCK GLOBAL
--------- --------- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.48% 0.53% 0.55% 0.38% 0.65%
Other Expenses 0.07% 0.06% 0.05% 0.03% 0.08%
---- ---- ---- ---- ----
TOTAL HR TRUST ANNUAL EXPENSES(6) 0.55% 0.59% 0.60% 0.41% 0.73%
==== ==== ==== ==== ====
<CAPTION>
ALLIANCE
ALLIANCE ALLIANCE ALLIANCE INTERMEDIATE ALLIANCE
HR TRUST ALLIANCE AGGRESSIVE SMALL MONEY GOVERNMENT HIGH
INTERNATIONAL STOCK CAP GROWTH MARKET SECURITIES YIELD
------------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Investment Management and Advisory Fee 0.90% 0.55% 0.90% 0.35% 0.50% 0.60%
Other Expenses 0.18% 0.03% 0.10% 0.04% 0.09% 0.06%
---- ---- ---- ---- ---- ----
TOTAL HR TRUST ANNUAL EXPENSES(6) 1.08% 0.58% 1.00% 0.39% 0.59% 0.66%
==== ==== ==== ==== ==== ====
<CAPTION>
BT BT MFS MERRILL
BT SMALL INTERNATIONAL EMERGING LYNCH
EQ TRUST EQUITY 500 COMPANY EQUITY GROWTH MFS BASIC VALUE
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(7) 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 EQ TRUST ANNUAL EXPENSES(8) 0.55% 0.60% 0.80% 0.85% 0.85% 0.85%
==== ==== ==== ==== ==== ====
<CAPTION>
MORGAN WARBURG
MERRILL STANLEY T. ROWE T. ROWE PINCUS
LYNCH EMERGING EQ/PUTNAM PRICE PRICE SMALL
EQ TRUST WORLD MARKETS EQ/PUTNAM GROWTH & EQUITY INTERNATIONAL COMPANY
STRATEGY EQUITY BALANCED INCOME INCOME STOCK VALUE
-------- ------ -------- ------ ------ ----- -----
<S> <C> <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(7) 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 EQ TRUST ANNUAL EXPENSES(8) 1.20% 1.75% 0.90% 0.85% 0.85% 1.20% 1.00%
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ----------------------------
Notes:
(1) The amount deducted is based on contributions that have not been withdrawn.
See "Part 6: Deductions and Charges," "Distribution Fee." (2) Deducted upon
a withdrawal with respect to amounts in excess of the 15% free corridor
amount, and upon a surrender. See "Part 6: Deductions and Charges,"
"Withdrawal Charge."
(3) We reserve the right to impose a charge in the future at a maximum of $25
for each transfers among the Investment Options in excess of five per
Contract Year.
(4) See "Part 6: Deductions and Charges," "Guaranteed Minimum Death Benefit
Charge."
(5) This charge is incurred at the beginning of the Contract Year and deducted
on the Processing Date. See "Part 6: Deductions and Charges," "Annual
Contract Fee."
(6) The amounts shown for the Portfolios of HR Trust (other than Alliance Small
Cap Growth) have been restated to reflect advisory fees which went into
effect as of May 1, 1997. "Other Expenses" are based on average daily net
assets in each Portfolio during 1996. The amounts shown for the Alliance
Small Cap Growth Portfolio are estimated for 1997 as this Portfolio
commenced operations on May 1, 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 HR Trust. 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 "HR Trust Charges to Portfolios" in Part 6.
(7) The Class IB shares of EQ Trust are subject to fees imposed under a
distribution plan (herein, the "Rule 12b-1 Plan") adopted by EQ Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended.
The Rule 12b-1 Plan provides that EQ Trust, on behalf of each Portfolio, may
pay annually up to 0.25% of the average daily net assets of a Portfolio
attributable to its Class IB shares in respect of activities primarily
intended to result in the sale of the Class IB shares. The 12b-1 fee will
not be increased for the life of the Certificates.
(8) The EQ Trust Portfolios had no operations prior to May 1, 1997. Therefore,
the amounts shown for "Other Expenses" for these Portfolios are estimated.
The 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 Portfolios of EQ Trust commenced
operations on May 1, 1997. The Morgan Stanley Emerging Markets Equity
Portfolio commenced operations on August 20, 1997 (and was offered under the
prospectus as of September 2, 1997). The BT Equity 500 Index, BT Small
Company Index, and BT International Equity Index Portfolios commenced
operations on December 31, 1997. The maximum investment management and
advisory fees for each EQ Trust 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 but, pursuant to
agreement, cannot together with other fees exceed total annual expense
limitations (which are the respective amounts shown in "Total Annual
Expenses"). Absent the expense limitation, we estimate that the other
expenses for 1998 for each Portfolio would be 0.285% for BT Equity 500
Index; 0.231% for BT Small Company Index; 0.472% for BT International Equity
Index; 0.412% for EQ/Putnam Balanced; 0.262% for EQ/Putnam Growth & Income
Value; 0.242% for MFS Emerging Growth Companies; 0.234% for MFS Research;
0.247% for Merrill Lynch Basic Value Equity; 0.497% for Merrill Lynch World
Strategy; 0.461% for Morgan Stanley Emerging Markets Equity; 0.235% for T.
Rowe Price Equity Income; 0.422% for T. Rowe Priced International Stock; and
0.191% for Warburg Pincus Small Company Value. See "EQ Trust Charges to
Portfolios" in Part 6.
3
<PAGE>
ON PAGE 5 OF THE MAY 1, 1997 SUPPLEMENT UNDER "EXAMPLES" ADD THE FOLLOWING
INFORMATION TO THE EXAMPLE OF "IF YOU SURRENDER YOUR CERTIFICATE AT THE END OF
EACH PERIOD SHOWN, THE EXPENSES WOULD BE" UNDER EQ TRUST:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
BT Equity 500 Index $90.26 $123.66 -- --
BT Small Company Index 90.75 125.15 -- --
BT International Equity Index 92.74 131.13 -- --
</TABLE>
ON PAGE 6 OF THE MAY 1, 1997 SUPPLEMENT ADD THE FOLLOWING INFORMATION TO THE
EXAMPLE OF "IF YOU DO NOT SURRENDER YOUR CERTIFICATE AT THE END OF EACH PERIOD
SHOWN, THE EXPENSES WOULD BE" UNDER EQ TRUST:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
BT Equity 500 Index $25.97 $79.83 -- --
BT Small Company Index 26.46 81.32 -- --
BT International Equity Index 28.45 87.31 -- --
</TABLE>
ON PAGE 7 OF THE MAY 1, 1997 SUPPLEMENT REPLACE THE INFORMATION UNDER "CONDENSED
FINANCIAL INFORMATION" WITH THE FOLLOWING INFORMATION:
ACCUMULATION UNIT VALUES
Equitable Life commenced the offering of the Certificates on May 1, 1995. The
following table shows the Accumulation Unit Values, as of May 1, 1995 and the
last Business Day of the periods shown. No Accumulation Unit Values are shown
for the Alliance Small Cap Growth and Alliance High Yield Funds, and the
Investment Funds investing in Class IB shares of EQ Trust Portfolios as such
Funds were first offered in 1997.
<TABLE>
<CAPTION>
LAST BUSINESS DAY OF
-----------------------------------------------------------------------------------
HR TRUST MAY 1, 1995 DECEMBER 1995 DECEMBER 1996 NOVEMBER 1997
- -------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Alliance Conservative
Investors $ 14.647383 $ 16.549050 $ 17.209382 $ 19.050075
Alliance Growth Investors 20.073331 23.593613 26.260729 29.994648
Alliance Growth &
Income 10.376155 11.989601 14.231408 17.506722
Alliance Common Stock 102.335691 124.519251 152.955877 188.510944
Alliance Global 19.478146 22.293921 25.253538 27.481079
Alliance International 10.125278 11.033925 11.976127 11.606472
Alliance Aggressive Stock 44.025496 54.591448 65.938687 72.992152
Alliance Money Market 23.150932 23.830754 24.810781 25.757675
Alliance Intermediate
Government Securities 12.498213 13.424767 11.976127 14.506815
</TABLE>
ON PAGE 7 OF THE MAY 1, 1997 SUPPLEMENT UNDER REVISIONS FOR "EQUITABLE LIFE"
REPLACE THE SECOND AND THIRD PARAGRAPHS WITH THE FOLLOWING PARAGRAPHS:
Equitable Life is a wholly owned subsidiary of The Equitable Companies
Incorporated (THE HOLDING COMPANY). The largest shareholder the Holding
Company is AXA-UAP (AXA). As of September 30, 1997, AXA beneficially owned
59.0% 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 related financial service companies.
Equitable Life, the Holding Company and their subsidiaries managed
approximately $272.7 billion of assets as of September 30, 1997.
4
<PAGE>
ON PAGE 8 OF THE MAY 1, 1997 SUPPLEMENT:
UNDER THE REVISED HEADING "HR TRUST'S INVESTMENT ADVISOR," REPLACE THE
SENTENCE WITH THE FOLLOWING SENTENCE:
On September 30, 1997, Alliance was managing approximately $217.3 billion in
assets.
UNDER "EQ TRUST'S MANAGER AND ADVISERS" INSERT THE FOLLOWING SENTENCE AT THE
END OF THE THIRD PARAGRAPH:
EQ Financial has also entered into an investment advisory agreement with
Bankers Trust Company, who serves as adviser to the BT Equity 500 Index, BT
Small Company Index, and BT International Equity Index Portfolios.
ON PAGE 8 OF THE MAY 1, 1997 SUPPLEMENT, AND PAGE 13 OF THE PROSPECTUS UNDER
"INVESTMENT POLICIES AND OBJECTIVES OF TRUST'S PORTFOLIOS" REPLACE THE SECTION
WITH THE FOLLOWING INFORMATION:
Each Portfolio has a different investment objective which it tries to achieve
by following separate investment policies. The policies and objectives of
each Portfolio will affect its return and its risks. There is no guarantee
that these objectives will be achieved. Set forth below is a summary of the
investment policies and objectives of each Portfolio. This summary is
qualified in its entirety by reference to the prospectuses for HR Trust and
EQ Trust, both of which accompany this supplement. Please read the
prospectuses for each of the trusts carefully before investing.
<TABLE>
<CAPTION>
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
Alliance Conservative Diversified mix of publicly traded High total return without, in the
Investors equity and debt securities. adviser's opinion, undue risk to
principal
Alliance Growth Investors Diversified mix of publicly traded High total return consistent with
equity and fixed-income securities, the adviser's determination of
including at times common stocks reasonable risk
issued by intermediate- and
small-sized companies and at times
lower-quality fixed-income securities
commonly known as "junk bonds."
Alliance Growth & Income Primarily income producing common High total return through a
stocks and securities convertible combination of current income and
into common stocks. capital appreciation
Alliance Common Stock Primarily common stock and other Long-term growth of capital and
equity-type instruments. increasing income
Alliance Global Primarily equity securities of Long-term growth of capital
non-United States as well as United
States companies.
Alliance International Primarily equity securities 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 Long-term growth of capital
equity-type securities issued by
quality small- and intermediate-sized
companies with strong growth prospects
and in covered options on those
securities.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
HR TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
Alliance Small Cap Growth Primarily U.S. common stocks and Long-term growth of capital
other 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. High level of current income while
dollar-denominated money market preserving assets and maintaining
instruments. liquidity
Alliance Intermediate Primarily debt securities issued or High current income consistent
Government Securities guaranteed as to principal and with relative stability of
interest by the U.S. government or principal
any of its agencies or
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 return by maximizing current
high-yield, fixed-income securities income and, to the extent
which generally involve greater consistent with that objective,
volatility of price and risk of capital appreciation
principal and income than
higher-quality fixed-income
securities. Lower-quality debt
securities are commonly known as
"junk bonds."
EQ TRUST PORTFOLIO
------------------
BT Equity 500 Index Invest in a statistically selected Replicate as closely as possible
sample of the 500 stocks included in (before the deduction of Portfolio
the Standard & Poor's 500 Composite expenses) the total return of the
Stock Price Index ("S&P 500"). S&P 500
BT Small Company Index Invest in a statistically selected Replicate as closely as possible
sample of the 2,000 stocks included (before the deduction of Portfolio
in the Russell 2000 Small Stock Index expenses) the total return of the
("Russell 2000"). Russell 2000
BT International Equity Invest in a statistically selected Replicate as closely as possible
Index sample of the securities of companies (before the deduction of Portfolio
included in the Morgan Stanley expenses) the total return of the
Capital International Europe, EAFE
Australia, Far East Index ("EAFE"),
although 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 Long-term growth of capital
Companies assets under normal circumstances) in
common stocks of emerging growth
companies that the Portfolio adviser
believes are early in their life
cycle but which have the potential
to become major enterprises.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EQ TRUST PORTFOLIO INVESTMENT POLICY OBJECTIVE
------------------ ----------------- ---------
<S> <C> <C>
MFS Research A substantial portion of assets Long-term growth of capital and
invested in common stock or future income
securities convertible into common
stock of companies believed by the
Portfolio adviser to possess better
than average prospects for long-term
growth.
Merrill Lynch Basic Value Investment in securities, primarily Capital appreciation and,
Equity equities, that the Portfolio adviser secondarily, income
believes are under-valued and
therefore represent basic investment
value.
Merrill Lynch World Investment primarily in a portfolio High total investment return
Strategy of equity and fixed-income
securities, including convertible
securities, of U.S. and foreign
issuers.
Morgan Stanley Emerging Primarily equity securities of Long-term capital appreciation
Markets Equity emerging market country issuers with
a focus on those in which the Portfolio's
adviser believes the economies are
developing strongly and in which the
markets are becoming more sophisticated.
EQ/Putnam Balanced A well-diversified portfolio of Balanced investment
stocks and bonds that will produce
both capital growth and current income.
EQ/Putnam Growth & Income Primarily common stocks that offer Capital growth and, secondarily,
Value potential for capital growth and may, current income
consistent with the Portfolio's
investment objective, invest in
common stocks that offer potential
for current income.
T. Rowe Price Equity Income Primarily dividend paying common Substantial dividend income and
stocks of established companies. also capital appreciation
T. Rowe Price International Primarily common stocks of Long-term growth of capital
Stock established non-United States
companies.
Warburg Pincus Small Primarily in a portfolio of equity Long-term capital appreciation
Company Value securities of small capitalization
companies (i.e., companies having
market capitalizations of $1 billion
or less at the time of initial
purchase, that the Portfolio adviser
considers to be relatively undervalued.
</TABLE>
7
<PAGE>
ON PAGE 23 OF THE PROSPECTUS UNDER THE HEADING "METHODS OF PAYMENT" INSERT THE
FOLLOWING SUB-SECTION AFTER THE LAST PARAGRAPH OF THIS SECTION:
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 Accumulator Certificate on a monthly or
quarterly basis. The minimum amount that will be deducted is $100 monthly and
$300 quarterly. AIP subsequent contributions may be made to any Investment
Option available under your Certificate. 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 bank 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 day 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.
ON PAGE 26 OF THE PROSPECTUS BEFORE THE "WITHDRAWALS" SECTION INSERT THE
FOLLOWING INFORMATION:
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 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). The Annuity Account Value
allocated to each selected Investment Fund will grow or decline in value at
different rates during each time period. Rebalancing automatically
reallocates the Annuity Account Value in the chosen Investment Funds at the
end of each period to the specified allocation percentages. Rebalancing is
intended to transfer specified portions of the Annuity Account Value from
those chosen Investment Funds that have increased in value to those chosen
Investment Funds that have declined in value. 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.
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 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 (described
on page 25 of the prospectus) is in effect.
8
<PAGE>
ON PAGES 16 AND 17 OF THE MAY 1, 1997 SUPPLEMENT UNDER "EQ TRUST CHARGES TO
PORTFOLIOS"
ADD THE FOLLOWING INFORMATION TO THE TABLE:
AVERAGE DAILY NET ASSETS
------------------------
BT Equity 500 Index 0.25%
BT Small Company Index 0.25%
BT International Equity Index 0.35%
ADD THE FOLLOWING SENTENCE TO THE END OF THE PARAGRAPH WHICH FOLLOWS THE
ABOVE TABLE:
EQ Financial has also agreed to waive or limit its fees and to assume other
expenses so that the total operating expenses of each Bankers Trust Portfolio
are limited to: 0.55% of the respective average daily net assets of the BT
Equity 500 Index Portfolio; 0.60% for the BT Small Company Index Portfolio;
and 0.80% for the BT International Equity Index Portfolio.
9
<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 and Alliance Intermediate
Government Securities Fund Yield Information 3
Part 5: Long-Term Market Trends 5
Part 6: Financial Statements 7
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
Income Management Group
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI dated May 1, 1997 as supplemented on December
31, 1997 for the Accumulator Prospectus dated May 1, 1996 as supplemented on May
1, 1997 and December 31, 1997:
|_| SAI and SAI Supplement |_| SAI Supplement only
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
10
IM-98-IACC
<PAGE>
INCOME MANAGER(R) ROLLOVER IRA
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 31, 1997
----------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 45
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
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
- -------------------------------------------------------------------------------------------------------------------------------
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. Definitions of special terms used in the SAI are
found in the prospectus.
A copy of the prospectus is available free of charge by writing the Processing
Office, by calling 1-800-789-7771, toll-free, or by contacting your Registered
Representative.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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 and Alliance Intermediate Government
Securities Fund Yield Information 3
- --------------------------------------------------------------------------------
Part 6 Long-Term Market Trends 4
- --------------------------------------------------------------------------------
Part 7 Financial Statements 6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This SAI dated December 31, 1997 is a revision of Equitable Life's SAI dated May
1, 1997 for the Income Manager Rollover IRA Certificates and reflects limited
changes to the information provided in the May SAI. The Certificates were first
offered on May 1, 1997. For convenience, in lieu of a supplement to the May SAI,
the SAI has been reprinted in its entirety.
- --------------------------------------------------------------------------------
Copyright 1997 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.
(IMIRASAI)
<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 HR Trust
or EQ Trust, as applicable.
(b) is the value of the Investment Fund's shares of the corresponding Portfolio
at the end of the preceding Valuation Period (after any amounts allocated
or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risk charge and
administration charge relating to the Certificates, times the number of
calendar days in the Valuation Period. These daily charges are at an
effective annual rate not to exceed a total of 1.15%.
- --------------------------------------------------------------------------------
PART 3 -- ANNUITY UNIT VALUES
The annuity unit value was fixed at $1.00 on 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 HR Trust and EQ Trust owned by the
Separate Account.
The consolidated financial statements of Equitable Life at December 31, 1996 and
1995 and for each of the three years ended December 31, 1996 included in the SAI
have been audited by Price Waterhouse LLP.
The consolidated financial statements of Equitable Life at December 31, 1996 and
1995 and for each of the three years ended December 31, 1996 included in this
SAI have been so included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of such firm as experts in
accounting and auditing.
- --------------------------------------------------------------------------------
PART 5 -- ALLIANCE MONEY MARKET FUND AND ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND YIELD INFORMATION
Alliance Money Market Fund
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
Certificate with one Accumulation Unit at the beginning of the period. To
determine the seven-day rate of return, the net change in the Accumulation Unit
Value is computed by subtracting the Accumulation Unit Value at the beginning of
the period from an Accumulation Unit Value, exclusive of capital changes, at the
end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Money Market Fund but do not reflect the withdrawal charge, the Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge or
any charges for applicable taxes such as state or local premium taxes. Under the
Special Dollar Cost Averaging program, Accumulation Unit Values also do not
reflect the mortality and expense risks charge and the administration charge.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return. This
seven-day adjusted base period return is then multiplied by 365/7 to produce an
annualized seven-day current yield figure carried to the nearest one-hundredth
of one percent.
The effective yield is obtained by modifying the current yield to give effect to
the compounding nature of the Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by adding
one to the adjusted base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result, i.e., effective yield = (base
period return + 1 )365/7 - 1. The Alliance Money Market Fund yields will
fluctuate daily. Accordingly, yields for any given period are not necessarily
representative of future results. In addition, the value of Accumulation Units
of the Alliance Money Market Fund will fluctuate and not remain constant.
Alliance Intermediate Government Securities Fund
The Alliance Intermediate Government Securities Fund calculates yield
information for 30-day periods. The 30-day current yield calculation is based on
a hypothetical Certificate with one Accumulation Unit at the beginning of the
period. To determine the 30-day rate of return, the net change in the
Accumulation Unit Value is computed by subtracting the Accumulation Unit Value
at the beginning of the period from an
3
<PAGE>
- --------------------------------------------------------------------------------
Accumulation Unit Value, exclusive of capital changes, at the end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities Fund but do not reflect the withdrawal
charge, the Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit Charge or any charges for applicable taxes such as state or local
premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return. This
30-day adjusted base period return is then multiplied by 365/30 to produce an
annualized 30-day current yield figure carried to the nearest one-hundredth of
one percent.
The effective yield is obtained by modifying the current yield to give effect to
the compounding nature of the Alliance Intermediate Government Securities Fund's
investments, as follows: the unannualized adjusted base period return is
compounded by adding one to the adjusted base period return, raising the sum to
a power equal to 365 divided by 30, and subtracting one from the result, i.e.,
effective yield = (base period return + 1)365/30 - 1. Alliance Intermediate
Government Securities Fund yields will fluctuate daily. Accordingly, yields for
any given period are not necessarily representative of future results. In
addition, the value of Accumulation Units of the Alliance Intermediate
Government Securities Fund will fluctuate and not remain constant.
Alliance Money Market Fund and Alliance Intermediate Government Securities Fund
Yield Information
The Alliance Money Market Fund and Alliance Intermediate Government Securities
Fund yields reflect charges that are not normally reflected in the yields of
other investments and therefore may be lower when compared with yields of other
investments. Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund yields should not be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods, such as the
Guarantee Periods. Nor should the yield be compared to the yield of money market
funds or government securities funds made available to the general public.
Because the Rollover IRA Certificates described in the prospectus were offered
for the first time in 1997, no yield information is presented.
- --------------------------------------------------------------------------------
PART 6 -- LONG-TERM MARKET TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return trends
for various types of securities. The information presented, while not directly
related to the performance of the Investment Funds, helps to provide a
perspective on the potential returns of different asset classes over different
periods of time. By combining this information with knowledge of your own
financial needs (e.g., the length of time until you retire, your financial
requirements at retirement), you may be able to better determine how you wish to
allocate contributions among the Investment Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long- or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus is
on long-term growth potential and protection against inflation, there may be
advantages to allocating some or all of their Annuity Account Value to those
Investment Funds that invest in stocks.
Growth of $1 Invested on January 1, 1956
(Values are as of last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED AREA
GRAPH IN THE PROSPECTUS]
S&P 500
TOTAL U.S.
RETURN INFLATION
------ ---------
INDEX VALUE
------ ---------
Dec 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
- -----------------
[WHITE] Inflation [BLACK] Common Stock
[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 1996.
4
<PAGE>
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
S&P 500
U.S. IT TOTAL
GVT TR RETURN
------ ---------
INDEX INDEX
------ ---------
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
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, 1996 for different types
of securities: common stocks, long-term government bonds, long-term corporate
bonds, intermediate-term government bonds and U.S. Treasury Bills. For
comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated with
deferred annuity products, are reflected.
The information presented is merely a summary of past experience for unmanaged
groups of securities and is neither an estimate 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 9: 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 12/31/96: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969-1996, represented by the
Salomon Brothers Long-Term, High-Grade Corporate Bond Index; for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1996; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent coupon
and a twenty-year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS -- Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five-year maturity.
U.S. TREASURY BILLS -- Measured by rolling over each month a one-bill portfolio
containing, at the beginning of each month, the bill having the shortest
maturity not less than one month.
INFLATION -- Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
PART 7 -- FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society of
the United States included herein should be considered only as bearing upon the
ability of Equitable Life to meet its obligations under the Certificates.
There are no financial statements for the Separate Account as the Certificates
were first offered on May 1, 1997.
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life insurance
contracts and long-lived assets in 1996, for loan impairments in 1995 and for
postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies Incorporated
(the "Holding Company"). Equitable Life's insurance business is
conducted principally by Equitable Life and its wholly owned life
insurance subsidiary, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which will continue to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), Equitable Real Estate Investment
Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate. AXA-UAP ("AXA"),
a French holding company for an international group of insurance and
related financial services companies, is the Holding Company's largest
shareholder, owning approximately 60.8% at December 31, 1996 (63.6%
assuming conversion of Series E Convertible Preferred Stock held by AXA
and 54.4% if all securities convertible into, and options on, common
stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which were
in force on that date. Assets were allocated to the Closed Block in an
amount which, together with anticipated revenues from policies included
in the Closed Block, was reasonably expected to be sufficient to support
such business, including provision for payment of claims, certain
expenses and taxes, and for continuation of dividend scales payable in
1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block assets
represents the expected future post-tax contribution from the Closed
Block which would be recognized in income over the period the policies
and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and Guaranteed
Interest Contract ("GIC") lines of business. The Company established a
pre-tax provision for the estimated future losses of the GIC line of
business and a premium deficiency reserve for the Wind-Up Annuities.
Subsequent losses incurred have been charged to the two loss provisions.
Management reviews the adequacy of the allowance and reserve each
quarter. During the fourth quarter 1996 review, management determined it
was necessary to increase the allowance for expected future losses of
the GIC Segment. Management believes the loss provisions for GIC
contracts and Wind-Up Annuities at December 31, 1996 are adequate to
provide for all future losses; however, the determination of loss
provisions continues to involve numerous estimates and subjective
judgments regarding the expected performance of discontinued operations
investment assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect of
accounting change by $19.2 million, net of Federal income taxes of $10.3
million for 1996. The financial statements for 1995 and 1994 have been
retroactively restated for the change which resulted in an increase
(decrease) in earnings before cumulative effect of accounting change of
$15.2 million, net of Federal income taxes of $8.2 million, and $(2.6)
million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in investment
gains (losses), net. Before implementing SFAS No. 121, valuation
allowances on real estate held for the production of income were
computed using the forecasted cash flows of the respective properties
discounted at a rate equal to the Company's cost of funds. The adoption
of the statement resulted in the release of valuation allowances of
$152.4 million and recognition of impairment losses of $144.0 million on
real estate held and used. Real estate which management has committed to
disposing of by sale or abandonment is classified as real estate to be
disposed of. Valuation allowances on real estate to be disposed of
continue to be computed using the lower of estimated fair value or
depreciated cost, net of disposition costs. Implementation of the SFAS
No. 121 impairment requirements relative to other assets to be disposed
of resulted in a charge for the cumulative effect of an accounting
change of $23.1 million, net of a Federal income tax benefit of $12.4
million, due to the writedown to fair value of building improvements
relating to facilities being vacated beginning in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans within
the scope of this statement are measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Company provides for
impairment of loans through an allowance for possible losses. The
adoption of this statement did not have a material effect on the level
of these allowances or on the Company's consolidated statements of
earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred policy
acquisition costs ("DAC"), amounts attributable to participating group
annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant or,
alternatively, to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Companies which elect to
continue to apply APB Opinion No. 25 must provide pro forma net income
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company accounts for stock option plans sponsored by the
Holding Company, DLJ and Alliance in accordance with the provisions of
APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of repurchase
agreements, dollar-roll, securities lending and similar transactions.
Management has not yet determined the effect of implementing SFAS No.
125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized on
transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses) net. Valuation allowances on real
estate available for sale are computed using the lower of current
estimated fair value or depreciated cost, net of disposition costs.
Prior to the adoption of SFAS No. 121, valuation allowances on real
estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment gains
or losses.
Unrealized investment gains and losses on fixed maturities available for
sale and equity securities held by the Company are accounted for as a
separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset to
unrealized gains (losses) in consolidated shareholder's equity as of the
balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
include a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, including expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as claim
incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a reasonable
basis and are adequate, there can be no assurance reserves will be
sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6 million
at December 31, 1996 and 1995, respectively (excluding $175.0 million of
reserve strengthening in 1996). Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding $175.0 million of reserve strengthening in
1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's shareholder.
Earnings in excess of limitations, if any, would be accrued as
policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current Federal
income taxes were charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities were
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account, therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1996, 1995 and 1994, investment results of
such Separate Accounts were $2,970.6 million, $1,963.2 million and
$665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon the
assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost of
$3,915.7 million and $3,748.9 million, respectively, had estimated fair
values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $388.3
million and $531.5 million at December 31, 1996 and 1995, respectively.
These amounts include $1.0 million and $3.8 million of problem mortgage
loans on real estate at December 31, 1996 and 1995, respectively. Gross
interest income on restructured mortgage loans on real estate that would
have been recorded in accordance with the original terms of such loans
amounted to $35.5 million, $52.1 million and $44.9 million in 1996, 1995
and 1994, respectively. Gross interest income on these loans included in
net investment income aggregated $28.2 million, $37.4 million and $32.8
million in 1996, 1995 and 1994, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995, respectively,
including $17.9 million and $13.4 million recognized on a cash basis.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate acquired
in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally range
from 40 to 50 years. Accumulated depreciation on real estate was $587.5
million and $662.4 million at December 31, 1996 and 1995, respectively.
Depreciation expense on real estate totaled $91.8 million, $121.7
million and $117.0 million for 1996, 1995 and 1994, respectively. As a
result of the implementation of SFAS No. 121, during 1996 no
depreciation expense has been recorded on real estate available for
sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized on
these sales. The change in unrealized investment (losses) gains related
to fixed maturities classified as available for sale for 1996, 1995 and
1994 amounted to $(258.0) million, $1,077.2 million and $(742.2)
million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an investment
gain of $20.6 million as a result of the issuance of Alliance Units in
this transaction. At December 31, 1996, the Company's ownership of
Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. The Company continues to hold its
1% general partnership interest in Alliance. The Company recognized an
investment gain of $52.4 million as a result of these transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in the
contribution from the Closed Block of $27.5 million, $18.8 million and
$(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively, of
restructured securities which includes problem fixed maturities of $.3
million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified as
held to maturity were transferred to the available for sale portfolio.
All actions resulted from significant deterioration in creditworthiness.
The amortized cost of the security sold was $4.2 million. The aggregate
amortized cost of the securities transferred was $81.3 million with
gross unrealized investment losses of $.1 million transferred to equity.
At December 1, 1995, $1,750.7 million of securities classified as held
to maturity were transferred to the available for sale portfolio. As a
result, unrealized gains of $88.5 million on fixed maturities were
recognized, offset by DAC amortization of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
an amortized cost of $4.3 million and $36.5 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7 million,
respectively. At December 31, 1996 and 1995, the restructured mortgage
loans on real estate amount included $.7 million and $8.8 million,
respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and 1995,
respectively, including $4.7 million and $1.3 million recognized on a
cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen the
loss provisions by $129.0 million, resulting in a post-tax charge of
$83.8 million to discontinued operations' results in the fourth quarter
of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets. There
can be no assurance the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate differ
from management's previous assumptions, periodic adjustments to the loss
provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment. Subsequently,
the GIC Segment remitted $1,155.4 million in cash to continuing
operations in partial repayment of borrowings by the GIC Segment. No
gains or losses were recognized on these transactions. Amounts due to
continuing operations at December 31, 1996, consisted of $1,080.0
million borrowed by the discontinued GIC Segment offset by $83.8 million
representing an obligation of continuing operations to provide assets to
fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
and used. Writedowns of fixed maturities amounted to $1.6 million, $8.1
million and $17.8 million for 1996, 1995 and 1994, respectively and
writedowns of equity real estate subsequent to the adoption of SFAS No.
121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
amortized costs of $7.9 million and $35.4 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction of
debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million five-year bank credit facility.
There were no borrowings outstanding under this program at December 31,
1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of Alliance,
is a floating rate generally based upon a defined prime rate, a rate
related to the LIBOR or the Federal Funds rate. A facility fee is
payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for general
working capital purposes. As of December 31, 1996, Alliance had not
issued any commercial paper under its $100.0 million commercial paper
program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997 totaling
$174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,406.4 million and $1,629.7 million at December 31, 1996
and 1995, respectively, as collateral for certain long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes, by
an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by the
Internal Revenue Service. As a stock life insurance company, Equitable
Life no longer is required to reduce its policyholder dividend deduction
by the differential earnings amount, but differential earnings amounts
for pre-demutualization years were still being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard underwriting
risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994, respectively.
Ceded death and disability benefits totaled $21.2 million, $188.1
million and $235.5 million for 1996, 1995 and 1994, respectively.
Insurance liabilities ceded totaled $652.4 million and $724.2 million at
December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's and EREIM's benefits are based on a
cash balance formula or years of service and final average earnings, if
greater, under certain grandfathering rules in the plans. Alliance's
benefits are based on years of credited service, average final base
salary and primary social security benefits. The Company's funding
policy is to make the minimum contribution required by the Employee
Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1 million,
net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $34.7 million,
$36.4 million and $38.1 million for 1996, 1995 and 1994, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1996, 1995 and 1994, the Company made
estimated postretirement benefits payments of $18.9 million, $31.1
million and $29.8 million, respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.50%
and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1996
would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996, the
cost of terminating outstanding matched swaps in a loss position was
$8.3 million and the unrealized gain on outstanding matched swaps in a
gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2) million,
respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on interest-sensitive
individual annuities contracts. The outstanding notional amounts at
December 31, 1996 of contracts purchased and sold were $5,050.0 million
and $500.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $22.5 million and is being amortized ratably over
the contract periods ranging from 3 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's involvement
in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains
or losses. In many cases, the fair value estimates cannot be
substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the appropriate
duration. For durations in excess of the published index rate, the
appropriate Treasury rate is used plus a spread equal to the longest
duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair values
for single premium deferred annuities ("SPDA") are estimated using
projected cash flows discounted at current offering rates. The estimated
fair values for supplementary contracts not involving life contingencies
("SCNILC") and annuities certain are derived using discounted cash flows
based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing loan
or loan commitment agreements; and to provide short-term financing loans
which at December 31, 1996 totaled $14.6 million. Management believes
the Company will not incur any material losses as a result of these
commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date, no
such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance Society
of the United States was filed on January 20, 1995 in New York County
Supreme Court. The action purports to be brought on behalf of a class of
persons insured after 1983 under Lifetime Guaranteed Renewable Major
Medical Insurance Policies issued by Equitable Life (the "policies").
The complaint alleges that premium increases for these policies after
1983, all of which were filed with and approved by the New York State
Insurance Department and certain other state insurance departments,
breached the terms of the policies, and that statements in the policies
and elsewhere concerning premium increases constituted fraudulent
concealment, misrepresentations in violation of New York Insurance Law
Section 4226 and deceptive practices under New York General Business Law
Section 349. The complaint seeks a declaratory judgment, injunctive
relief restricting the methods by which Equitable Life increases
premiums on the policies in the future, a refund of premiums, and
punitive damages. Plaintiffs also have indicated that they will seek
damages in an unspecified amount. Equitable Life moved to dismiss the
complaint in its entirety on the grounds that it fails to state a claim
and that uncontroverted documentary evidence establishes a complete
defense to the claims. On May 29, 1996, the New York County Supreme
Court entered a judgment dismissing the complaint with prejudice.
Plaintiffs have filed a notice of appeal of that judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved Equitable
Life's rate increases. These actions are asserted on behalf of proposed
classes of Pennsylvania issued or renewed policyholders and Texas issued
or renewed policyholders, insured under the policies. The Pennsylvania
and Texas actions seek compensatory and punitive damages and injunctive
relief restricting the methods by which Equitable Life increases
premiums in the future based on the common law and statutes of those
states. On February 9, 1996, Equitable Life removed the Pennsylvania
action, Malvin, to the United States District Court for the Middle
District of Pennsylvania. Following the decision granting Equitable
Life's motion to dismiss the New York action (Golomb), on the consent of
the parties the District Court ordered an indefinite stay of all
proceedings in the Pennsylvania action, pending either party's right to
reinstate the proceeding, and ordered that for administrative purposes
the case be deemed administratively closed. On February 2, 1996,
Equitable Life removed the Texas action, Bowler, to the United States
District Court for the Northern District of Texas. On May 20, 1996, the
plaintiffs in Bowler amended their complaint by adding allegations of
misrepresentation regarding premium increases on other types of
guaranteed renewable major medical insurance policies issued by
Equitable Life up to and including 1983. On July 1, 1996, Equitable Life
filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted plaintiffs
leave to file a supplemental complaint on behalf of a proposed class of
Texas policyholders claiming unfair discrimination, breach of contract
and other claims arising out of alleged differences between premiums
charged to Texas policyholders and premiums charged to similarly
situated policyholders in New York and certain other states. Plaintiffs
seek refunds of alleged overcharges, exemplary or additional damages
citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which Equitable
Life increases premiums in the future based on various common law
claims. On June 20, 1996, Equitable Life removed the Florida action to
Federal court. Equitable Life has answered the complaint, denying the
material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment and
plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially the
same allegations concerning premium rates and premium rate increases on
guaranteed renewable policies made in the Bowler action. The complaint
alleges, among other things, that differentials between rates charged
California policyholders and policyholders in New York and certain other
states, and the methods used by Equitable Life to calculate premium
increases, breached the terms of its policies, that Equitable Life
misrepresented and concealed the facts pertaining to such differentials
and methods in violation of California law, and that Equitable Life also
misrepresented that its rate increases were approved by the California
Insurance Department. Plaintiffs seek compensatory damages in an
unspecified amount, rescission, injunctive relief and attorneys' fees.
Equitable Life removed the action to Federal court; plaintiff has moved
to remand the case to state court. Although the outcome of any
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Golomb, Malvin, Bowler, Bachman and Fletcher
litigations should not have a material adverse effect on the financial
position of the Company. Due to the early stage of such litigations, the
Company's management cannot make an estimate of loss, if any, or predict
whether or not such litigations will have a material adverse effect on
the Company's results of operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and its
wholly owned subsidiary, EOC, in New York state court, entitled Sidney
C. Cole et al. v. The Equitable Life Assurance Society of the United
States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of action
under the New York State consumer protection statute. The only remaining
causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a motion
to have this proceeding moved from Kings County Supreme Court to New
York County for joint trial or consolidation with the Cole action. The
motion was denied by the court on January 9, 1997. On January 10, 1997,
plaintiffs moved for certification of a nationwide class consisting of
all persons or entities who were sold one or more life insurance
products on a "vanishing premium" basis and/or were allegedly induced to
purchase additional policies from EVLICO, using the cash value
accumulated in existing policies, from January 1, 1980 through and
including December 31, 1996. Plaintiffs further moved to have Michael
Bradley designated as the class representative. Discovery regarding
class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual who
purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly promised
by Equitable Life and EOC. The second is a "fraud class," consisting of
all persons with an interest in policies issued by Equitable Life and
EOC at any time since October 1, 1986. Plaintiff seeks damages in an
unspecified amount, and also seeks injunctive relief attaching Equitable
Life's and EOC's profits from their alleged sales practices. Equitable
Life's and EOC's time to answer or move with respect to the complaint
has been extended until February 24, 1997. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Cole, Duncan, Bradley and Dillon litigations should
not have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigations, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
On January 3, 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company, No.
94-2036 in the United States District Court for the Southern District of
Florida. The action was brought by two individuals who purchased
variable life insurance policies. The plaintiffs purport to represent a
nationwide class consisting of all persons who purchased variable life
insurance policies from Equitable Life and EVLICO since September 30,
1991. The basic allegation of the amended complaint is that Equitable
Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated v.
The Equitable Life Assurance Society of the United States, and Equitable
Variable Life Insurance Company, was filed in Massachusetts state court
making claims similar to those in the Franze action and alleging
violations of the Massachusetts securities laws. The plaintiff purports
to represent all persons in Massachusetts who purchased variable life
insurance contracts from Equitable Life and EVLICO from January 9, 1993
to the present. The Massachusetts action seeks rescission of the
contracts or compensatory damages, attorneys' fees, expenses and
injunctive relief. Although the outcome of any litigation cannot be
predicted with certainty, particularly in the early stages of an action,
the Company's management believes that the ultimate resolution of the
litigations discussed in this paragraph should not have a material
adverse effect on the financial position of the Company. Due to the
early stages of such litigation, the Company's management cannot make an
estimate of loss, if any, or predict whether or not any such litigation
will have a material adverse effect on the Company's results of
operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S. Department
of Labor ("DOL") requesting copies of any third-party appraisals in
Equitable Life's possession relating to the ten largest properties (by
value) in the Prime Property Fund ("PPF"). PPF is an open-end,
commingled real estate separate account of Equitable Life for pension
clients. Equitable Life serves as investment manager in PPF and has
retained EREIM as advisor. In early 1995, the DOL commenced a national
investigation of commingled real estate funds with pension investors,
including PPF. The investigation now appears to be focused principally
on appraisal and valuation procedures in respect of fund properties. The
most recent request from the DOL seems to reflect, at least in part, an
interest in the relationship between the valuations for those properties
reflected in appraisals prepared for local property tax proceedings and
the valuations used by PPF for other purposes. At no time has the DOL
made any specific allegation that Equitable Life or EREIM has acted
improperly and Equitable Life and EREIM believe that any such allegation
would be without foundation. While the outcome of this investigation
cannot be predicted with certainty, in the opinion of management, the
ultimate resolution of this matter should not have a material adverse
effect on the Company's consolidated financial position or results of
operations in any particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The arbitration
panel issued a final award in favor of Casualty and GEICO General on
June 17, 1996. Casualty and GEICO General moved in the pending Texas
state court action, with Houston General's consent, for an order
confirming the arbitration award and entering judgment dismissing the
action. The motion was granted on January 29, 1997. The parties have
also stipulated to the dismissal without prejudice of a related Texas
Federal court action brought by Houston General against GEICO General
and Equitable Life. In connection with confirmation of the arbitration
award, Houston General paid to Casualty approximately $839,600 in
settlement of certain reimbursement claims by Casualty against Houston
General.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which seeks certification of a plaintiff
class of persons who purchased or owned Class A, B or C shares of the
Fund from March 27, 1992 through December 23, 1994, seeks an unspecified
amount of damages, costs, attorneys' fees and punitive damages. The
principal allegations of the Complaint are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by the
Fund caused the Fund's net asset value to decline to the detriment of
the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and warrants
to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") and certain other defendants
for unspecified compensatory and punitive damages in the United States
District Court for the Southern District of New York. The suit was
brought on behalf of the purchasers of 126,457 units consisting of
$126,457,000 aggregate principal amount of 13 1/2% senior notes due 2001
and 126,457 warrants to purchase shares of common stock of Rickel issued
by Rickel in October 1994. The complaint alleges violations of Federal
securities laws and common law fraud against DLJSC, as the underwriter
of the units and as an owner of 7.3% of the common stock of Rickel, Eos
Partners, L.P., and General Electric Capital Corporation, each as owners
of 44.2% of the common stock of Rickel, and members of the Board of
Directors of Rickel, including a DLJSC Managing Director. The complaint
seeks to hold DLJSC liable for alleged misstatements and omissions
contained in the prospectus and registration statement filed in
connection with the offering of the units, alleging that the defendants
knew of financial losses and a decline in value of Rickel in the months
prior to the offering and did not disclose such information. The
complaint also alleges that Rickel failed to pay its semi-annual
interest payment due on the units on December 15, 1995 and that Rickel
filed a voluntary petition for reorganization pursuant to Chapter 11 of
the United States Bankruptcy Code on January 10, 1996. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe the
outcome of this litigation will have a material adverse effect on its
financial condition. Due to the early stage of this litigation, based on
the information currently available to it, DLJ's management cannot make
an estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
reorganization proceedings. The class action complaint alleges that the
plan of reorganization submitted by NGC was based upon projections by
NGC and DLJSC which intentionally understated forecasts, and provided
misleading and incorrect information in order to hide NGC's true value
and that defendants breached their fiduciary duties by, among other
things, providing false, misleading or incomplete information to
deliberately understate the value of NGC. The class action complaint
seeks compensatory and punitive damages purportedly sustained by the
class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe that
the ultimate outcome of this litigation will have a material adverse
effect on its financial condition. Due to the early stage of such
litigation, based upon the information currently available to it, DLJ's
management cannot make an estimate of loss, if any, or predict whether
or not such litigation will have a material adverse effect on DLJ's
results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed in
the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently available
to it, DLJ's management cannot make an estimate of loss, if any, or
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of the
actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot
be predicted with certainty, in the opinion of management no such matter
is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million, $110.6
million, $100.3 million, $72.3 million, $59.3 million and $427.3 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1997 and the succeeding four years are $9.8 million, $6.0
million, $4.5 million, $2.4 million, $.8 million and $.1 million
thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million, $219.8
million, $194.3 million, $174.6 million and $847.1 million thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million writeoff
of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1996, 1995 and 1994, statutory net
(loss) earnings totaled $(351.1) million, $(352.4) million and $67.5
million, respectively. No amounts are expected to be available for
dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996, 1995
and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been restated
to reflect the Company's accounting change adopted in the fourth quarter
of 1996 for long-duration participating life contracts in accordance
with the provisions prescribed by SFAS No. 120. Net earnings for the
three months ended December 31, 1996 includes a charge of $339.3 million
related to writeoffs of DAC on DI contracts of $94.3 million, reserve
strengthening on DI business of $113.7 million, pension par of $47.5
million and the discontinued GIC Segment of $83.8 million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess of
the proceeds over the book value in DLJ at the date of sale of $340.2
million has been reflected as a capital contribution. In 1995, DLJ
completed the initial public offering ("IPO") of 10.58 million shares of
its common stock, which included 7.28 million of the Holding Company's
shares in DLJ, priced at $27 per share. Concurrent with the IPO, the
Company contributed equity securities to DLJ having a market value of
$21.2 million. Upon completion of the IPO, the Company's ownership
percentage was reduced to 36.1%. The Company's ownership interest will
be further reduced upon the issuance of common stock after the vesting
of forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method prescribed
in APB Opinion No. 25. Had compensation expense of the Company's stock
option incentive plans for options granted after December 31, 1994 been
determined based on the estimated fair value at the grant dates for
awards under those plans, the Company's pro forma net earnings for 1996
and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as of
the date of grants using Black-Scholes option pricing models. The option
and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
22) SUBSEQUENT EVENTS (UNAUDITED)
On June 10, 1997, Equitable Life sold EREIM (other than EQ Services,
Inc. and its interest in Column Financial, Inc.) 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. The
Company recognized an investment gain of $162.4 million, net of Federal
income tax of $87.4 million as a result of this transaction. Equitable
Life entered into long-term advisory agreements pursuant to which EREIM
will continue to provide to Equitable Life's General Account and
Separate Accounts substantially the same services, for substantially the
same fees, as provided prior to the sale.
The businesses sold reported combined revenues of $226.1 million and
combined net earnings of $30.7 million in 1996. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 million, respectively.
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 the six months ended June 30, 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.
F-46
<PAGE>
INCOME MANAGER(R) ACCUMULATOR(SM)
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 31, 1997
--------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
FUNDED THROUGH THE
INVESTMENT FUNDS OF SEPARATE ACCOUNT NO. 45
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EQUITY SERIES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DOMESTIC EQUITY INTERNATIONAL EQUITY AGGRESSIVE EQUITY
Alliance Common Stock Alliance Global Alliance Aggressive Stock
Alliance Growth & Income Alliance International Alliance Small Cap Growth
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. Definitions of special terms used in the
SAI are found in the prospectus.
A copy of the prospectus is available free of charge by writing the Processing
Office, by calling 1-800-789-7771, toll-free, or by contacting your Registered
Representative.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
- --------------------------------------------------------------------------------
Part 1 Accumulation Unit Values 2
- --------------------------------------------------------------------------------
Part 2 Annuity Unit Values 2
- --------------------------------------------------------------------------------
Part 3 Custodian and Independent Accountants 3
- --------------------------------------------------------------------------------
Part 4 Alliance Money Market Fund and Alliance
Intermediate Government Securities Fund Yield Information 3
- --------------------------------------------------------------------------------
Part 5 Long-Term Market Trends 4
- --------------------------------------------------------------------------------
Part 6 Key Factors in Retirement Planning 6
- --------------------------------------------------------------------------------
Part 7 Financial Statements 9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This SAI dated December 31, 1997 is a revision of Equitable Life's SAI dated May
1, 1997 for the Income Manager Accumulator Certificates and reflects limited
changes to the information provided in the May SAI. The Certificates were first
offered on May 1, 1997. For convenience, in lieu of a supplement to the May SAI,
the SAI has been reprinted in its entirety.
- --------------------------------------------------------------------------------
Copyright 1997 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.
(IMASAI)
<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 HR Trust
or EQ Trust, as applicable.
(b) is the value of the Investment Fund's shares of the corresponding Portfolio
at the end of the preceding Valuation Period (after any amounts allocated
or withdrawn for that Valuation Period).
(c) is the daily Separate Account mortality and expense risks charge and
administration charge relating to the Certificates, times the number of
calendar days in the Valuation Period. These daily charges are at an
effective annual rate not to exceed a total of 1.15%.
- --------------------------------------------------------------------------------
PART 2 -- ANNUITY UNIT VALUES
The annuity unit value for each Investment Fund was fixed at $1.00 on 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 consolidated financial statements of Equitable Life at December 31, 1996 and
1995 and for each of the three years ended December 31, 1996 included in the SAI
have been audited by Price Waterhouse LLP.
The consolidated financial statements of Equitable Life at December 31, 1996 and
1995 and for each of the three years ended December 31, 1996 included in this
SAI have been so included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of such firm as experts in
accounting and auditing.
- --------------------------------------------------------------------------------
PART 4 -- ALLIANCE MONEY MARKET FUND AND ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES FUND YIELD INFORMATION
Alliance Money Market Fund
The Alliance Money Market Fund calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
Certificate with one Accumulation Unit at the beginning of the period. To
determine the seven-day rate of return, the net change in the Accumulation Unit
Value is computed by subtracting the Accumulation Unit Value at the beginning of
the period from an Accumulation Unit Value, exclusive of capital changes, at the
end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Money Market Fund but do not reflect the withdrawal charge, the Combined
Guaranteed Minimum Death Benefit and Guaranteed Minimum Income Benefit Charge or
any charges for applicable taxes such as state or local premium taxes. Under the
Special Dollar Cost Averaging program, Accumulation Unit Values also do not
reflect the mortality and expense risks charge and the administration charge.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return. This
seven-day adjusted base period return is then multiplied by 365/7 to produce an
annualized seven-day current yield figure carried to the nearest one-hundredth
of one percent.
The effective yield is obtained by modifying the current yield to give effect to
the compounding nature of the Alliance Money Market Fund's investments, as
follows: the unannualized adjusted base period return is compounded by adding
one to the adjusted base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result, i.e., effective yield = (base
period return + 1 )365/7 - 1. The Alliance Money Market Fund yields will
fluctuate daily. Accordingly, yields for any given period are not necessarily
representative of future results. In addition, the value of Accumulation Units
of the Alliance Money Market Fund will fluctuate and not remain constant.
Alliance Intermediate Government Securities Fund
The Alliance Intermediate Government Securities Fund calculates yield
information for 30-day periods. The 30-day current yield calculation is based on
a hypothetical Certificate with one Accumulation Unit at the beginning of the
period. To determine the 30-day rate of return, the net change in the
Accumulation Unit Value is computed by subtracting the Accumulation Unit Value
at the beginning of the period from an Accumulation Unit Value, exclusive of
capital changes, at the end of the period.
Accumulation Unit Values reflect all other accrued expenses of the Alliance
Intermediate Government Securities Fund but do not reflect the withdrawal
charge, the Combined Guaranteed Minimum Death Benefit and Guaranteed Minimum
Income Benefit Charge or any charges for applicable taxes such as state or local
premium taxes.
The adjusted net change is divided by the Accumulation Unit Value at the
beginning of the period to obtain the adjusted base period rate of return. This
30-day adjusted base period return is then multiplied by 365/30 to produce an
annualized 30-day current yield figure carried to the nearest one-hundredth of
one percent.
The effective yield is obtained by modifying the current yield to give effect to
the compounding nature of the Alliance Intermediate Government Securities Fund's
investments, as follows: the unannualized adjusted base period return is
compounded by adding one to the adjusted base period return, raising the sum to
a power equal to 365 divided by 30, and subtracting one from the result, i.e.,
effective yield = (base period return + 1)365/30 - 1. Alliance Intermediate
Government Securities Fund yields will fluctuate daily. Accordingly, yields for
any given period are not necessarily representative of future results. In
addition, the value of the Accumulation Units of the Alliance Intermediate
Government Securities Fund will fluctuate and not remain constant.
3
<PAGE>
Alliance Money Market Fund and Alliance Intermediate Government Securities Fund
Yield Information
Alliance Money Market Fund and the Alliance Intermediate Government Securities
Fund yields reflect charges that are not normally reflected in the yields of
other investments and therefore may be lower when compared with yields of other
investments. Alliance Money Market Fund and Alliance Intermediate Government
Securities Fund yields should not be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods, such as the
Guarantee Periods. Nor should the yield be compared to the yield of money market
funds or government securities funds made available to the general public.
Because the Accumulator Certificates described in the prospectus were offered
for the first time in 1997, no yield information is presented.
- --------------------------------------------------------------------------------
PART 5 -- LONG-TERM MARKET TRENDS
As a tool for understanding how different investment strategies may affect
long-term results, it may be useful to consider the historical returns on
different types of assets. The following charts present historical return trends
for various types of securities. The information presented, while not directly
related to the performance of the Investment Funds, helps to provide a
perspective on the potential returns of different asset classes over different
periods of time. By combining this information with knowledge of personal
financial needs (e.g., the length of time until you retire, your financial
requirements at retirement), you may be able to better determine how you wish to
allocate contributions among the Investment Funds.
Historically, the long-term investment performance of common stocks has
generally been superior to that of long- or short-term debt securities. For
those investors who have many years until retirement, or whose primary focus is
on long-term growth potential and protection against inflation, there may be
advantages to allocating some or all of their Annuity Account Value to those
Investment Funds that invest in stocks.
Growth of $1 Invested on January 1, 1956
(Values are as of last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A STACKED AREA
GRAPH IN THE PROSPECTUS]
S&P 500
TOTAL U.S.
RETURN INFLATION
------ ---------
INDEX VALUE
------ ---------
Dec 1956 1.07 1.03
Dec 1957 0.95 1.06
Dec 1958 1.36 1.08
Dec 1959 1.53 1.09
Dec 1960 1.53 1.11
Dec 1961 1.95 1.12
Dec 1962 1.78 1.13
Dec 1963 2.18 1.15
Dec 1964 2.54 1.16
Dec 1965 2.86 1.19
Dec 1966 2.57 1.23
Dec 1967 3.18 1.26
Dec 1968 3.34 1.32
Dec 1969 3.24 1.40
Dec 1970 3.37 1.48
Dec 1971 3.85 1.53
Dec 1972 4.58 1.58
Dec 1973 3.91 1.72
Dec 1974 2.87 1.83
Dec 1975 3.94 2.07
Dec 1976 4.88 2.17
Dec 1977 4.53 2.31
Dec 1978 4.83 2.52
Dec 1979 5.72 2.86
Dec 1980 7.57 3.21
Dec 1981 7.20 3.50
Dec 1982 8.74 3.64
Dec 1983 10.71 3.77
Dec 1984 11.38 3.92
Dec 1985 15.04 4.07
Dec 1986 17.81 4.12
Dec 1987 18.75 4.30
Dec 1988 21.90 4.49
Dec 1989 28.79 4.70
Dec 1990 27.88 4.99
Dec 1991 36.40 5.14
Dec 1992 39.19 5.29
Dec 1993 43.10 5.43
Dec 1994 43.67 5.58
Dec 1995 60.01 5.72
Dec 1996 73.86 5.92
- -----------------
[WHITE] Inflation [BLACK] Common Stock
[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 1996.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING TABLE WAS REPRESENTED AS A SCATTER
GRAPH IN THE PROSPECTUS]
S&P 500
U.S. IT TOTAL
GVT TR RETURN
------ ---------
INDEX INDEX
------ ---------
Jan 1990 0.99 0.93
Feb 1990 0.99 0.94
Mar 1990 0.99 0.97
Apr 1990 0.98 0.95
May 1990 1.01 1.04
Jun 1990 1.02 1.03
Jul 1990 1.04 1.03
Aug 1990 1.03 0.93
Sep 1990 1.04 0.89
Oct 1990 1.06 0.89
Nov 1990 1.08 0.94
Dec 1990 1.10 0.97
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.
4
<PAGE>
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1996 for different types
of securities: common stocks, long-term government bonds, long-term corporate
bonds, intermediate-term government bonds and U.S. Treasury Bills. For
comparison purposes, the Consumer Price Index is shown as a measure of
inflation. The average annual returns shown in the chart reflect capital
appreciation and assume the reinvestment of dividends and interest. No
investment management fees or expenses, and no charges typically associated with
deferred annuity products, are reflected.
The information presented is merely a summary of past experience for unmanaged
groups of securities and is neither an estimate or guarantee of future
performance. Any investment in securities, whether equity or debt, involves
varying degrees of potential risk, in addition to offering varying degrees of
potential reward.
The rates of return illustrated do not represent returns of the Separate
Account. In addition, there is no assurance that the performance of the
Investment Funds will correspond to rates of return such as those illustrated in
the chart.
For a comparative illustration of performance results of the Investment Funds
(which reflect the trusts and Separate Account charges), see "Part 8: Investment
Performance" in the 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 12/31/96: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 23.07% (0.93)% 1.40% 2.10% 5.21% 3.58%
3 Years 19.66 6.36 6.72 4.19 4.90 2.93
5 Years 15.20 8.98 8.52 6.17 4.22 2.89
10 Years 15.28 9.39 9.48 7.77 5.46 3.70
20 Years 14.55 9.54 9.71 9.14 7.28 5.15
30 Years 11.85 7.75 8.24 8.27 6.73 5.39
40 Years 11.18 6.51 6.99 7.08 5.80 4.47
50 Years 12.59 5.33 5.76 5.89 4.89 4.08
60 Years 11.19 5.06 5.38 5.32 4.10 4.13
Since 12/31/26 10.71 5.08 5.64 5.21 3.74 3.12
Inflation adjusted since 1926 7.36 1.90 2.44 2.02 0.60 --
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1997
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond portfolio constructed
each year containing a bond with approximately a twenty-year maturity and a
reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969-1996, represented by the
Salomon Brothers Long-Term, High-Grade Corporate Bond Index; for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1996; for the period 1927-1945, the Standard and Poor's monthly
High-Grade Corporate Composite yield data were used, assuming a 4 percent coupon
and a twenty-year maturity.
INTERMEDIATE-TERM GOVERNMENT BONDS -- Measured by a one-bond portfolio
constructed each year containing a bond with approximately a five-year maturity.
U.S. TREASURY BILLS -- Measured by rolling over each month a one-bill portfolio
containing, at the beginning of each month, the bill having the shortest
maturity not less than one month.
INFLATION -- Measured by the Consumer Price Index for all Urban Consumers
(CPI-U), not seasonally adjusted.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
PART 6 -- KEY FACTORS IN RETIREMENT PLANNING
INTRODUCTION
The Accumulator is available to help meet the retirement income and investment
needs of individuals. In assessing these retirement needs, some key factors need
to be addressed: (1) the impact of inflation on fixed retirement incomes; (2)
the importance of planning early for retirement; (3) the benefits of
tax deferral; (4) the selection of an appropriate investment strategy; and (5)
the benefit of annuitization. Each of these factors is addressed below.
Unless otherwise noted, all of the following presentations use an assumed annual
rate of return of 7.5% compounded annually. This rate of return is for
illustrative purposes only and is not intended to represent an expected or
guaranteed rate of return for any investment vehicle. In addition, unless
otherwise noted, none of the illustrations reflect any charges that may be
applied under a particular investment vehicle. Such charges would effectively
reduce the actual return under any investment vehicle.
All earnings in these presentations are assumed to accumulate tax deferred
unless otherwise noted. Most programs designed for retirement savings offer
tax-deferral. Monies are taxed upon withdrawal and a 10% penalty tax may apply
to premature withdrawals. Certain retirement programs prohibit early
withdrawals. See "Part 6: Tax Aspects of the Certificates" 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 1997 Yearbook.(TM) All rights
reserved.
In reports or other communications or in advertising material, we may make use
of these or other graphic or numerical illustrations that we prepare showing the
impact of inflation, planning early for retirement, tax deferral,
diversification and other concepts important to retirement planning.
INFLATION
Inflation erodes purchasing power. This means that, in an inflationary period,
the dollar is worth less as time passes. Because many people live on a fixed
income during retirement, inflation is of particular concern to them. The charts
that follow illustrate the detrimental impact of inflation over an extended
period of time. Between 1966 and 1996, the average annual inflation rate was
5.39%. As demonstrated in Chart 1, this 5.39% annual rate of inflation would
cause the purchasing power of $35,000 to decrease to only $7,246 after 30 years.
In Chart 2, the impact of inflation is examined from another perspective.
Specifically, the chart illustrates the additional income needed to maintain the
purchasing power of $35,000 over a thirty-year period. Again, the 1966-1996
historical inflation rate of 5.39% is used. In this case, an additional $134,064
would be required to maintain the purchasing power of $35,000 after 30 years.
CHART 1
[THE FOLLOWING TABLE WAS REPRESENTED AS A
3-D BAR GRAPH IN THE PROSPECTUS]
Today -- $35,000
10 years -- $20,705
20 years -- $12,248
30 years -- $ 7,246
[END OF GRAPHICALLY REPRESENTED DATA]
CHART 2
[THE FOLLOWING TABLE WAS REPRESENTED AS A
3-D BAR GRAPH IN THE PROSPECTUS]
Today -- $ 35,000
10 years -- $ 59,165
20 years -- $100,013
30 years -- $169,064
Increase Needed: $24,165 $65,013 $134,064
[END OF GRAPHICALLY REPRESENTED DATA]
STARTING EARLY
The impact of inflation accentuates the need to begin a retirement program
early. The value of starting early is illustrated in the following charts.
As shown in Chart 3, if an individual makes annual contributions of $2,500 to
his or her retirement program beginning at age 30, he or she would accumulate
$414,551 by age 65 under the assumptions described earlier. If that individual
waited until age 50, he or she would only accumulate $70,193 by age 65 under the
same assumptions.
6
<PAGE>
CHART 3
[THE FOLLOWING TABLE WAS REPRESENTED AS
A STACKED AREA GRAPH IN THE PROSPECTUS:]
30 ................. $414,551
40 ................. $182,691
50 ................. $ 70,193
GRAY - Age 30 WHITE - Age 40 BLACK - Age 50
[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 (pre-tax)
by age 65. If he or she starts at age 30, under our assumptions he or she could
reach the goal by making a monthly pre-tax contribution of $130 (equivalent to
$93 after taxes). The total net cost for the 30-year-old in this hypothetical
example would be $39,265. If the individual in this hypothetical example waited
until age 50, he or she would have to make a monthly pre-tax contribution of
$767 (equivalent to $552 after taxes) to attain the goal, illustrating the
importance of starting early.
CHART 4
GOAL: $250,000 BY AGE 65
[THE FOLLOWING TABLE WAS REPRESENTED
AS A BAR GRAPH IN THE PROSPECTUS:]
START
AT AGE B W
$ 93 a month ............. 30 $39,265 $210,735
$212 a month ............. 40 $63,641 $186,359
$552 a month ............. 50 $99,383 $150,617
BLACK - Net Cost
WHITE - Tax 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.
The first type offers the most tax benefits, and therefore is potentially the
most beneficial for accumulating funds for retirement. Contributions are made
with pre-tax dollars or are tax deductible and earnings grow income tax
deferred. An example of this type of program is the deductible Individual
Retirement Annuity (IRA).
The second type of program also provides for tax-deferred earnings growth;
however, contributions are made with after-tax dollars. Examples of this type of
program are non-deductible IRAs and non-qualified annuities.
The third approach to retirement savings is fully taxable. Contributions are
made with after-tax dollars and earnings are taxed each year. Examples of this
type of program include certificates of deposit, savings accounts, and taxable
stock, bond or mutual fund investments.
Consider an example. For the type of retirement program that offers both pre-tax
contributions and tax deferral, assume that a $2,000 annual pre-tax contribution
is made for thirty years. In this example, the
7
<PAGE>
retirement funds would be $176,363 after thirty years (assuming a 7.5% rate of
return, no withdrawals and assuming the deduction of the 1.15% Separate Account
daily asset charge and the $30 annual contract fee -- but no withdrawal charge
or other charges under the Certificate, or trust charges to Portfolios), and
such funds would be $222,309 without the effect of any charges. Assuming a lump
sum withdrawal was made in year thirty and a 28% tax bracket, these amounts
would be $126,981 and $160,062, respectively.
For the type of program that offers only tax deferral, assume an after-tax
annual contribution of $1,440 for thirty years and the same rate of return. The
after-tax contribution is derived by taxing the $2,000 pre-tax contribution
again assuming a 28% tax bracket. In this example, the retirement funds would be
$126,275 after thirty years assuming the deduction of charges and no
withdrawals, and $160,062 without the effect of charges. Assuming a lump sum
withdrawal in year thirty, the total after-tax amount would be $103,014 with
charges deducted and $127,341 without charges as described above.
For the fully taxable investment, assume an after-tax contribution of $1,440 for
thirty years. Earnings are taxed annually. After thirty years, the amount of
this fully taxable investment is $108,046.
Keep in mind that taxable investments have fees and charges, too (investment
advisory fees, administrative charges, 12b-1 fees, sales loads, brokerage
commissions, etc.). We have not attempted to apply these fees and charges to the
fully taxable amounts since this is intended merely as an example of tax
deferral.
Again, it must be emphasized that the assumed rate of return of 7.5% compounded
annually used in these examples is for illustrative purposes only and is not
intended to represent a guaranteed or expected rate of return on any investment
vehicle. Moreover, early withdrawals of tax-deferred investments are generally
subject to a 10% penalty tax.
INVESTMENT OPTIONS
Selecting an appropriate retirement program is clearly an important part of an
effective retirement planning strategy. Carefully choosing among Investment
Options is another essential component.
During the 1966-1997 period, common stock average annual returns outperformed
the average annual returns of fixed investments such as long-term government
bonds and Treasury Bills (T-Bills). See "Notes" below. Common stocks earned an
average annual return of 11.85% over this period, in contrast to 7.75% and 6.73%
for the other two investment categories. Significantly, common stock returns
also outpaced inflation, which grew at 5.39% over this period.
Although common stock returns have historically outpaced returns of fixed
investments, people often allocate a significant percentage of their retirement
funds to fixed return investments. Their primary concern is the preservation of
principal. Given this concern, Chart 5 illustrates the impact of exposing only
the interest generated by a fixed investment to the stock market. In this
illustration, the fixed investment is represented by a Treasury Bill return and
the stock investment is represented by the Standard & Poor's 500 ("S&P 500").
The chart assumes that a $20,000 fixed investment was made on January 1, 1980.
If the interest on that investment were to accumulate based upon the return of
the S&P 500, the total investment would have been worth $157,783 in 1996. Had
the interest been reinvested in the fixed investment, the fixed investment would
have grown to $65,623. As illustrated in Chart 5, significant opportunities for
growth exist while preserving principal. See "Notes" below.
CHART 5
$157,783 with Interest Exposed to Stock Market (S&P 500)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PROSPECTUS]
Market Value Market Value
Month of S&P 500 If 100% in
Ending & Fixed Acct 3 Mo. T-Bill
1980 J 20,160 20,160
F 20,338 20,339
M 20,547 20,586
A 20,823 20,845
M 21,031 21,014
J 21,183 21,142
J 21,369 21,254
A 21,515 21,390
S 21,708 21,550
O 21,930 21,755
N 22,333 21,964
D 22,522 22,252
1981 J 22,619 22,483
F 22,888 22,724
M 23,239 22,999
A 23,386 23,247
M 23,637 23,514
J 23,878 23,832
J 24,129 24,127
A 24,156 24,436
S 24,196 24,739
O 24,659 25,039
N 25,079 25,306
D 25,118 25,527
1982 J 25,195 25,731
F 25,113 25,968
M 25,278 26,222
A 25,722 26,518
M 25,770 26,799
J 25,861 27,057
J 25,945 27,341
A 26,850 27,549
S 27,028 27,689
O 27,937 27,852
N 28,411 28,028
D 28,690 28,216
1983 J 29,131 28,410
F 29,492 28,587
M 29,965 28,767
A 30,862 28,971
M 30,943 29,171
J 31,495 29,366
J 31,284 29,584
A 31,627 29,808
S 31,938 30,035
O 31,930 30,263
N 32,348 30,475
D 32,418 30,698
1984 J 32,490 30,931
F 32,222 31,150
M 32,577 31,378
A 32,826 31,632
M 32,297 31,879
J 32,719 32,118
J 32,701 32,381
A 34,295 32,650
S 34,470 32,931
O 34,708 33,260
N 34,705 33,503
D 35,205 33,717
1985 J 36,503 33,936
F 36,845 34,133
M 37,000 34,345
A 37,089 34,592
M 38,272 34,820
J 38,673 35,012
J 38,748 35,229
A 38,744 35,423
S 38,262 35,635
O 39,208 35,867
N 40,706 36,086
D 41,803 36,320
1986 J 42,011 36,524
F 43,792 36,717
M 45,230 36,938
A 45,021 37,130
M 46,493 37,312
J 47,036 37,506
J 45,602 37,701
A 47,609 37,874
S 45,430 38,045
O 46,935 38,220
N 47,703 38,369
D 47,070 38,557
1987 J 50,789 38,719
F 52,147 38,885
M 53,115 39,068
A 52,912 39,240
M 53,327 39,389
J 55,086 39,578
J 56,925 39,760
A 58,441 39,947
S 57,685 40,127
O 49,695 40,367
N 47,333 40,509
D 49,428 40,667
1988 J 50,743 40,785
F 52,280 40,972
M 51,393 41,152
A 51,824 41,342
M 52,174 41,553
J 53,765 41,756
J 53,732 41,969
A 52,733 42,217
S 54,245 42,478
O 55,302 42,738
N 54,915 42,981
D 55,673 43,252
1989 J 58,362 43,490
F 57,529 43,755
M 58,548 44,048
A 60,672 44,343
M 62,465 44,694
J 62,377 45,011
J 66,323 45,326
A 67,365 45,662
S 67,310 45,958
O 66,344 46,271
N 67,446 46,590
D 68,687 46,874
1990 J 65,533 47,142
F 66,234 47,410
M 67,578 47,714
A 66,541 48,043
M 71,214 48,370
J 70,982 48,674
J 70,955 49,005
A 66,481 49,329
S 64,314 49,625
O 64,286 49,962
N 67,252 50,247
D 68,667 50,548
1991 J 70,922 50,811
F 74,664 51,055
M 76,053 51,280
A 76,316 51,552
M 78,820 51,794
J 76,216 52,011
J 78,945 52,266
A 80,422 52,507
S 79,523 52,748
O 80,405 52,970
N 78,042 53,176
D 84,752 53,378
1992 J 83,616 53,560
F 84,486 53,710
M 83,290 53,892
A 85,196 54,065
M 85,604 54,216
J 84,717 54,390
J 87,387 54,558
A 86,078 54,700
S 86,890 54,842
O 87,176 54,969
N 89,486 55,095
D 90,453 55,249
1993 J 91,013 55,376
F 92,016 55,498
M 93,614 55,637
A 91,858 55,770
M 93,843 55,893
J 94,136 56,033
J 93,836 56,167
A 96,699 56,308
S 96,183 56,454
O 97,774 56,578
N 97,093 56,720
D 98,087 56,850
1994 J 100,753 56,992
F 98,615 57,112
M 95,249 57,266
A 96,281 57,421
M 97,589 57,605
J 95,734 57,783
J 98,297 57,945
A 101,558 58,159
S 99,666 58,375
O 101,566 58,596
N 98,647 58,813
D 99,883 59,072
1995 J 102,044 59,320
F 105,307 59,557
M 107,925 59,831
A 110,571 60,095
M 114,257 60,419
J 116,566 60,703
J 119,871 60,976
A 120,235 61,263
S 124,521 61,526
O 124,249 61,816
N 128,920 62,075
D 131,003 62,379
1996 J 157,783 65,623
$65,623 Without Interest Exposed to Stock Market
(S&P 500)
[END OF GRAPHICALLY REPRESENTED DATA]
Another variation of the example in Chart 5 is to gradually transfer principal
from a fixed investment into the stock market. Chart 6 assumes that a $20,000
fixed investment was made on January 1, 1980. For the next two years, $540 is
transferred monthly into the stock market (represented by the S&P 500). The
total investment, given this strategy, would have grown to $167,238 in 1996. In
contrast, had the principal not been transferred, the fixed investment would
have grown to $65,623. See "Notes" below.
8
<PAGE>
CHART 6
$167,238 with Principal Transfer
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PROSPECTUS]
Market Value Market Value
Month of S&P 500 If 100% in
Ending & Fixed Acct 3 Mo. T-Bil
1980 J 20,540 20,160
F 20,702 20,339
M 20,770 20,586
A 21,068 20,845
M 21,425 21,014
J 21,659 21,142
J 22,000 21,254
A 22,149 21,390
S 22,394 21,550
O 22,623 21,755
N 23,446 21,964
D 23,372 22,252
1981 J 23,246 22,483
F 23,569 22,724
M 24,053 22,999
A 24,031 23,247
M 24,246 23,514
J 24,324 23,832
J 24,514 24,127
A 24,051 24,436
S 23,651 24,739
O 24,397 25,039
N 25,087 25,306
D 24,857 25,527
1982 J 24,193 25,731
F 23,594 25,968
M 23,618 26,222
A 24,248 26,518
M 23,995 26,799
J 23,892 27,057
J 23,731 27,341
A 25,407 27,549
S 25,647 27,689
O 27,281 27,852
N 28,031 28,028
D 28,386 28,216
1983 J 29,041 28,410
F 29,568 28,587
M 30,282 28,767
A 31,737 28,971
M 31,721 29,171
J 32,549 29,366
J 32,000 29,584
A 32,424 29,808
S 32,790 30,035
O 32,616 30,263
N 33,176 30,475
D 33,142 30,698
1984 J 33,104 30,931
F 32,544 31,150
M 32,969 31,378
A 33,202 31,632
M 32,246 31,879
J 32,767 32,118
J 32,593 32,381
A 34,841 32,650
S 34,959 32,931
O 35,133 33,260
N 35,058 33,503
D 35,692 33,717
1985 J 37,434 33,936
F 37,844 34,133
M 37,970 34,345
A 37,984 34,592
M 39,531 34,820
J 40,023 35,012
J 40,038 35,229
A 39,976 35,423
S 39,254 35,635
O 40,428 35,867
N 42,341 36,086
D 43,701 36,320
1986 J 43,926 36,524
F 46,184 36,717
M 47,968 36,938
A 47,659 37,130
M 49,498 37,312
J 50,136 37,506
J 48,265 37,701
A 50,769 37,874
S 47,982 38,045
O 49,830 38,220
N 50,767 38,369
D 49,918 38,557
1987 J 54,519 38,719
F 56,165 38,885
M 57,317 39,068
A 57,035 39,240
M 57,525 39,389
J 59,630 39,578
J 61,849 39,760
A 63,662 39,947
S 62,711 40,127
O 52,932 40,367
N 50,090 40,509
D 52,585 40,667
1988 J 54,165 40,785
F 55,951 40,972
M 54,862 41,152
A 55,344 41,342
M 55,720 41,553
J 57,582 41,756
J 57,509 41,969
A 56,280 42,217
S 58,018 42,478
O 59,225 42,738
N 58,749 42,981
D 59,588 43,252
1989 J 62,695 43,490
F 61,691 43,755
M 62,824 44,048
A 65,234 44,343
M 67,232 44,694
J 67,118 45,011
J 71,581 45,326
A 72,728 45,662
S 72,661 45,958
O 71,544 46,271
N 72,760 46,590
D 74,150 46,874
1990 J 70,617 47,142
F 71,385 47,410
M 72,851 47,714
A 71,676 48,043
M 76,833 48,370
J 76,576 48,674
J 76,526 49,005
A 71,611 49,329
S 69,246 49,625
O 69,192 49,962
N 72,438 50,247
D 73,964 50,548
1991 J 76,420 50,811
F 80,470 51,055
M 81,977 51,280
A 82,241 51,552
M 84,947 51,794
J 82,165 52,011
J 85,076 52,266
A 86,666 52,507
S 85,709 52,748
O 86,662 52,970
N 84,157 53,176
D 91,300 53,378
1992 J 90,106 53,560
F 91,047 53,710
M 89,770 53,892
A 91,798 54,065
M 92,244 54,216
J 91,302 54,390
J 94,130 54,558
A 92,765 54,700
S 93,626 54,842
O 93,940 54,969
N 96,377 55,095
D 97,388 55,249
1993 J 97,994 55,376
F 99,055 55,498
M 100,732 55,637
A 98,899 55,770
M 100,989 55,893
J 101,297 56,033
J 100,991 56,167
A 103,992 56,308
S 103,458 56,454
O 105,136 56,578
N 104,425 56,720
D 105,474 56,850
1994 J 108,259 56,992
F 106,046 57,112
M 102,533 57,266
A 103,617 57,421
M 104,976 57,605
J 103,062 57,783
J 105,741 57,945
A 109,118 58,159
S 107,170 58,375
O 109,151 58,596
N 106,146 58,813
D 107,426 59,072
1995 J 109,681 59,320
F 113,071 59,557
M 115,775 59,831
A 118,526 60,095
M 122,319 60,419
J 124,733 60,703
J 128,155 60,976
A 128,547 61,263
S 132,973 61,526
O 132,710 61,816
N 137,525 62,075
D 139,695 62,379
96 J 167,238 65,623
$65,623 Without Principal Transfer
[END OF GRAPHICALLY REPRESENTED DATA]
NOTES
1. Common Stocks: Standard & Poor's (S&P) Composite Index is an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies. Results shown assume reinvestment of
dividends. Both market value and return on common stock will vary.
2. U.S. Government Securities: Long-term Government Bonds are measured using a
one-bond portfolio constructed each year containing a bond with
approximately a 20-year maturity and a reasonably current coupon. U.S.
Treasury Bills are measured by rolling over each month a one-bill portfolio
containing, at the beginning of each month, the bill having the shortest
maturity not less than one month. U.S. Government securities are guaranteed
as to principal and interest, and if held to maturity, offer a fixed rate
of return. However, market value and return on such securities will
fluctuate prior to maturity.
The Accumulator can be an effective program for diversifying ongoing investments
between various asset categories. In addition, the Accumulator offers special
features which help address the risk associated with timing the equity markets,
such as dollar cost averaging. By transferring the same dollar amount each month
from the Money Market Fund to other Investment Funds, dollar cost averaging
attempts to shield your investment from short-term price fluctuations. This,
however, does not assure a profit or protect against a loss in declining
markets.
THE BENEFIT OF ANNUITIZATION
An individual may shift the risk of outliving his or her principal by electing a
lifetime income annuity. See "Annuity Benefits and Payout Annuity Options" in
Part 3 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.
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 7 -- FINANCIAL STATEMENTS
The consolidated financial statements of The Equitable Life Assurance Society of
the United States included herein should be considered only as bearing upon the
ability of Equitable Life to meet its obligations under the Certificates.
There are no financial statements for the Separate Account as the Certificates
were first offered on May 1, 1997.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of The
Equitable Life Assurance Society of the United States and its subsidiaries
("Equitable Life") at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Equitable Life's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its methods of accounting for long-duration participating life insurance
contracts and long-lived assets in 1996, for loan impairments in 1995 and for
postemployment benefits in 1994.
Price Waterhouse LLP
New York, New York
February 10, 1997
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value................. $ 18,077.0 $ 15,899.9
Mortgage loans on real estate................................. 3,133.0 3,638.3
Equity real estate............................................ 3,297.5 3,916.2
Policy loans.................................................. 2,196.1 1,976.4
Investment in and loans to affiliates......................... 685.0 636.6
Other equity investments...................................... 597.3 621.1
Other invested assets......................................... 288.7 706.1
----------------- -----------------
Total investments......................................... 28,274.6 27,394.6
Cash and cash equivalents....................................... 538.8 774.7
Deferred policy acquisition costs............................... 3,104.9 3,075.8
Amounts due from discontinued GIC Segment....................... 996.2 2,097.1
Other assets.................................................... 2,552.2 2,718.1
Closed Block assets............................................. 8,495.0 8,582.1
Separate Accounts assets........................................ 29,646.1 24,566.6
----------------- -----------------
TOTAL ASSETS.................................................... $ 73,607.8 $ 69,209.0
================= =================
LIABILITIES
Policyholders' account balances................................. $ 21,865.6 $ 21,911.2
Future policy benefits and other policyholders' liabilities..... 4,416.6 4,007.3
Short-term and long-term debt................................... 1,766.9 1,899.3
Other liabilities............................................... 2,785.1 3,380.7
Closed Block liabilities........................................ 9,091.3 9,221.4
Separate Accounts liabilities................................... 29,598.3 24,531.0
----------------- -----------------
Total liabilities......................................... 69,523.8 64,950.9
----------------- -----------------
Commitments and contingencies (Notes 10, 12, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares
authorized, issued and outstanding............................ 2.5 2.5
Capital in excess of par value.................................. 3,105.8 3,105.8
Retained earnings............................................... 798.7 788.4
Net unrealized investment gains................................. 189.9 396.5
Minimum pension liability....................................... (12.9) (35.1)
----------------- -----------------
Total shareholder's equity................................ 4,084.0 4,258.1
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 73,607.8 $ 69,209.0
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income................................................ $ 874.0 $ 788.2 $ 715.0
Premiums................................................ 597.6 606.8 625.6
Net investment income................................... 2,175.9 2,088.2 1,998.6
Investment (losses) gains, net.......................... (9.8) 5.3 91.8
Commissions, fees and other income...................... 1,081.8 897.1 847.4
Contribution from the Closed Block...................... 125.0 143.2 137.0
----------------- ----------------- -----------------
Total revenues.................................... 4,844.5 4,528.8 4,415.4
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.... 1,270.2 1,248.3 1,201.3
Policyholders' benefits................................. 1,317.7 1,008.6 914.9
Other operating costs and expenses...................... 2,048.0 1,775.8 1,857.7
----------------- ----------------- -----------------
Total benefits and other deductions............... 4,635.9 4,032.7 3,973.9
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change........................... 208.6 496.1 441.5
Federal income taxes.................................... 9.7 120.5 100.2
Minority interest in net income of consolidated
subsidiaries.......................................... 81.7 62.8 50.4
----------------- ----------------- -----------------
Earnings from continuing operations before
cumulative effect of accounting change................ 117.2 312.8 290.9
Discontinued operations, net of Federal income taxes.... (83.8) - -
Cumulative effect of accounting change, net of Federal
income taxes.......................................... (23.1) - (27.1)
----------------- ----------------- -----------------
Net Earnings............................................ $ 10.3 $ 312.8 $ 263.8
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as
previously reported......................................... 2,913.6 2,913.6 2,613.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 192.2 192.2 192.2
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year as restated. 3,105.8 3,105.8 2,805.8
Additional capital in excess of par value..................... - - 300.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,105.8 3,105.8 3,105.8
----------------- ----------------- -----------------
Retained earnings, beginning of year as previously reported... 781.6 484.0 217.6
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 6.8 (8.4) (5.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year as restated.............. 788.4 475.6 211.8
Net earnings.................................................. 10.3 312.8 263.8
----------------- ----------------- -----------------
Retained earnings, end of year................................ 798.7 788.4 475.6
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of year
as previously reported...................................... 338.2 (203.0) 131.9
Cumulative effect on prior years of retroactive restatement
for accounting change....................................... 58.3 (17.5) 12.7
----------------- ----------------- -----------------
Net unrealized investment gains (losses), beginning of
year as restated............................................ 396.5 (220.5) 144.6
Change in unrealized investment (losses) gains................ (206.6) 617.0 (365.1)
----------------- ----------------- -----------------
Net unrealized investment gains (losses), end of year......... 189.9 396.5 (220.5)
----------------- ----------------- -----------------
Minimum pension liability, beginning of year.................. (35.1) (2.7) (15.0)
Change in minimum pension liability........................... 22.2 (32.4) 12.3
----------------- ----------------- -----------------
Minimum pension liability, end of year........................ (12.9) (35.1) (2.7)
----------------- ----------------- -----------------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR....................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net earnings.................................................. $ 10.3 $ 312.8 $ 263.8
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,270.2 1,248.3 1,201.3
Universal life and investment-type policy fee income........ (874.0) (788.2) (715.0)
Investment losses (gains)................................... 9.8 (5.3) (91.8)
Change in Federal income taxes payable...................... (197.1) 221.6 38.3
Other, net.................................................. 364.4 127.3 (19.4)
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 583.6 1,116.5 677.2
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,275.1 1,897.4 2,323.8
Sales....................................................... 8,964.3 8,867.1 5,816.6
Return of capital from joint ventures and limited
partnerships.............................................. 78.4 65.2 39.0
Purchases................................................... (12,559.6) (11,675.5) (7,564.7)
Decrease (increase) in loans to discontinued GIC Segment.... 1,017.0 1,226.9 (40.0)
Other, net.................................................. 56.7 (624.7) (478.1)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities.............. (168.1) (243.6) 96.6
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,925.4 2,586.5 2,082.5
Withdrawals............................................... (2,385.2) (2,657.1) (2,864.4)
Net decrease in short-term financings....................... (.3) (16.4) (173.0)
Additions to long-term debt................................. - 599.7 51.8
Repayments of long-term debt................................ (124.8) (40.7) (199.8)
Proceeds from issuance of Alliance units.................... - - 100.0
Payment of obligation to fund accumulated deficit of
discontinued GIC Segment.................................. - (1,215.4) -
Capital contribution from the Holding Company............... - - 300.0
Other, net.................................................. (66.5) (48.4) 26.5
----------------- ----------------- -----------------
Net cash (used) by financing activities....................... (651.4) (791.8) (676.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (235.9) 81.1 97.4
Cash and cash equivalents, beginning of year.................. 774.7 693.6 596.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 538.8 $ 774.7 $ 693.6
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 109.9 $ 89.6 $ 34.9
================= ================= =================
Income Taxes (Refunded) Paid................................ $ (10.0) $ (82.7) $ 49.2
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") converted to a stock life insurance company on July 22, 1992 and
became a wholly owned subsidiary of The Equitable Companies Incorporated
(the "Holding Company"). Equitable Life's insurance business is
conducted principally by Equitable Life and its wholly owned life
insurance subsidiary, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which will continue to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), Equitable Real Estate Investment
Management, Inc. ("EREIM") and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate. AXA-UAP ("AXA"),
a French holding company for an international group of insurance and
related financial services companies, is the Holding Company's largest
shareholder, owning approximately 60.8% at December 31, 1996 (63.6%
assuming conversion of Series E Convertible Preferred Stock held by AXA
and 54.4% if all securities convertible into, and options on, common
stock were to be converted or exercised).
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP").
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiaries
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance, an investment advisory subsidiary, and EREIM, a
real estate investment management subsidiary; and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets
and liabilities and results of operations are presented in the
consolidated financial statements as single line items (see Note 6).
Unless specifically stated, all disclosures contained herein supporting
the consolidated financial statements exclude the Closed Block related
amounts.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
All significant intercompany transactions and balances have been
eliminated in consolidation other than intercompany transactions and
balances with the Closed Block and the discontinued Guaranteed Interest
Contract ("GIC") Segment (see Note 7).
The years "1996," "1995" and "1994" refer to the years ended December
31, 1996, 1995 and 1994, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1996 presentation.
F-6
<PAGE>
Closed Block
------------
As of July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain classes of individual participating policies for
which Equitable Life had a dividend scale payable in 1991 and which were
in force on that date. Assets were allocated to the Closed Block in an
amount which, together with anticipated revenues from policies included
in the Closed Block, was reasonably expected to be sufficient to support
such business, including provision for payment of claims, certain
expenses and taxes, and for continuation of dividend scales payable in
1991, assuming the experience underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
holders of policies included in the Closed Block and will not revert to
the benefit of the Holding Company. The plan of demutualization
prohibits the reallocation, transfer, borrowing or lending of assets
between the Closed Block and other portions of Equitable Life's General
Account, any of its Separate Accounts or to any affiliate of Equitable
Life without the approval of the New York Superintendent of Insurance
(the "Superintendent"). Closed Block assets and liabilities are carried
on the same basis as similar assets and liabilities held in the General
Account. The excess of Closed Block liabilities over Closed Block assets
represents the expected future post-tax contribution from the Closed
Block which would be recognized in income over the period the policies
and contracts in the Closed Block remain in force.
Discontinued Operations
-----------------------
In 1991, the Company's management adopted a plan to discontinue the
business operations of the GIC Segment, consisting of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities") and Guaranteed
Interest Contract ("GIC") lines of business. The Company established a
pre-tax provision for the estimated future losses of the GIC line of
business and a premium deficiency reserve for the Wind-Up Annuities.
Subsequent losses incurred have been charged to the two loss provisions.
Management reviews the adequacy of the allowance and reserve each
quarter. During the fourth quarter 1996 review, management determined it
was necessary to increase the allowance for expected future losses of
the GIC Segment. Management believes the loss provisions for GIC
contracts and Wind-Up Annuities at December 31, 1996 are adequate to
provide for all future losses; however, the determination of loss
provisions continues to involve numerous estimates and subjective
judgments regarding the expected performance of discontinued operations
investment assets. There can be no assurance the losses provided for
will not differ from the losses ultimately realized (See Note 7).
Accounting Changes
------------------
In 1996, the Company changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed
Block, in accordance with the provisions prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts". The
effect of this change, including the impact on the Closed Block, was to
increase earnings from continuing operations before cumulative effect of
accounting change by $19.2 million, net of Federal income taxes of $10.3
million for 1996. The financial statements for 1995 and 1994 have been
retroactively restated for the change which resulted in an increase
(decrease) in earnings before cumulative effect of accounting change of
$15.2 million, net of Federal income taxes of $8.2 million, and $(2.6)
million, net of Federal income tax benefit of $1.0 million,
respectively. Shareholder's equity increased $199.1 million as of
January 1, 1994 for the effect of retroactive application of the new
method. (See "Deferred Policy Acquisition Costs," "Policyholders'
Account Balances and Future Policy Benefits" and Note 6.)
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances
F-7
<PAGE>
indicate the carrying value of such assets may not be recoverable.
Effective with SFAS No. 121's adoption, impaired real estate is written
down to fair value with the impairment loss being included in investment
gains (losses), net. Before implementing SFAS No. 121, valuation
allowances on real estate held for the production of income were
computed using the forecasted cash flows of the respective properties
discounted at a rate equal to the Company's cost of funds. The adoption
of the statement resulted in the release of valuation allowances of
$152.4 million and recognition of impairment losses of $144.0 million on
real estate held and used. Real estate which management has committed to
disposing of by sale or abandonment is classified as real estate to be
disposed of. Valuation allowances on real estate to be disposed of
continue to be computed using the lower of estimated fair value or
depreciated cost, net of disposition costs. Implementation of the SFAS
No. 121 impairment requirements relative to other assets to be disposed
of resulted in a charge for the cumulative effect of an accounting
change of $23.1 million, net of a Federal income tax benefit of $12.4
million, due to the writedown to fair value of building improvements
relating to facilities being vacated beginning in 1996.
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This statement
applies to all loans, including loans restructured in a troubled debt
restructuring involving a modification of terms. This statement
addresses the accounting for impairment of a loan by specifying how
allowances for credit losses should be determined. Impaired loans within
the scope of this statement are measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Company provides for
impairment of loans through an allowance for possible losses. The
adoption of this statement did not have a material effect on the level
of these allowances or on the Company's consolidated statements of
earnings and shareholder's equity.
Beginning coincident with issuance of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," implementation
guidance in November 1995, the Financial Accounting Standards Board
("FASB") permitted companies a one-time opportunity, through December
31, 1995, to reassess the appropriateness of the classification of all
securities held at that time. On December 1, 1995, the Company
transferred $4,794.9 million of securities classified as held to
maturity to the available for sale portfolio. As a result, consolidated
shareholder's equity increased by $149.4 million, net of deferred policy
acquisition costs ("DAC"), amounts attributable to participating group
annuity contracts and deferred Federal income taxes.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which required employers to recognize the obligation to
provide postemployment benefits. Implementation of this statement
resulted in a charge for the cumulative effect of accounting change of
$27.1 million, net of a Federal income tax benefit of $14.6 million.
New Accounting Pronouncements
-----------------------------
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant or,
alternatively, to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Companies which elect to
continue to apply APB Opinion No. 25 must provide pro forma net income
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company accounts for stock option plans sponsored by the
Holding Company, DLJ and Alliance in accordance with the provisions of
APB Opinion No. 25 (see Note 21).
F-8
<PAGE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 125 specifies the accounting and reporting requirements for
transfers of financial assets, the recognition and measurement of
servicing assets and liabilities and extinguishments of liabilities.
SFAS No. 125 is effective for transactions occurring after December 31,
1996 and is to be applied prospectively. In December 1996, the FASB
issued SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," which defers for one year the
effective date of provisions relating to secured borrowings and
collateral and transfers of financial assets that are part of repurchase
agreements, dollar-roll, securities lending and similar transactions.
Management has not yet determined the effect of implementing SFAS No.
125.
Valuation of Investments
------------------------
Fixed maturities identified as available for sale are reported at
estimated fair value. The amortized cost of fixed maturities is adjusted
for impairments in value deemed to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Effective with
the adoption of SFAS No. 114 on January 1, 1995, the valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value. Prior to the adoption of SFAS No. 114, the valuation
allowances were based on losses expected by management to be realized on
transfers of mortgage loans to real estate (upon foreclosure or
in-substance foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans management believed may not be collectible
in full. In establishing valuation allowances, management previously
considered, among other things the estimated fair value of the
underlying collateral.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses) net. Valuation allowances on real
estate available for sale are computed using the lower of current
estimated fair value or depreciated cost, net of disposition costs.
Prior to the adoption of SFAS No. 121, valuation allowances on real
estate held for the production of income were computed using the
forecasted cash flows of the respective properties discounted at a rate
equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control and a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Investment Results and Unrealized Investment Gains (Losses)
-----------------------------------------------------------
Net investment income and realized investment gains and losses
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
F-9
<PAGE>
Realized investment gains and losses are determined by specific
identification and are presented as a component of revenue. Valuation
allowances are netted against the asset categories to which they apply
and changes in the valuation allowances are included in investment gains
or losses.
Unrealized investment gains and losses on fixed maturities available for
sale and equity securities held by the Company are accounted for as a
separate component of shareholder's equity, net of related deferred
Federal income taxes, amounts attributable to the discontinued GIC
Segment, participating group annuity contracts, and DAC related to
universal life and investment-type products and participating
traditional life contracts.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
---------------------------------
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 15 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to unrealized gains (losses) in consolidated
shareholder's equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1996, the expected investment yield ranged from
7.30% grading to 7.68% over 13 years. Estimated gross margin includes
anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. Deviations of actual results
from estimated experience are reflected in earnings in the period such
deviations occur. The effect on the DAC asset that would result from
realization of unrealized gains (losses) is recognized with an offset to
unrealized gains (losses) in consolidated shareholder's equity as of the
balance sheet date.
F-10
<PAGE>
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue. In the
fourth quarter of 1996, the DAC related to DI contracts issued prior to
July 1993 was written off.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
include a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996, a loss recognition study on
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, including expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million. The determination of DI reserves
requires making assumptions and estimates relating to a variety of
factors, including morbidity and interest rates, claims experience and
lapse
F-11
<PAGE>
rates based on then known facts and circumstances. Such factors as claim
incidence and termination rates can be affected by changes in the
economic, legal and regulatory environments and work ethic. While
management believes its DI reserves have been calculated on a reasonable
basis and are adequate, there can be no assurance reserves will be
sufficient to provide for future liabilities.
Claim reserves and associated liabilities for individual disability
income and major medical policies were $711.8 million and $639.6 million
at December 31, 1996 and 1995, respectively (excluding $175.0 million of
reserve strengthening in 1996). Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding $175.0 million of reserve strengthening in
1996) are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 189.0 $ 176.0 $ 188.6
Incurred benefits related to prior years........... 69.1 67.8 28.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 258.1 $ 243.8 $ 217.3
================= ================ =================
Benefits paid related to current year.............. $ 32.6 $ 37.0 $ 43.7
Benefits paid related to prior years............... 153.3 137.8 132.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 185.9 $ 174.8 $ 176.0
================= ================ =================
</TABLE>
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's Board of Directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
Equitable Life is subject to limitations on the amount of statutory
profits which can be retained with respect to certain classes of
individual participating policies that were in force on July 22, 1992
which are not included in the Closed Block and with respect to
participating policies issued subsequent to July 22, 1992. Excess
statutory profits, if any, will be distributed over time to such
policyholders and will not be available to Equitable Life's shareholder.
Earnings in excess of limitations, if any, would be accrued as
policyholders' dividends.
At December 31, 1996, participating policies, including those in the
Closed Block, represent approximately 24.2% ($52.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
--------------------
The Company files a consolidated Federal income tax return with the
Holding Company and its non-life insurance subsidiaries. Current Federal
income taxes were charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities were
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
-----------------
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds the Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account, therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1996, 1995 and 1994, investment results of
such Separate Accounts were $2,970.6 million, $1,963.2 million and
$665.2 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------------- ----------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 13,645.2 $ 451.5 $ 121.0 $ 13,975.7
Mortgage-backed.................... 2,015.9 11.2 20.3 2,006.8
U.S. Treasury securities and
U.S. government and
agency securities................ 1,539.4 39.2 19.3 1,559.3
States and political subdivisions.. 77.0 4.5 - 81.5
Foreign governments................ 302.6 18.0 2.2 318.4
Redeemable preferred stock......... 139.1 3.3 7.1 135.3
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 17,719.2 $ 527.7 $ 169.9 $ 18,077.0
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 98.7 $ 49.3 $ 17.7 $ 130.3
================= ================= ================ ===============
December 31, 1995
-----------------
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 10,910.7 $ 617.6 $ 118.1 $ 11,410.2
Mortgage-backed.................... 1,838.0 31.2 1.2 1,868.0
U.S. Treasury securities and
U.S. government and
agency securities................ 2,257.0 77.8 4.1 2,330.7
States and political subdivisions.. 45.7 5.2 - 50.9
Foreign governments................ 124.5 11.0 .2 135.3
Redeemable preferred stock......... 108.1 5.3 8.6 104.8
----------------- ----------------- ---------------- ---------------
Total Available for Sale............... $ 15,284.0 $ 748.1 $ 132.2 $ 15,899.9
================= ================= ================ ===============
Equity Securities:
Common stock......................... $ 97.3 $ 49.1 $ 18.0 $ 128.4
================= ================= ================ ===============
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company has
determined an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based upon the
assumption such securities will be held to maturity. Estimated fair
value for equity securities, substantially all of which do not have a
readily ascertainable market value, has been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1996 and 1995, securities
without a readily ascertainable market value having an amortized cost of
$3,915.7 million and $3,748.9 million, respectively, had estimated fair
values of $4,024.6 million and $3,981.8 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1996 is shown below:
AVAILABLE FOR SALE
------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------- -----------------
(IN MILLIONS)
Due in one year or less........... $ 539.6 $ 542.5
Due in years two through five..... 2,776.2 2,804.0
Due in years six through ten...... 6,044.7 6,158.1
Due after ten years............... 6,203.7 6,430.3
Mortgage-backed securities........ 2,015.9 2,006.8
---------------- -----------------
Total............................. $ 17,580.1 $ 17,941.7
================ =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
the total investments in any single issuer or total investment in a
particular industry group. Certain of these corporate high yield
securities are classified as other than investment grade by the various
rating agencies, i.e., a rating below Baa or National Association of
Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
1996, approximately 14.20% of the $17,563.7 million aggregate amortized
cost of bonds held by the Insurance Group were considered to be other
than investment grade.
In addition to its holdings of corporate high yield securities, the
Insurance Group is an equity investor in limited partnership interests
which primarily invest in securities considered to be other than
investment grade.
The Company has restructured or modified the terms of certain fixed
maturity investments. The fixed maturity portfolio includes amortized
costs of $5.5 million and $15.9 million at December 31, 1996 and 1995,
respectively, of such restructured securities. These amounts include
fixed maturities which are in default as to principal and/or interest
payments, are to be restructured pursuant to commenced negotiations or
where the borrowers went into bankruptcy subsequent to acquisition
(collectively, "problem fixed maturities") of $2.2 million and $1.6
million as of December 31, 1996 and 1995, respectively. Gross interest
income that would have been recorded in accordance with the original
terms of restructured fixed maturities amounted to $1.4 million, $3.0
million and $7.5 million in 1996, 1995 and 1994, respectively. Gross
interest income on these fixed maturities included in net investment
income aggregated $1.3 million, $2.9 million and $6.8 million in 1996,
1995 and 1994, respectively.
F-15
<PAGE>
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 325.3 $ 284.9 $ 355.6
SFAS No. 121 release............................... (152.4) - -
Additions charged to income........................ 125.0 136.0 51.0
Deductions for writedowns and
asset dispositions............................... (160.8) (95.6) (121.7)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 50.4 $ 65.5 $ 64.2
Equity real estate............................... 86.7 259.8 220.7
----------------- ---------------- -----------------
Total.............................................. $ 137.1 $ 325.3 $ 284.9
================= ================ =================
</TABLE>
At December 31, 1996, the carrying values of investments held for the
production of income which were non-income producing for the twelve
months preceding the consolidated balance sheet date were $25.0 million
of fixed maturities and $2.6 million of mortgage loans on real estate.
At December 31, 1996 and 1995, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $12.4 million (0.4% of total
mortgage loans on real estate) and $87.7 million (2.4% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $388.3
million and $531.5 million at December 31, 1996 and 1995, respectively.
These amounts include $1.0 million and $3.8 million of problem mortgage
loans on real estate at December 31, 1996 and 1995, respectively. Gross
interest income on restructured mortgage loans on real estate that would
have been recorded in accordance with the original terms of such loans
amounted to $35.5 million, $52.1 million and $44.9 million in 1996, 1995
and 1994, respectively. Gross interest income on these loans included in
net investment income aggregated $28.2 million, $37.4 million and $32.8
million in 1996, 1995 and 1994, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 340.0 $ 310.1
Impaired mortgage loans with no provision for losses............... 122.3 160.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 462.3 470.9
Provision for losses............................................... 46.4 62.7
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 415.9 $ 408.2
=================== ===================
</TABLE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a
F-16
<PAGE>
cash basis. Interest income on loans where the present value method is
used to measure impairment is accrued on the net carrying value amount
of the loan at the interest rate used to discount the cash flows.
Changes in the present value attributable to changes in the amount or
timing of expected cash flows are reported as investment gains or
losses.
During 1996 and 1995, respectively, the Company's average recorded
investment in impaired mortgage loans was $552.1 million and $429.0
million. Interest income recognized on these impaired mortgage loans
totaled $38.8 million and $27.9 million for 1996 and 1995, respectively,
including $17.9 million and $13.4 million recognized on a cash basis.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1996 and 1995, the carrying value of equity real estate
available for sale amounted to $345.6 million and $255.5 million,
respectively. For 1996, 1995 and 1994, respectively, real estate of
$58.7 million, $35.3 million and $189.8 million was acquired in
satisfaction of debt. At December 31, 1996 and 1995, the Company owned
$771.7 million and $862.7 million, respectively, of real estate acquired
in satisfaction of debt.
Depreciation of real estate is computed using the straight-line method
over the estimated useful lives of the properties, which generally range
from 40 to 50 years. Accumulated depreciation on real estate was $587.5
million and $662.4 million at December 31, 1996 and 1995, respectively.
Depreciation expense on real estate totaled $91.8 million, $121.7
million and $117.0 million for 1996, 1995 and 1994, respectively. As a
result of the implementation of SFAS No. 121, during 1996 no
depreciation expense has been recorded on real estate available for
sale.
F-17
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information of real estate joint ventures
(34 and 38 individual ventures as of December 31, 1996 and 1995,
respectively) and of limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL POSITION
Investments in real estate, at depreciated cost........................ $ 1,883.7 $ 2,684.1
Investments in securities, generally at estimated fair value........... 2,430.6 2,459.8
Cash and cash equivalents.............................................. 98.0 489.1
Other assets........................................................... 427.0 270.8
---------------- -----------------
Total assets........................................................... 4,839.3 5,903.8
---------------- -----------------
Borrowed funds - third party........................................... 1,574.3 1,782.3
Borrowed funds - the Company........................................... 137.9 220.5
Other liabilities...................................................... 415.8 593.9
---------------- -----------------
Total liabilities...................................................... 2,128.0 2,596.7
---------------- -----------------
Partners' Capital...................................................... $ 2,711.3 $ 3,307.1
================ =================
Equity in partners' capital included above............................. $ 806.8 $ 902.2
Equity in limited partnership interests not included above............. 201.8 212.8
Other.................................................................. 9.8 8.9
---------------- -----------------
Carrying Value......................................................... $ 1,018.4 $ 1,123.9
================ =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 348.9 $ 463.5 $ 537.7
Revenues of other limited partnership interests.... 386.1 242.3 103.4
Interest expense - third party..................... (111.0) (135.3) (114.9)
Interest expense - the Company..................... (30.0) (41.0) (36.9)
Other expenses..................................... (282.5) (397.7) (430.9)
----------------- ---------------- -----------------
Net Earnings....................................... $ 311.5 $ 131.8 $ 58.4
================= ================ =================
Equity in net earnings included above.............. $ 73.9 $ 49.1 $ 18.9
Equity in net earnings of limited partnerships
interests not included above..................... 35.8 44.8 25.3
Other.............................................. .9 1.0 1.8
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 110.6 $ 94.9 $ 46.0
================= ================ =================
</TABLE>
F-18
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.................... $ 1,307.4 $ 1,151.1 $ 1,036.5
Mortgage loans on real estate....... 303.0 329.0 385.7
Equity real estate.................. 442.4 560.4 561.8
Other equity investments............ 94.3 76.9 36.1
Policy loans........................ 160.3 144.4 122.7
Other investment income............. 217.4 273.0 322.4
----------------- ---------------- -----------------
Gross investment income........... 2,524.8 2,534.8 2,465.2
----------------- ---------------- -----------------
Investment expenses............... 348.9 446.6 466.6
----------------- ---------------- -----------------
Net Investment Income............... $ 2,175.9 $ 2,088.2 $ 1,998.6
================= ================ =================
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities................................... $ 60.5 $ 119.9 $ (14.3)
Mortgage loans on real estate...................... (27.3) (40.2) (43.1)
Equity real estate................................. (79.7) (86.6) 20.6
Other equity investments........................... 18.9 12.8 75.9
Issuance and sales of Alliance Units............... 20.6 - 52.4
Other.............................................. (2.8) (.6) .3
----------------- ---------------- -----------------
Investment (Losses) Gains, Net..................... $ (9.8) $ 5.3 $ 91.8
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $29.9 million, $46.7 million
and $30.8 million for 1996, 1995 and 1994, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $23.7 million for the year ended December 31, 1996.
For 1996, 1995 and 1994, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $8,353.5
million, $8,206.0 million and $5,253.9 million. Gross gains of $154.2
million, $211.4 million and $65.2 million and gross losses of $92.7
million, $64.2 million and $50.8 million, respectively, were realized on
these sales. The change in unrealized investment (losses) gains related
to fixed maturities classified as available for sale for 1996, 1995 and
1994 amounted to $(258.0) million, $1,077.2 million and $(742.2)
million, respectively.
During each of 1995 and 1994, one security classified as held to
maturity was sold. During the eleven months ended November 30, 1995 and
the year ended December 31, 1994, respectively, twelve and six
securities so classified were transferred to the available for sale
portfolio. All actions were taken as a result of a significant
deterioration in creditworthiness. The aggregate amortized costs of the
securities sold were $1.0 million and $19.9 million with a related
investment gain of $-0- million and $.8 million recognized in 1995 and
1994, respectively; the aggregate amortized cost of the securities
transferred was $116.0 million and $42.8 million with gross unrealized
investment losses of $3.2 million and $3.1 million charged to
consolidated shareholder's equity for the eleven months ended November
30, 1995 and the year ended December 31,
F-19
<PAGE>
1994, respectively. On December 1, 1995, the Company transferred
$4,794.9 million of securities classified as held to maturity to the
available for sale portfolio. As a result, unrealized gains on fixed
maturities increased $395.6 million, offset by DAC of $126.5 million,
amounts attributable to participating group annuity contracts of $39.2
million and deferred Federal income taxes of $80.5 million.
For 1996, 1995 and 1994, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.7 million, $131.2
million and $175.8 million, respectively.
In 1996, Alliance acquired the business of Cursitor-Eaton Asset
Management Company and Cursitor Holdings Limited (collectively,
"Cursitor") for approximately $159.0 million. The purchase price
consisted of $94.3 million in cash, 1.8 million of Alliance's publicly
traded units ("Alliance Units"), 6% notes aggregating $21.5 million
payable ratably over four years, and substantial additional
consideration which will be determined at a later date. The excess of
the purchase price, including acquisition costs and minority interest,
over the fair value of Cursitor's net assets acquired resulted in the
recognition of intangible assets consisting of costs assigned to
contracts acquired and goodwill of approximately $122.8 million and
$38.3 million, respectively, which are being amortized over the
estimated useful lives of 20 years. The Company recognized an investment
gain of $20.6 million as a result of the issuance of Alliance Units in
this transaction. At December 31, 1996, the Company's ownership of
Alliance Units was approximately 57.3%.
In 1994, Alliance sold 4.96 million newly issued Alliance Units to third
parties at prevailing market prices. The Company continues to hold its
1% general partnership interest in Alliance. The Company recognized an
investment gain of $52.4 million as a result of these transactions.
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity and the changes for the
corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year as restated............. $ 396.5 $ (220.5) $ 144.6
Changes in unrealized investment (losses) gains.... (297.6) 1,198.9 (856.7)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... - (78.1) 40.8
DAC............................................ 42.3 (216.8) 273.6
Deferred Federal income taxes.................. 48.7 (287.0) 177.2
----------------- ---------------- -----------------
Balance, End of Year............................... $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................... $ 357.8 $ 615.9 $ (461.3)
Other equity investments....................... 31.6 31.1 7.7
Other, principally Closed Block................ 53.1 93.1 (5.1)
----------------- ---------------- -----------------
Total........................................ 442.5 740.1 (458.7)
Amounts of unrealized investment (gains)
losses attributable to:
Participating group annuity contracts........ (72.2) (72.2) 5.9
DAC.......................................... (52.0) (94.3) 122.4
Deferred Federal income taxes................ (128.4) (177.1) 109.9
----------------- ---------------- -----------------
Total.............................................. $ 189.9 $ 396.5 $ (220.5)
================= ================ =================
</TABLE>
F-20
<PAGE>
6) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$3,820.7 and $3,662.8)...................................... $ 3,889.5 $ 3,896.2
Mortgage loans on real estate................................... 1,380.7 1,368.8
Policy loans.................................................... 1,765.9 1,797.2
Cash and other invested assets.................................. 336.1 440.9
DAC............................................................. 876.5 792.6
Other assets.................................................... 246.3 286.4
----------------- -----------------
Total Assets.................................................... $ 8,495.0 $ 8,582.1
================= =================
Liabilities
Future policy benefits and policyholders' account balances...... $ 8,999.7 $ 8,923.5
Other liabilities............................................... 91.6 297.9
----------------- -----------------
Total Liabilities............................................... $ 9,091.3 $ 9,221.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 724.8 $ 753.4 $ 798.1
Investment income (net of investment
expenses of $27.3, $26.7 and $19.0).............. 546.6 538.9 523.0
Investment losses, net............................. (5.5) (20.2) (24.0)
----------------- ---------------- -----------------
Total revenues............................... 1,265.9 1,272.1 1,297.1
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,106.3 1,077.6 1,121.6
Other operating costs and expenses................. 34.6 51.3 38.5
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,140.9 1,128.9 1,160.1
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 125.0 $ 143.2 $ 137.0
================= ================ =================
</TABLE>
In the fourth quarter of 1996, the Company adopted SFAS No. 120, which
prescribes the accounting for individual participating life insurance
contracts, most of which are included in the Closed Block. The
implementation of SFAS No. 120 resulted in an increase (decrease) in the
contribution from the Closed Block of $27.5 million, $18.8 million and
$(14.0) million in 1996, 1995 and 1994, respectively.
The fixed maturity portfolio, based on amortized cost, includes $.4
million and $4.3 million at December 31, 1996 and 1995, respectively, of
restructured securities which includes problem fixed maturities of $.3
million and $1.9 million, respectively.
F-21
<PAGE>
During the eleven months ended November 30, 1995, one security
classified as held to maturity was sold and ten securities classified as
held to maturity were transferred to the available for sale portfolio.
All actions resulted from significant deterioration in creditworthiness.
The amortized cost of the security sold was $4.2 million. The aggregate
amortized cost of the securities transferred was $81.3 million with
gross unrealized investment losses of $.1 million transferred to equity.
At December 1, 1995, $1,750.7 million of securities classified as held
to maturity were transferred to the available for sale portfolio. As a
result, unrealized gains of $88.5 million on fixed maturities were
recognized, offset by DAC amortization of $52.6 million.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
an amortized cost of $4.3 million and $36.5 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $114.2 million and $137.7 million,
respectively. At December 31, 1996 and 1995, the restructured mortgage
loans on real estate amount included $.7 million and $8.8 million,
respectively, of problem mortgage loans on real estate.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses......... $ 128.1 $ 106.8
Impaired mortgage loans with no provision for losses...... .6 10.1
---------------- -----------------
Recorded investment in impaired mortgages................. 128.7 116.9
Provision for losses...................................... 12.9 17.9
---------------- -----------------
Net Impaired Mortgage Loans............................... $ 115.8 $ 99.0
================ =================
</TABLE>
During 1996 and 1995, respectively, the Closed Block's average recorded
investment in impaired mortgage loans was $153.8 million and $146.9
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $10.9 million and $5.9 million for 1996 and 1995,
respectively, including $4.7 million and $1.3 million recognized on a
cash basis.
Valuation allowances amounted to $13.8 million and $18.4 million on
mortgage loans on real estate and $3.7 million and $4.3 million on
equity real estate at December 31, 1996 and 1995, respectively.
Writedowns of fixed maturities amounted to $12.8 million, $16.8 million
and $15.9 million for 1996, 1995 and 1994, respectively. As of January
1, 1996, the adoption of SFAS No. 121 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
7) DISCONTINUED OPERATIONS
Summarized financial information of the GIC Segment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets
Mortgage loans on real estate........... $ 1,111.1 $ 1,485.8
Equity real estate...................... 925.6 1,122.1
Other invested assets................... 474.0 665.2
Other assets............................ 226.1 579.3
----------------- -----------------
Total Assets............................ $ 2,736.8 $ 3,852.4
================= =================
Liabilities
Policyholders' liabilities.............. $ 1,335.9 $ 1,399.8
Allowance for future losses............. 262.0 164.2
Amounts due to continuing operations.... 996.2 2,097.1
Other liabilities....................... 142.7 191.3
----------------- -----------------
Total Liabilities....................... $ 2,736.8 $ 3,852.4
================= =================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Investment income (net of investment expenses
of $127.5, $153.1 and $183.3).................... $ 245.4 $ 323.6 $ 394.3
Investment (losses) gains, net..................... (18.9) (22.9) 26.8
Policy fees, premiums and other income............. .2 .7 .4
----------------- ---------------- -----------------
Total revenues..................................... 226.7 301.4 421.5
Benefits and other deductions...................... 250.4 326.5 443.2
Losses charged to allowance for future losses...... (23.7) (25.1) (21.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax loss from strengthening of the
allowance for future losses...................... (129.0) - -
Federal income tax benefit......................... 45.2 - -
----------------- ---------------- -----------------
Loss from Discontinued Operations.................. $ (83.8) $ - $ -
================= ================ =================
</TABLE>
In 1991, management adopted a plan to discontinue the business
operations of the GIC Segment consisting of group non-participating
Wind-Up Annuities and the GIC lines of business. The loss allowance and
premium deficiency reserve of $569.6 million provided for in 1991 were
based on management's best judgment at that time.
The Company's quarterly process for evaluating the loss provisions
applies the current period's results of the discontinued operations
against the allowance, re-estimates future losses, and adjusts the
provisions, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in the need to strengthen the
loss provisions by $129.0 million, resulting in a post-tax charge of
$83.8 million to discontinued operations' results in the fourth quarter
of 1996.
F-23
<PAGE>
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at December 31, 1996 are adequate to provide for all future
losses; however, the determination of loss provisions continues to
involve numerous estimates and subjective judgments regarding the
expected performance of discontinued operations investment assets. There
can be no assurance the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future
projections of the discontinued operations differ from management's
current best estimates and assumptions underlying the loss provisions,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. In particular, to the extent
income, sales proceeds and holding periods for equity real estate differ
from management's previous assumptions, periodic adjustments to the loss
provisions are likely to result.
In January 1995, continuing operations transferred $1,215.4 million in
cash to the GIC Segment in settlement of its obligation to provide
assets to fund the accumulated deficit of the GIC Segment. Subsequently,
the GIC Segment remitted $1,155.4 million in cash to continuing
operations in partial repayment of borrowings by the GIC Segment. No
gains or losses were recognized on these transactions. Amounts due to
continuing operations at December 31, 1996, consisted of $1,080.0
million borrowed by the discontinued GIC Segment offset by $83.8 million
representing an obligation of continuing operations to provide assets to
fund the accumulated deficit of the GIC Segment.
Investment income included $88.2 million of interest income for 1994 on
amounts due from continuing operations. Benefits and other deductions
include $114.3 million, $154.6 million and $219.7 million of interest
expense related to amounts borrowed from continuing operations in 1996,
1995 and 1994, respectively.
Valuation allowances amounted to $9.0 million and $19.2 million on
mortgage loans on real estate and $20.4 million and $77.9 million on
equity real estate at December 31, 1996 and 1995, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
and used. Writedowns of fixed maturities amounted to $1.6 million, $8.1
million and $17.8 million for 1996, 1995 and 1994, respectively and
writedowns of equity real estate subsequent to the adoption of SFAS No.
121 amounted to $12.3 million for 1996.
The fixed maturity portfolio, based on amortized cost, includes $6.2
million and $15.1 million at December 31, 1996 and 1995, respectively,
of restructured securities. These amounts include problem fixed
maturities of $.5 million and $6.1 million at December 31, 1996 and
1995, respectively.
At December 31, 1996 and 1995, problem mortgage loans on real estate had
amortized costs of $7.9 million and $35.4 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $208.1 million and $289.3 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Impaired mortgage loans with provision for losses....... $ 83.5 $ 105.1
Impaired mortgage loans with no provision for losses.... 15.0 18.2
---------------- -----------------
Recorded investment in impaired mortgages............... 98.5 123.3
Provision for losses.................................... 8.8 17.7
---------------- -----------------
Net Impaired Mortgage Loans............................. $ 89.7 $ 105.6
================ =================
</TABLE>
F-24
<PAGE>
During 1996 and 1995, the GIC Segment's average recorded investment in
impaired mortgage loans was $134.8 million and $177.4 million,
respectively. Interest income recognized on these impaired mortgage
loans totaled $10.1 million and $4.5 million for 1996 and 1995,
respectively, including $7.5 million and $.4 million recognized on a
cash basis.
At December 31, 1996 and 1995, the GIC Segment had $263.0 million and
$310.9 million, respectively, of real estate acquired in satisfaction of
debt.
8) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt.................................... $ 174.1 $ -
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005..... 399.4 399.3
7.70% surplus notes scheduled to mature 2015..... 199.6 199.6
Eurodollar notes, 10.5% due 1997................. - 76.2
Zero coupon note, 11.25% due 1997................ - 120.1
Other............................................ .5 16.3
----------------- -----------------
Total Equitable Life......................... 599.5 811.5
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 4.92% - 12.50% due through 2006.. 968.6 1,084.4
----------------- -----------------
Alliance:
Other............................................ 24.7 3.4
----------------- -----------------
Total long-term debt............................... 1,592.8 1,899.3
----------------- -----------------
Total Short-term and Long-term Debt................ $ 1,766.9 $ 1,899.3
================= =================
</TABLE>
Short-term Debt
---------------
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates. The interest rates are
based on external indices dependent on the type of borrowing and at
December 31, 1996 range from 5.73% (the London Interbank Offering Rate
("LIBOR") plus 22.5 basis points) to 8.25% (the prime rate). There were
no borrowings outstanding under this bank credit facility at December
31, 1996.
F-25
<PAGE>
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million five-year bank credit facility.
There were no borrowings outstanding under this program at December 31,
1996.
In February 1996, Alliance entered into a new $250.0 million five-year
revolving credit facility with a group of banks which replaced its
$100.0 million revolving credit facility and its $100.0 million
commercial paper back-up revolving credit facility. Under the new
revolving credit facility, the interest rate, at the option of Alliance,
is a floating rate generally based upon a defined prime rate, a rate
related to the LIBOR or the Federal Funds rate. A facility fee is
payable on the total facility. The revolving credit facility will be
used to provide back-up liquidity for commercial paper to be used under
Alliance's $100.0 million commercial paper program, to fund commission
payments to financial intermediaries for the sale of Class B and C
shares under Alliance's mutual fund distribution system, and for general
working capital purposes. As of December 31, 1996, Alliance had not
issued any commercial paper under its $100.0 million commercial paper
program and there were no borrowings outstanding under Alliance's
revolving credit facility.
At December 31, 1996, long-term debt expected to mature in 1997 totaling
$174.1 million was reclassified as short-term debt.
Long-term Debt
--------------
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
On December 18, 1995, Equitable Life issued, in accordance with Section
1307 of the New York Insurance Law, $400.0 million of surplus notes
having an interest rate of 6.95% scheduled to mature in 2005 and $200.0
million of surplus notes having an interest rate of 7.70% scheduled to
mature in 2015 (together, the "Surplus Notes"). Proceeds from the
issuance of the Surplus Notes were $596.6 million, net of related
issuance costs. The unamortized discount on the Surplus Notes was $1.0
million at December 31, 1996. Payments of interest on or principal of
the Surplus Notes are subject to prior approval by the Superintendent.
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $1,406.4 million and $1,629.7 million at December 31, 1996
and 1995, respectively, as collateral for certain long-term debt.
At December 31, 1996, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1997 and the succeeding
four years are $494.9 million, $316.7 million, $19.7 million, $5.4
million, $0 million, respectively, and $946.7 million thereafter.
9) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current............................... $ 97.9 $ (11.7) $ 4.0
Deferred.............................. (88.2) 132.2 96.2
----------------- ---------------- -----------------
Total................................... $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
F-26
<PAGE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Expected Federal income tax expense..... $ 73.0 $ 173.7 $ 154.5
Non-taxable minority interest........... (28.6) (22.0) (17.6)
Differential earnings amount............ - - (16.8)
Adjustment of tax audit reserves........ 6.9 4.1 (4.6)
Equity in unconsolidated subsidiaries... (32.3) (19.4) (12.5)
Other................................... (9.3) (15.9) (2.8)
----------------- ---------------- -----------------
Federal Income Tax Expense.............. $ 9.7 $ 120.5 $ 100.2
================= ================ =================
</TABLE>
Prior to the date of demutualization, Equitable Life reduced its
deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying
Equitable Life's average equity base, as determined for tax purposes, by
an estimate of the excess of an imputed earnings rate for stock life
insurance companies over the average mutual life insurance companies'
earnings rate. The differential earnings amount for each tax year was
subsequently recomputed when actual earnings rates were published by the
Internal Revenue Service. As a stock life insurance company, Equitable
Life no longer is required to reduce its policyholder dividend deduction
by the differential earnings amount, but differential earnings amounts
for pre-demutualization years were still being recomputed in 1994.
The components of the net deferred Federal income tax account are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
--------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
DAC, reserves and reinsurance.......... $ - $ 166.0 $ - $ 304.4
Investments............................ - 328.6 - 326.9
Compensation and related benefits...... 259.2 - 293.0 -
Other.................................. - 1.8 - 32.3
--------------- ---------------- --------------- ---------------
Total.................................. $ 259.2 $ 496.4 $ 293.0 $ 663.6
=============== ================ =============== ===============
</TABLE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
DAC, reserves and reinsurance......... $ (156.2) $ 63.3 $ 12.0
Investments........................... 78.6 13.0 89.3
Compensation and related benefits..... 22.3 30.8 10.0
Other................................. (32.9) 25.1 (15.1)
----------------- ---------------- -----------------
Deferred Federal Income Tax
(Benefit) Expense................... $ (88.2) $ 132.2 $ 96.2
================= ================ =================
</TABLE>
F-27
<PAGE>
The Internal Revenue Service is in the process of examining the Holding
Company's consolidated Federal income tax returns for the years 1989
through 1991. Management believes these audits will have no material
adverse effect on the Company's results of operations.
10) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums.................................... $ 461.4 $ 474.2 $ 476.7
Reinsurance assumed................................ 177.5 171.3 180.5
Reinsurance ceded.................................. (41.3) (38.7) (31.6)
----------------- ---------------- -----------------
Premiums........................................... $ 597.6 $ 606.8 $ 625.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 48.2 $ 44.0 $ 27.5
================= ================ =================
Policyholders' Benefits Ceded...................... $ 54.1 $ 48.9 $ 20.7
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 32.3 $ 28.5 $ 25.4
================= ================ =================
</TABLE>
Effective January 1, 1994, all in force business above $5.0 million was
reinsured. During 1996, the Company's retention limit on joint
survivorship policies was increased to $15.0 million. The Insurance
Group also reinsures the entire risk on certain substandard underwriting
risks as well as in certain other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $2.4 million,
$260.6 million and $241.0 million for 1996, 1995 and 1994, respectively.
Ceded death and disability benefits totaled $21.2 million, $188.1
million and $235.5 million for 1996, 1995 and 1994, respectively.
Insurance liabilities ceded totaled $652.4 million and $724.2 million at
December 31, 1996 and 1995, respectively.
11) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's and EREIM's benefits are based on a
cash balance formula or years of service and final average earnings, if
greater, under certain grandfathering rules in the plans. Alliance's
benefits are based on years of credited service, average final base
salary and primary social security benefits. The Company's funding
policy is to make the minimum contribution required by the Employee
Retirement Income Security Act of 1974.
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 33.8 $ 30.0 $ 30.3
Interest cost on projected benefit obligations..... 120.8 122.0 111.0
Actual return on assets............................ (181.4) (309.2) 24.4
Net amortization and deferrals..................... 43.4 155.6 (142.5)
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ 16.6 $ (1.6) $ 23.2
================= ================ =================
</TABLE>
F-28
<PAGE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of obligations:
Vested.................................................. $ 1,672.2 $ 1,642.4
Non-vested.............................................. 10.1 10.9
---------------- -----------------
Accumulated Benefit Obligation............................ $ 1,682.3 $ 1,653.3
================ =================
Plan assets at fair value................................. $ 1,626.0 $ 1,503.8
Projected benefit obligation.............................. 1,765.5 1,743.0
---------------- -----------------
Projected benefit obligation in excess of plan assets..... (139.5) (239.2)
Unrecognized prior service cost........................... (17.9) (25.5)
Unrecognized net loss from past experience different
from that assumed....................................... 280.0 368.2
Unrecognized net asset at transition...................... 4.7 (7.3)
Additional minimum liability.............................. (19.3) (51.9)
---------------- -----------------
Prepaid Pension Cost...................................... $ 108.0 $ 44.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.5% and 4.25%, respectively, at December 31, 1996 and
7.25% and 4.50%, respectively, at December 31, 1995. As of January 1,
1996 and 1995, the expected long-term rate of return on assets for the
retirement plan was 10.25% and 11%, respectively.
The Company recorded, as a reduction of shareholder's equity, an
additional minimum pension liability of $12.9 million and $35.1 million,
net of Federal income taxes, at December 31, 1996 and 1995,
respectively, representing the excess of the accumulated benefit
obligation over the fair value of plan assets and accrued pension
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of Group
Trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $34.7 million,
$36.4 million and $38.1 million for 1996, 1995 and 1994, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company on or after attaining age
55 who have at least 10 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1996, 1995 and 1994, the Company made
estimated postretirement benefits payments of $18.9 million, $31.1
million and $29.8 million, respectively.
F-29
<PAGE>
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost....................................... $ 5.3 $ 4.0 $ 3.9
Interest cost on accumulated postretirement
benefits obligation.............................. 34.6 34.7 28.6
Net amortization and deferrals..................... 2.4 (2.3) (3.9)
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 42.3 $ 36.4 $ 28.6
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees................................................ $ 381.8 $ 391.8
Fully eligible active plan participants................. 50.7 50.4
Other active plan participants.......................... 60.7 64.2
---------------- -----------------
493.2 506.4
Unrecognized prior service cost........................... 50.5 56.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions....... (150.5) (181.3)
---------------- -----------------
Accrued Postretirement Benefits Cost...................... $ 393.2 $ 381.4
================ =================
</TABLE>
At January 1, 1994, medical benefits available to retirees under age 65
are the same as those offered to active employees and medical benefits
will be limited to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 9.5% in 1996,
gradually declining to 3.5% in the year 2009 and in 1995 was 10%,
gradually declining to 3.5% in the year 2008. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.50%
and 7.25% at December 31, 1996 and 1995, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1996
would be increased 7%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 8%.
12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
-----------
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1996 was $649.9 million. The average unexpired terms at
December 31, 1996 range from 2.2 to 2.7 years. At December 31, 1996, the
cost of terminating outstanding matched swaps in a loss position was
$8.3 million and the unrealized gain on outstanding matched swaps in a
gain position was $11.4 million. The Company has no intention of
terminating these contracts prior to maturity. During 1996, 1995 and
1994, net gains (losses) of $.2 million, $1.4 million and $(.2) million,
respectively, were recorded in connection with
F-30
<PAGE>
interest rate swap activity. Equitable Life has implemented an interest
rate cap program designed to hedge crediting rates on interest-sensitive
individual annuities contracts. The outstanding notional amounts at
December 31, 1996 of contracts purchased and sold were $5,050.0 million
and $500.0 million, respectively. The net premium paid by Equitable Life
on these contracts was $22.5 million and is being amortized ratably over
the contract periods ranging from 3 to 5 years. Income and expense
resulting from this program are reflected as an adjustment to interest
credited to policyholders' account balances.
Substantially all of DLJ's business related to derivatives is by its
nature trading activities which are primarily for the purpose of
customer accommodations. DLJ's derivative activities consist primarily
of option writing and trading in forward and futures contracts.
Derivative financial instruments have both on-and-off balance sheet
implications depending on the nature of the contracts. DLJ's involvement
in swap contracts is not significant.
Fair Value of Financial Instruments
-----------------------------------
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of timing, amount of expected future cash flows and
the credit standing of counterparties. Such estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains
or losses. In many cases, the fair value estimates cannot be
substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1996 and 1995.
Fair value for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
The estimated fair values for the Company's liabilities under GIC and
association plan contracts are estimated using contractual cash flows
discounted based on the T. Rowe Price GIC Index Rate for the appropriate
duration. For durations in excess of the published index rate, the
appropriate Treasury rate is used plus a spread equal to the longest
duration GIC rate spread published.
The estimated fair values for those group annuity contracts which are
classified as universal life type contracts are measured at the
estimated fair value of the underlying assets. The estimated fair values
for single premium deferred annuities ("SPDA") are estimated using
projected cash flows discounted at current offering rates. The estimated
fair values for supplementary contracts not involving life contingencies
("SCNILC") and annuities certain are derived using discounted cash flows
based upon the estimated current offering rate.
Fair value for long-term debt is determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's fair value of short-term
borrowings approximates their carrying value.
F-31
<PAGE>
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 6 and 7:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... $ 3,133.0 $ 3,394.6 $ 3,638.3 $ 3,973.6
Other joint ventures................... 467.0 467.0 492.7 492.7
Policy loans........................... 2,196.1 2,221.6 1,976.4 2,057.5
Policyholders' account balances:
Association plans.................... 78.1 77.3 101.0 100.0
Group annuity contracts.............. 2,141.0 1,954.0 2,335.0 2,395.0
SPDA................................. 1,062.7 1,065.7 1,265.8 1,272.0
Annuities certain and SCNILC......... 654.9 736.2 646.4 716.7
Long-term debt......................... 1,592.8 1,557.7 1,899.3 1,962.9
Closed Block Financial Instruments:
-----------------------------------
Mortgage loans on real estate.......... 1,380.7 1,425.6 1,368.8 1,461.4
Other equity investments............... 105.0 105.0 151.6 151.6
Policy loans........................... 1,765.9 1,798.0 1,797.2 1,891.4
SCNILC liability....................... 30.6 34.9 34.8 39.6
GIC Segment Financial Instruments:
----------------------------------
Mortgage loans on real estate.......... 1,111.1 1,220.3 1,485.8 1,666.1
Fixed maturities....................... 42.5 42.5 107.4 107.4
Other equity investments............... 300.5 300.5 455.9 455.9
Guaranteed interest contracts.......... 290.7 300.5 329.0 352.0
Long-term debt......................... 102.1 102.2 135.1 136.0
</TABLE>
13) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $244.9 million to affiliated real estate
joint ventures; to provide equity financing to certain limited
partnerships of $205.8 million at December 31, 1996, under existing loan
or loan commitment agreements; and to provide short-term financing loans
which at December 31, 1996 totaled $14.6 million. Management believes
the Company will not incur any material losses as a result of these
commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
At December 31, 1996, the Insurance Group had $51.6 million of letters
of credit outstanding.
F-32
<PAGE>
14) LITIGATION
A number of lawsuits has been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
failure to properly supervise agents, and other matters. Some of the
lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. Equitable Life, EVLICO and The
Equitable of Colorado, Inc. ("EOC"), like other life and health
insurers, from time to time are involved in such litigation. To date, no
such lawsuit has resulted in an award or settlement of any material
amount against the Company. Among litigations pending against Equitable
Life, EVLICO and EOC of the type referred to in this paragraph are the
litigations described in the following eight paragraphs.
An action entitled Golomb et al. v. The Equitable Life Assurance Society
of the United States was filed on January 20, 1995 in New York County
Supreme Court. The action purports to be brought on behalf of a class of
persons insured after 1983 under Lifetime Guaranteed Renewable Major
Medical Insurance Policies issued by Equitable Life (the "policies").
The complaint alleges that premium increases for these policies after
1983, all of which were filed with and approved by the New York State
Insurance Department and certain other state insurance departments,
breached the terms of the policies, and that statements in the policies
and elsewhere concerning premium increases constituted fraudulent
concealment, misrepresentations in violation of New York Insurance Law
Section 4226 and deceptive practices under New York General Business Law
Section 349. The complaint seeks a declaratory judgment, injunctive
relief restricting the methods by which Equitable Life increases
premiums on the policies in the future, a refund of premiums, and
punitive damages. Plaintiffs also have indicated that they will seek
damages in an unspecified amount. Equitable Life moved to dismiss the
complaint in its entirety on the grounds that it fails to state a claim
and that uncontroverted documentary evidence establishes a complete
defense to the claims. On May 29, 1996, the New York County Supreme
Court entered a judgment dismissing the complaint with prejudice.
Plaintiffs have filed a notice of appeal of that judgment.
In January 1996, separate actions were filed in Pennsylvania and Texas
state courts (entitled, respectively, Malvin et al. v. The Equitable
Life Assurance Society of the United States and Bowler et al. v. The
Equitable Life Assurance Society of the United States), making claims
similar to those in the New York action described above. The Texas
action also claims that Equitable Life misrepresented to Texas
policyholders that the Texas Insurance Department had approved Equitable
Life's rate increases. These actions are asserted on behalf of proposed
classes of Pennsylvania issued or renewed policyholders and Texas issued
or renewed policyholders, insured under the policies. The Pennsylvania
and Texas actions seek compensatory and punitive damages and injunctive
relief restricting the methods by which Equitable Life increases
premiums in the future based on the common law and statutes of those
states. On February 9, 1996, Equitable Life removed the Pennsylvania
action, Malvin, to the United States District Court for the Middle
District of Pennsylvania. Following the decision granting Equitable
Life's motion to dismiss the New York action (Golomb), on the consent of
the parties the District Court ordered an indefinite stay of all
proceedings in the Pennsylvania action, pending either party's right to
reinstate the proceeding, and ordered that for administrative purposes
the case be deemed administratively closed. On February 2, 1996,
Equitable Life removed the Texas action, Bowler, to the United States
District Court for the Northern District of Texas. On May 20, 1996, the
plaintiffs in Bowler amended their complaint by adding allegations of
misrepresentation regarding premium increases on other types of
guaranteed renewable major medical insurance policies issued by
Equitable Life up to and including 1983. On July 1, 1996, Equitable Life
filed a motion for summary judgment dismissing the first amended
complaint in its entirety. In August, 1996, the court granted plaintiffs
leave to file a supplemental complaint on behalf of a proposed class of
Texas policyholders claiming unfair discrimination, breach of contract
and other claims arising out of alleged differences between premiums
charged to Texas policyholders and premiums charged to similarly
situated policyholders in New York and certain other states. Plaintiffs
seek refunds of alleged overcharges, exemplary or additional damages
citing
F-33
<PAGE>
Texas statutory provisions which among other things, permit two times
the amount of actual damage plus additional penalties if the acts
complained of are found to be knowingly committed, and injunctive
relief. Equitable Life has also filed a motion for summary judgment
dismissing the supplemental complaint in its entirety. Plaintiffs also
obtained permission to add another plaintiff to the first amended and
supplemental complaints. Plaintiffs have opposed both motions for
summary judgment and requested that certain issues be found in their
favor. Equitable Life is in the process of replying.
On May 22, 1996, a separate action entitled Bachman v. The Equitable
Life Assurance Society of the United States, was filed in Florida state
court making claims similar to those in the previously reported Golomb
action. The Florida action is asserted on behalf of a proposed class of
Florida issued or renewed policyholders insured after 1983 under
Lifetime Guaranteed Renewable Major Medical Insurance Policies issued by
Equitable Life. The Florida action seeks compensatory and punitive
damages and injunctive relief restricting the methods by which Equitable
Life increases premiums in the future based on various common law
claims. On June 20, 1996, Equitable Life removed the Florida action to
Federal court. Equitable Life has answered the complaint, denying the
material allegations and asserting certain affirmative defenses. On
December 6, 1996, Equitable Life filed a motion for summary judgment and
plaintiff is expected to file its response to that motion shortly.
On November 6, 1996, a proposed class action entitled Fletcher, et al.
v. The Equitable Life Assurance Society of the United States, was filed
in California Superior Court for Fresno County, making substantially the
same allegations concerning premium rates and premium rate increases on
guaranteed renewable policies made in the Bowler action. The complaint
alleges, among other things, that differentials between rates charged
California policyholders and policyholders in New York and certain other
states, and the methods used by Equitable Life to calculate premium
increases, breached the terms of its policies, that Equitable Life
misrepresented and concealed the facts pertaining to such differentials
and methods in violation of California law, and that Equitable Life also
misrepresented that its rate increases were approved by the California
Insurance Department. Plaintiffs seek compensatory damages in an
unspecified amount, rescission, injunctive relief and attorneys' fees.
Equitable Life removed the action to Federal court; plaintiff has moved
to remand the case to state court. Although the outcome of any
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Golomb, Malvin, Bowler, Bachman and Fletcher
litigations should not have a material adverse effect on the financial
position of the Company. Due to the early stage of such litigations, the
Company's management cannot make an estimate of loss, if any, or predict
whether or not such litigations will have a material adverse effect on
the Company's results of operations in any particular period.
An action was instituted on April 6, 1995 against Equitable Life and its
wholly owned subsidiary, EOC, in New York state court, entitled Sidney
C. Cole et al. v. The Equitable Life Assurance Society of the United
States and The Equitable of Colorado, Inc., No. 95/108611 (N. Y.
County). The action is brought by the holders of a joint survivorship
whole life policy issued by EOC. The action purports to be on behalf of
a class consisting of all persons who from January 1, 1984 purchased
life insurance policies sold by Equitable Life and EOC based upon their
allegedly uniform sales presentations and policy illustrations. The
complaint puts in issue various alleged sales practices that plaintiffs
assert, among other things, misrepresented the stated number of years
that the annual premium would need to be paid. Plaintiffs seek damages
in an unspecified amount, imposition of a constructive trust, and seek
to enjoin Equitable Life and EOC from engaging in the challenged sales
practices. On June 28, 1996, the court issued a decision and order
dismissing with prejudice plaintiff's causes of action for fraud,
constructive fraud, breach of fiduciary duty, negligence, and unjust
enrichment, and dismissing without prejudice plaintiff's cause of action
under the New York State consumer protection statute. The only remaining
causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs made a motion for reargument with respect
to this order, which was submitted to the court in October 1996. This
motion was denied by the court on December 16, 1996.
F-34
<PAGE>
On May 21, 1996, an action entitled Elton F. Duncan, III v. The
Equitable Life Assurance Society of the United States, was commenced
against Equitable Life in the Civil District Court for the Parish of
Orleans, State of Louisiana. The action is brought by an individual who
purchased a whole life policy. Plaintiff alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff purports to represent a class consisting of all persons
who purchased whole life or universal life insurance policies from
Equitable Life from January 1, 1982 to the present. Plaintiff seeks
damages, including punitive damages, in an unspecified amount. On July
26, 1996, an action entitled Michael Bradley v. Equitable Variable Life
Insurance Company, was commenced in New York state court. The action is
brought by the holder of a variable life insurance policy issued by
EVLICO. The plaintiff purports to represent a class consisting of all
persons or entities who purchased one or more life insurance policies
issued by EVLICO from January 1, 1980. The complaint puts at issue
various alleged sales practices and alleges misrepresentations
concerning the extent to which the policy was a proper replacement
policy and the number of years that the annual premium would need to be
paid. Plaintiff seeks damages, including punitive damages, in an
unspecified amount and also seeks injunctive relief prohibiting EVLICO
from canceling policies for failure to make premium payments beyond the
alleged stated number of years that the annual premium would need to be
paid. On September 21, 1996 Equitable Life, EVLICO and EOC made a motion
to have this proceeding moved from Kings County Supreme Court to New
York County for joint trial or consolidation with the Cole action. The
motion was denied by the court on January 9, 1997. On January 10, 1997,
plaintiffs moved for certification of a nationwide class consisting of
all persons or entities who were sold one or more life insurance
products on a "vanishing premium" basis and/or were allegedly induced to
purchase additional policies from EVLICO, using the cash value
accumulated in existing policies, from January 1, 1980 through and
including December 31, 1996. Plaintiffs further moved to have Michael
Bradley designated as the class representative. Discovery regarding
class certification is underway.
On December 12, 1996, an action entitled Robert E. Dillon v. The
Equitable Life Assurance Society of the United States and The Equitable
of Colorado, was commenced in the United States District Court for the
Southern District of Florida. The action is brought by an individual who
purchased a joint whole life policy from EOC. The complaint puts at
issue various alleged sales practices and alleges misrepresentations
concerning the alleged impropriety of replacement policies issued by
Equitable Life and EOC and alleged misrepresentations regarding the
number of years premiums would have to be paid on the defendants'
policies. Plaintiff brings claims for breach of contract, fraud,
negligent misrepresentation, money had and received, unjust enrichment
and imposition of a constructive trust. Plaintiff purports to represent
two classes of persons. The first is a "contract class," consisting of
all persons who purchased whole or universal life insurance policies
from Equitable Life and EOC and from whom Equitable Life and EOC have
sought additional payments beyond the number of years allegedly promised
by Equitable Life and EOC. The second is a "fraud class," consisting of
all persons with an interest in policies issued by Equitable Life and
EOC at any time since October 1, 1986. Plaintiff seeks damages in an
unspecified amount, and also seeks injunctive relief attaching Equitable
Life's and EOC's profits from their alleged sales practices. Equitable
Life's and EOC's time to answer or move with respect to the complaint
has been extended until February 24, 1997. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, the Company's management believes that the ultimate
resolution of the Cole, Duncan, Bradley and Dillon litigations should
not have a material adverse effect on the financial position of the
Company. Due to the early stages of such litigations, the Company's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on the
Company's results of operations in any particular period.
On January 3, 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company, No.
94-2036 in the United States District Court for the Southern District of
Florida. The action was brought by two individuals who purchased
variable life insurance policies. The plaintiffs purport to represent a
nationwide class consisting of all persons who purchased variable life
insurance policies from Equitable Life and EVLICO since September 30,
1991. The basic allegation of the amended complaint is that Equitable
Life's and EVLICO's agents were trained not to
F-35
<PAGE>
disclose fully that the product being sold was life insurance.
Plaintiffs allege violations of the Federal securities laws and seek
rescission of the contracts or compensatory damages and attorneys' fees
and expenses. The court denied Equitable Life and EVLICO's motion to
dismiss the amended complaint on September 24, 1996. Equitable Life and
EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. Currently, the
parties are conducting discovery in connection with plaintiffs' attempt
to certify a class. On January 9, 1997, an action entitled Rosemarie
Chaviano, individually and on behalf of all others similarly situated v.
The Equitable Life Assurance Society of the United States, and Equitable
Variable Life Insurance Company, was filed in Massachusetts state court
making claims similar to those in the Franze action and alleging
violations of the Massachusetts securities laws. The plaintiff purports
to represent all persons in Massachusetts who purchased variable life
insurance contracts from Equitable Life and EVLICO from January 9, 1993
to the present. The Massachusetts action seeks rescission of the
contracts or compensatory damages, attorneys' fees, expenses and
injunctive relief. Although the outcome of any litigation cannot be
predicted with certainty, particularly in the early stages of an action,
the Company's management believes that the ultimate resolution of the
litigations discussed in this paragraph should not have a material
adverse effect on the financial position of the Company. Due to the
early stages of such litigation, the Company's management cannot make an
estimate of loss, if any, or predict whether or not any such litigation
will have a material adverse effect on the Company's results of
operations in any particular period.
Equitable Life recently responded to a subpoena from the U.S. Department
of Labor ("DOL") requesting copies of any third-party appraisals in
Equitable Life's possession relating to the ten largest properties (by
value) in the Prime Property Fund ("PPF"). PPF is an open-end,
commingled real estate separate account of Equitable Life for pension
clients. Equitable Life serves as investment manager in PPF and has
retained EREIM as advisor. In early 1995, the DOL commenced a national
investigation of commingled real estate funds with pension investors,
including PPF. The investigation now appears to be focused principally
on appraisal and valuation procedures in respect of fund properties. The
most recent request from the DOL seems to reflect, at least in part, an
interest in the relationship between the valuations for those properties
reflected in appraisals prepared for local property tax proceedings and
the valuations used by PPF for other purposes. At no time has the DOL
made any specific allegation that Equitable Life or EREIM has acted
improperly and Equitable Life and EREIM believe that any such allegation
would be without foundation. While the outcome of this investigation
cannot be predicted with certainty, in the opinion of management, the
ultimate resolution of this matter should not have a material adverse
effect on the Company's consolidated financial position or results of
operations in any particular period.
Equitable Casualty Insurance Company ("Casualty"), an indirect wholly
owned subsidiary of Equitable Life, is party to an arbitration
proceeding that commenced in August 1995. The proceeding relates to a
dispute among Casualty, Houston General Insurance Company ("Houston
General") and GEICO General Insurance Company ("GEICO General")
regarding the interpretation of a reinsurance agreement. The arbitration
panel issued a final award in favor of Casualty and GEICO General on
June 17, 1996. Casualty and GEICO General moved in the pending Texas
state court action, with Houston General's consent, for an order
confirming the arbitration award and entering judgment dismissing the
action. The motion was granted on January 29, 1997. The parties have
also stipulated to the dismissal without prejudice of a related Texas
Federal court action brought by Houston General against GEICO General
and Equitable Life. In connection with confirmation of the arbitration
award, Houston General paid to Casualty approximately $839,600 in
settlement of certain reimbursement claims by Casualty against Houston
General.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance and certain other defendants
affiliated with Alliance, including the Holding Company, alleging
violations of Federal securities laws, fraud and breach of fiduciary
duty in connection with the Fund's investments in Mexican and Argentine
securities. The Complaint, which seeks certification of a plaintiff
class of persons who purchased or owned Class A, B or C shares of the
Fund from March 27, 1992 through December 23, 1994, seeks an unspecified
amount of damages, costs, attorneys' fees and punitive damages. The
principal allegations of the Complaint are that the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts
that
F-36
<PAGE>
were not permitted by the Fund's investment objective, and that there
was no shareholder vote to change the investment objective to permit
purchases in such amounts. The Complaint further alleges that the
decline in the value of the Mexican and Argentine securities held by the
Fund caused the Fund's net asset value to decline to the detriment of
the Fund's shareholders. On September 26, 1996, the United States
District Court for the Southern District of New York granted the
defendants' motion to dismiss all counts of the complaint. On October
11, 1996, plaintiffs filed a motion for reconsideration of the court's
decision granting defendants' motion to dismiss the Complaint. On
November 25, 1996, the court denied plaintiffs' motion for
reconsideration. On October 29, 1996, plaintiffs filed a motion for
leave to file an amended complaint. The principal allegations of the
proposed amended complaint are that the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
that two advertisements used by the Fund misrepresented the risks of
investing in the Fund. Plaintiffs also reiterated allegations in the
Complaint that the Fund failed to hedge against the risks of investing
in foreign securities despite representations that it would do so.
Alliance believes that the allegations in the Complaint are without
merit and intends to vigorously defend against these claims. While the
ultimate outcome of this matter cannot be determined at this time,
management of Alliance does not expect that it will have a material
adverse effect on Alliance's results of operations or financial
condition.
On January 26, 1996, a purported purchaser of certain notes and warrants
to purchase shares of common stock of Rickel Home Centers, Inc.
("Rickel") filed a class action complaint against Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJSC") and certain other defendants
for unspecified compensatory and punitive damages in the United States
District Court for the Southern District of New York. The suit was
brought on behalf of the purchasers of 126,457 units consisting of
$126,457,000 aggregate principal amount of 13 1/2% senior notes due 2001
and 126,457 warrants to purchase shares of common stock of Rickel issued
by Rickel in October 1994. The complaint alleges violations of Federal
securities laws and common law fraud against DLJSC, as the underwriter
of the units and as an owner of 7.3% of the common stock of Rickel, Eos
Partners, L.P., and General Electric Capital Corporation, each as owners
of 44.2% of the common stock of Rickel, and members of the Board of
Directors of Rickel, including a DLJSC Managing Director. The complaint
seeks to hold DLJSC liable for alleged misstatements and omissions
contained in the prospectus and registration statement filed in
connection with the offering of the units, alleging that the defendants
knew of financial losses and a decline in value of Rickel in the months
prior to the offering and did not disclose such information. The
complaint also alleges that Rickel failed to pay its semi-annual
interest payment due on the units on December 15, 1995 and that Rickel
filed a voluntary petition for reorganization pursuant to Chapter 11 of
the United States Bankruptcy Code on January 10, 1996. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe the
outcome of this litigation will have a material adverse effect on its
financial condition. Due to the early stage of this litigation, based on
the information currently available to it, DLJ's management cannot make
an estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in
any particular period.
In October 1995, DLJSC was named as a defendant in a purported class
action filed in a Texas State Court on behalf of the holders of $550.0
million principal amount of subordinated redeemable discount debentures
of National Gypsum Corporation ("NGC") canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
named plaintiff in the State Court action also filed an adversary
proceeding in the Bankruptcy Court for the Northern District of Texas
seeking a declaratory judgment that the confirmed NGC plan of
reorganization does not bar the class action claims. Subsequent to the
consummation of NGC's plan of reorganization, NGC's shares traded for
values substantially in excess of, and in 1995 NGC was acquired for a
value substantially in excess of, the values upon which NGC's plan of
reorganization was based. The two actions arise out of DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
reorganization proceedings. The class action complaint alleges that the
plan of reorganization submitted by NGC was based upon projections by
NGC and DLJSC which intentionally understated forecasts, and provided
misleading and incorrect information in order to hide NGC's true value
and that defendants breached their fiduciary duties by, among other
things, providing false, misleading or incomplete information to
deliberately understate the value of NGC. The class action complaint
seeks compensatory and punitive damages purportedly sustained by the
class. The Texas State Court action, which
F-37
<PAGE>
had been removed to the Bankruptcy Court, has been remanded back to the
state court, which remand is being opposed by DLJSC. DLJSC intends to
defend itself vigorously against all of the allegations contained in the
complaint. Although there can be no assurance, DLJ does not believe that
the ultimate outcome of this litigation will have a material adverse
effect on its financial condition. Due to the early stage of such
litigation, based upon the information currently available to it, DLJ's
management cannot make an estimate of loss, if any, or predict whether
or not such litigation will have a material adverse effect on DLJ's
results of operations in any particular period.
In November and December 1995, DLJSC, along with various other parties,
was named as a defendant in a number of purported class actions filed in
the U.S. District Court for the Eastern District of Louisiana. The
complaints allege violations of the Federal securities laws arising out
of a public offering in 1994 of $435.0 million of first mortgage notes
of Harrah's Jazz Company and Harrah's Jazz Finance Corp. The complaints
seek to hold DLJSC liable for various alleged misstatements and
omissions contained in the prospectus dated November 9, 1994. DLJSC
intends to defend itself vigorously against all of the allegations
contained in the complaints. Although there can be no assurance, DLJ
does not believe that the ultimate outcome of this litigation will have
a material adverse effect on its financial condition. Due to the early
stage of this litigation, based upon the information currently available
to it, DLJ's management cannot make an estimate of loss, if any, or
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
In addition to the matters described above, Equitable Life and its
subsidiaries and DLJ and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of the
actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot
be predicted with certainty, in the opinion of management no such matter
is likely to have a material adverse effect on the Company's
consolidated financial position or results of operations.
15) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1997 and the succeeding four years are $113.7 million, $110.6
million, $100.3 million, $72.3 million, $59.3 million and $427.3 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1997 and the succeeding four years are $9.8 million, $6.0
million, $4.5 million, $2.4 million, $.8 million and $.1 million
thereafter.
At December 31, 1996, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1997
and the succeeding four years are $263.0 million, $242.1 million, $219.8
million, $194.3 million, $174.6 million and $847.1 million thereafter.
F-38
<PAGE>
16) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Compensation costs................................. $ 647.3 $ 595.9 $ 687.5
Commissions........................................ 329.5 314.3 313.0
Short-term debt interest expense................... 8.0 11.4 19.0
Long-term debt interest expense.................... 137.3 108.1 98.3
Amortization of policy acquisition costs........... 405.2 317.8 313.4
Capitalization of policy acquisition costs......... (391.9) (391.0) (410.9)
Rent expense, net of sub-lease income.............. 113.7 109.3 116.0
Other.............................................. 798.9 710.0 721.4
----------------- ---------------- -----------------
Total.............................................. $ 2,048.0 $ 1,775.8 $ 1,857.7
================= ================ =================
</TABLE>
During 1996, 1995 and 1994, the Company restructured certain operations
in connection with cost reduction programs and recorded pre-tax
provisions of $24.4 million, $32.0 million and $20.4 million,
respectively. The amounts paid during 1996, associated with cost
reduction programs, totaled $17.7 million. At December 31, 1996, the
liabilities associated with cost reduction programs amounted to $44.5
million. The 1996 cost reduction program included restructuring costs
related to the consolidation of insurance operations' service centers.
The 1995 cost reduction program included relocation expenses, including
the accelerated amortization of building improvements associated with
the relocation of the home office. The 1994 cost reduction program
included costs associated with the termination of operating leases and
employee severance benefits in connection with the consolidation of 16
insurance agencies. Amortization of DAC included $145.0 million writeoff
of DAC related to DI contracts in the fourth quarter of 1996.
17) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financia1
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1996, 1995 and 1994, statutory net
(loss) earnings totaled $(351.1) million, $(352.4) million and $67.5
million, respectively. No amounts are expected to be available for
dividends from Equitable Life to the Holding Company in 1997.
At December 31, 1996, the Insurance Group, in accordance with various
government and state regulations, had $21.9 million of securities
deposited with such government or state agencies.
F-39
<PAGE>
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The New York Insurance Department (the
"Department") recognizes only statutory accounting practices for
determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under
the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the Department to financial statements
prepared in accordance with GAAP in making such determinations. The
following reconciles the Company's statutory change in surplus and
capital stock and statutory surplus and capital stock determined in
accordance with accounting practices prescribed by the Department with
net earnings and equity on a GAAP basis.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Net change in statutory surplus and capital stock.. $ 56.0 $ 78.1 $ 292.4
Change in asset valuation reserves................. (48.4) 365.7 (285.2)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... 7.6 443.8 7.2
Adjustments:
Future policy benefits and policyholders'
account balances............................... (298.5) (66.0) (5.3)
DAC.............................................. (13.3) 73.2 97.5
Deferred Federal income taxes.................... 108.0 (158.1) (58.7)
Valuation of investments......................... 289.8 189.1 45.2
Valuation of investment subsidiary............... (117.7) (188.6) 396.6
Limited risk reinsurance......................... 92.5 416.9 74.9
Contribution from the Holding Company............ - - (300.0)
Issuance of surplus notes........................ - (538.9) -
Postretirement benefits.......................... 28.9 (26.7) 17.1
Other, net....................................... 12.4 115.1 (44.0)
GAAP adjustments of Closed Block................. (9.8) 15.7 (9.5)
GAAP adjustments of discontinued GIC
Segment........................................ (89.6) 37.3 42.8
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 10.3 $ 312.8 $ 263.8
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory surplus and capital stock................ $ 2,258.9 $ 2,202.9 $ 2,124.8
Asset valuation reserves........................... 1,297.5 1,345.9 980.2
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 3,556.4 3,548.8 3,105.0
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,305.0) (1,006.5) (940.5)
DAC.............................................. 3,104.9 3,075.8 3,219.4
Deferred Federal income taxes.................... (306.1) (452.0) (29.4)
Valuation of investments......................... 286.8 417.7 (794.1)
Valuation of investment subsidiary............... (782.8) (665.1) (476.5)
Limited risk reinsurance......................... (336.5) (429.0) (845.9)
Issuance of surplus notes........................ (539.0) (538.9) -
Postretirement benefits.......................... (314.4) (343.3) (316.6)
Other, net....................................... 126.3 4.4 (79.2)
GAAP adjustments of Closed Block................. 783.7 830.8 740.4
GAAP adjustments of discontinued GIC
Segment........................................ (190.3) (184.6) (221.9)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 4,084.0 $ 4,258.1 $ 3,360.7
================= ================ =================
</TABLE>
F-40
<PAGE>
18) BUSINESS SEGMENT INFORMATION
The Company has two major business segments: Insurance Operations and
Investment Services. Interest expense related to debt not specific to
either business segment is presented as Corporate interest expense.
Information for all periods is presented on a comparable basis.
The Insurance Operations segment offers a variety of traditional,
variable and interest-sensitive life insurance products, disability
income, annuity products, mutual fund and other investment products to
individuals and small groups and administers traditional participating
group annuity contracts with conversion features, generally for
corporate qualified pension plans, and association plans which provide
full service retirement programs for individuals affiliated with
professional and trade associations. This segment includes Separate
Accounts for individual insurance and annuity products.
The Investment Services segment provides investment fund management,
primarily to institutional clients. This segment includes the Company's
equity interest in DLJ and Separate Accounts which provide various
investment options for group clients through pooled or single group
accounts.
Intersegment investment advisory and other fees of approximately $127.5
million, $124.1 million and $135.3 million for 1996, 1995 and 1994,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to the discontinued GIC
Segment of $15.7 million, $14.7 million and $27.4 million for 1996, 1995
and 1994, respectively, are eliminated in consolidation.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Insurance operations............................... $ 3,742.9 $ 3,614.6 $ 3,507.4
Investment services................................ 1,126.1 949.1 935.2
Consolidation/elimination.......................... (24.5) (34.9) (27.2)
----------------- ---------------- -----------------
Total.............................................. $ 4,844.5 $ 4,528.8 $ 4,415.4
================= ================ =================
Earnings (loss) from continuing operations
before Federal income taxes, minority interest
and cumulative effect of accounting change
Insurance operations............................... $ (36.6) $ 303.1 $ 327.5
Investment services................................ 311.9 224.0 227.9
Consolidation/elimination.......................... .2 (3.1) .3
----------------- ---------------- -----------------
Subtotal..................................... 275.5 524.0 555.7
Corporate interest expense......................... (66.9) (27.9) (114.2)
----------------- ---------------- -----------------
Total.............................................. $ 208.6 $ 496.1 $ 441.5
================= ================ =================
</TABLE>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
Assets
Insurance operations........... $ 60,464.9 $ 56,720.5
Investment services............ 13,542.5 12,842.9
Consolidation/elimination...... (399.6) (354.4)
---------------- -----------------
Total.......................... $ 73,607.8 $ 69,209.0
================ =================
F-41
<PAGE>
19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1996 and 1995, are summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------- ----------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996
----
Total Revenues................ $ 1,169.7 $ 1,193.6 $ 1,193.6 $ 1,287.6
================= ================= ================== ==================
Earnings (Loss) from
Continuing Operations
before Cumulative Effect
of Accounting Change........ $ 94.8 $ 87.1 $ 93.2 $ (157.9)
================= ================= ================== ==================
Net Earnings (Loss)........... $ 71.7 $ 87.1 $ 93.2 $ (241.7)
================= ================= ================== ==================
1995
----
Total Revenues................ $ 1,079.1 $ 1,164.0 $ 1,138.8 $ 1,146.9
================= ================= ================== ==================
Net Earnings.................. $ 66.3 $ 101.7 $ 100.2 $ 44.6
================= ================= ================== ==================
</TABLE>
The quarterly results of operations for 1996 and 1995 have been restated
to reflect the Company's accounting change adopted in the fourth quarter
of 1996 for long-duration participating life contracts in accordance
with the provisions prescribed by SFAS No. 120. Net earnings for the
three months ended December 31, 1996 includes a charge of $339.3 million
related to writeoffs of DAC on DI contracts of $94.3 million, reserve
strengthening on DI business of $113.7 million, pension par of $47.5
million and the discontinued GIC Segment of $83.8 million.
20) INVESTMENT IN DLJ
On December 15, 1993, the Company sold a 61% interest in DLJ to the
Holding Company for $800.0 million in cash and securities. The excess of
the proceeds over the book value in DLJ at the date of sale of $340.2
million has been reflected as a capital contribution. In 1995, DLJ
completed the initial public offering ("IPO") of 10.58 million shares of
its common stock, which included 7.28 million of the Holding Company's
shares in DLJ, priced at $27 per share. Concurrent with the IPO, the
Company contributed equity securities to DLJ having a market value of
$21.2 million. Upon completion of the IPO, the Company's ownership
percentage was reduced to 36.1%. The Company's ownership interest will
be further reduced upon the issuance of common stock after the vesting
of forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
F-42
<PAGE>
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 15,728.1 $ 10,821.3
Securities purchased under resale agreements........................... 20,598.7 18,748.2
Broker-dealer related receivables...................................... 16,525.9 13,023.7
Other assets........................................................... 2,651.0 1,983.3
---------------- -----------------
Total Assets........................................................... $ 55,503.7 $ 44,576.5
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 29,378.3 $ 26,744.8
Broker-dealer related payables......................................... 19,409.7 12,915.5
Short-term and long-term debt.......................................... 2,704.5 1,742.0
Other liabilities...................................................... 2,164.0 1,750.5
---------------- -----------------
Total liabilities...................................................... 53,656.5 43,152.8
Cumulative exchangeable preferred stock................................ - 225.0
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 -
Total shareholders' equity............................................. 1,647.2 1,198.7
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 55,503.7 $ 44,576.5
================ =================
DLJ's equity as reported............................................... $ 1,647.2 $ 1,198.7
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.9 40.5
The Holding Company's equity ownership in DLJ.......................... (590.2) (499.0)
Minority interest in DLJ............................................... (588.6) (324.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 492.3 $ 415.9
================ =================
</TABLE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Commission, fees and other income...................................... $ 1,818.2 $ 1,325.9
Net investment income.................................................. 1,074.2 904.1
Dealer, trading and investment gains, net.............................. 598.4 528.6
---------------- -----------------
Total revenues......................................................... 3,490.8 2,758.6
Total expenses including income taxes.................................. 3,199.5 2,579.5
---------------- -----------------
Net earnings........................................................... 291.3 179.1
Dividends on preferred stock........................................... 18.7 19.9
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 272.6 $ 159.2
================ =================
DLJ's earnings applicable to common shares as reported................. $ 272.6 $ 159.2
Amortization of cost in excess of net assets acquired in 1985.......... (3.1) (3.9)
The Holding Company's equity in DLJ's earnings......................... (107.8) (90.4)
Minority interest in DLJ............................................... (73.4) (6.5)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 88.3 $ 58.4
================ =================
</TABLE>
F-43
<PAGE>
21) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company elected to continue to account
for stock-based compensation using the intrinsic value method prescribed
in APB Opinion No. 25. Had compensation expense of the Company's stock
option incentive plans for options granted after December 31, 1994 been
determined based on the estimated fair value at the grant dates for
awards under those plans, the Company's pro forma net earnings for 1996
and 1995 would have been as follows:
1996 1995
--------------- ---------------
(IN MILLIONS)
Net Earnings
As Reported......... $ 10.3 $ 312.8
Pro Forma........... $ 3.2 $ 311.3
The fair value of options and units granted after December 31, 1994,
used as a basis for the above pro forma disclosures, was estimated as of
the date of grants using Black-Scholes option pricing models. The option
and unit pricing assumptions for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
------------------------- -------------------------- -----------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield........... 0.80% 0.96% 1.54% 1.85% 8.0% 8.0%
Expected volatility...... 20.00% 20.00% 25.00% 25.00% 23.00% 23.00%
Risk-free interest rate.. 5.92% 6.83% 6.07% 5.86% 5.80% 6.00%
Expected Life............ 5 YEARS 5 years 5 YEARS 5 years 7.43 YEARS 7.43 years
Weighted fair value
per option granted..... $6.94 $5.90 $9.35 - $2.69 $2.24
</TABLE>
F-44
<PAGE>
A summary of the Holding Company and DLJ stock option plans and
Alliance's Unit option plans are as follows:
<TABLE>
<CAPTION>
HOLDING COMPANY DLJ ALLIANCE
----------------------------- ----------------------------- -----------------------------
Options Options Options
Outstanding Outstanding Outstanding
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Units Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994........ 6.1 - 3.2
Granted................ .7 - 1.2
Exercised.............. - - (.5)
Forfeited.............. - - (.1)
------------- ------------- -------------
Balance as of
December 31, 1994...... 6.8 - 3.8
Granted................ .4 9.2 1.8
Exercised.............. (.1) - (.5)
Expired................ (.1) - -
Forfeited.............. (.3) - (.3)
------------- ------------- -------------
Balance as of
December 31, 1995...... 6.7 $20.27 9.2 $27.00 4.8 $17.72
Granted................ .7 $24.94 2.1 $32.54 .7 $25.12
Exercised.............. (.1) $19.91 - - (.4) $13.64
Expired................ (.6) $20.21 - - - -
Forfeited.............. - - (.2) $27.00 (.1) $19.32
------------- ------------- -------------
Balance as of
December 31, 1996...... 6.7 $20.79 11.1 $28.06 5.0 $19.07
============= ============= ============= ============= ============= =============
</TABLE>
F-45
<PAGE>
Information with respect to stock and unit options outstanding and
exercisable at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------- ----------------- --------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Holding
Company
---------------------
$18.125-$27.75 6.7 7.00 $20.79 3.4 $20.18
================= =============== ================= =================== ================
DLJ
---------------------
$27.00-$33.50 11.1 9.00 $28.06 - -
================= =============== ================= =================== ================
Alliance
---------------------
$ 6.0625-$15.9375 1.3 4.76 $12.97 1.2 $12.58
$16.3125-$19.75 1.1 8.19 $19.13 .2 $18.69
$19.875 -$19.875 1.0 7.36 $19.88 .4 $19.88
$20.75 -$24.375 .9 8.46 $22.05 .3 $21.84
$24.375 -$25.125 .7 9.96 $25.13 - -
----------------- -------------------
$ 6.0625-$25.125 5.0 7.43 $19.07 2.1 $15.84
================= =============== ================= =================== ================
</TABLE>
22) SUBSEQUENT EVENTS (UNAUDITED)
On June 10, 1997, Equitable Life sold EREIM (other than EQ Services,
Inc. and its interest in Column Financial, Inc.) 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. The
Company recognized an investment gain of $162.4 million, net of Federal
income tax of $87.4 million as a result of this transaction. Equitable
Life entered into long-term advisory agreements pursuant to which EREIM
will continue to provide to Equitable Life's General Account and
Separate Accounts substantially the same services, for substantially the
same fees, as provided prior to the sale.
The businesses sold reported combined revenues of $226.1 million and
combined net earnings of $30.7 million in 1996. Total combined assets
and liabilities as reported at December 31, 1996 were $171.8 million and
$130.1 million, respectively.
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 the six months ended June 30, 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.
F-46
<PAGE>
SUPPLEMENT DATED DECEMBER 31, 1997 TO
INCOME MANAGER(R) ROLLOVER IRA AND CHOICE INCOME PLAN
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997
This supplement dated December 31, 1997, updates certain information in the
Rollover IRA and Choice Income Plan statement of additional information (SAI)
dated May 1, 1997, of The Equitable Life Assurance Society of the United States
(EQUITABLE LIFE). You should read this supplement in conjunction with the SAI.
You should keep the supplement and the SAI for future reference. If you have
previously received, but do not presently have, a copy of the SAI, you may
obtain an additional copy from us, free of charge, if you write to Equitable
Life, Income Management Group, P.O. Box 1547, Secaucus, NJ 07096-1547, call
(800) 789-7771 or if you mail in the SAI request form located at the end of the
prospectus supplement dated December 31, 1997 to the Income Manager Rollover IRA
and Choice Income Plan prospectus.
ON PAGE 1, REPLACE THE INVESTMENT FUNDS CHART WITH THE FOLLOWING CHART:
<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 Morgan Stanley Emerging Markets MFS Emerging Growth Companies
Value Equity Warburg Pincus Small Company
MFS Research T. Rowe Price International Stock Value
Merrill Lynch Basic Value Equity
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
-------------------------------------------------------------------------------------------------------------
</TABLE>
ON PAGE 2 THE "PART 1 - MINIMUM DISTRIBUTION WITHDRAWALS" SECTION IS APPLICABLE
ONLY FOR TRADITIONAL IRAS.
ON PAGE 2 UNDER "PART 3 - ANNUITY UNIT VALUES" REPLACE THE FIRST SENTENCE OF THE
FIRST PARAGRAPH WITH THE FOLLOWING SENTENCE:
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 based rates of
net investment return of both 5% and 3 1/2% a year.
- --------------------------------------------------------------------------------
Copyright 1997 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>
SUPPLEMENT DATED DECEMBER 31, 1997 TO
INCOME MANAGER(R) ACCUMULATOR(SM)
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997
This supplement dated December 31, 1997, updates certain information in the
Accumulator statement of additional information (SAI) dated May 1, 1997, of The
Equitable Life Assurance Society of the United States (EQUITABLE LIFE). You
should read this supplement in conjunction with the SAI. You should keep the
supplement and the SAI for future reference. If you have previously received,
but do not presently have, a copy of the SAI, you may obtain an additional copy
from us, free of charge, if you write to Equitable Life, Income Management
Group, P.O. Box 1547, Secaucus, NJ 07096-1547, call (800) 789-7771 or if you
mail in the SAI request form located at the end of the prospectus supplement
dated December 31, 1997 to the Income Manager Accumulator prospectus.
ON PAGE 1, REPLACE THE INVESTMENT FUNDS CHART WITH THE FOLLOWING CHART:
<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 Morgan Stanley Emerging Markets MFS Emerging Growth Companies
Value Equity Warburg Pincus Small Company
MFS Research T. Rowe Price International Stock Value
Merrill Lynch Basic Value Equity
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
-------------------------------------------------------------------------------------------------------------
</TABLE>
ON PAGE 2 UNDER "PART 2 - ANNUITY UNIT VALUES" REPLACE THE FIRST SENTENCE OF THE
FIRST PARAGRAPH WITH THE FOLLOWING SENTENCE:
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 based rates of
net investment return of both 5% and 3 1/2% a year.
- --------------------------------------------------------------------------------
Copyright 1997 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.
