Equitable Accumulator(SM)
A combination variable and fixed deferred
annuity contract
Please read and keep this prospectus for future reference. It contains important
information that you should know before purchasing, or taking any other action
under your contract. Also, at the end of this prospectus you will find attached
the prospectuses for The Hudson River Trust and EQ Advisors Trust, which contain
important information about their Portfolios.
PROSPECTUS DATED MAY 1, 1999
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WHAT IS THE EQUITABLE ACCUMULATOR?
Equitable Accumulator is a deferred annuity contract issued by THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES. It provides for the accumulation of
retirement savings and for income. The contract offers income and death benefit
protection. It also offers a number of payout and distribution options. The
distribution options available under the contract are the Assured Payment Option
and APO Plus. You invest to accumulate value on a tax-deferred basis in one or
more of our variable investment options, fixed maturity options or the account
for special dollar cost averaging ("investment options").
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VARIABLE INVESTMENT OPTIONS
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FIXED INCOME OPTIONS
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DOMESTIC FIXED INCOME AGGRESSIVE FIXED INCOME
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o Alliance Money Market o Alliance High Yield
o Alliance Intermediate
Government Securities
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EQUITY OPTIONS
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DOMESTIC EQUITY INTERNATIONAL EQUITY
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o T. Rowe Price Equity Income o Alliance Global
o EQ/Putnam Growth & Income o Alliance International
Value o T. Rowe Price International
o Alliance Growth & Income Stock
o MFS Growth with Income o Morgan Stanley Emerging
o BT Equity 500 Index Markets Equity
o Merrill Lynch Basic Value Equity o BT International Equity Index
o Alliance Common Stock
o MFS Research
o EQ/Alliance Premier Growth
o Capital Guardian Research
o Capital Guardian U.S. Equity
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AGGRESSIVE EQUITY
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o BT Small Company Index o Alliance Small Cap Growth
o Alliance Aggressive Stock o MFS Emerging Growth
o EQ/Evergreen Companies
o Warburg Pincus Small Company
Value
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ASSET ALLOCATION OPTIONS
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o Alliance Conservative Investors o Alliance Growth Investors
o EQ/Putnam Balanced o Merrill Lynch World Strategy
o EQ/Evergreen Foundation
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Alliance Equity Index (Available only under APO Plus)
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You may allocate amounts to any of the variable investment options. They, in
turn, invest in a corresponding securities portfolio ("Portfolio") of The Hudson
River Trust or EQ Advisors Trust. Your investment results in a variable
investment option will depend on the investment performance of the related
Portfolio. Each variable investment option is a subaccount of our Separate
Account No. 45.
FIXED MATURITY OPTIONS. You may allocate amounts to one or more fixed maturity
options. These amounts will receive a fixed rate of interest for a specified
period. Interest is earned at a guaranteed rate we set. We make a market value
adjustment (up or down) if you make transfers or withdrawals from a fixed
maturity option before its maturity date.
ACCOUNT FOR SPECIAL DOLLAR COST AVERAGING. This account also pays fixed interest
at guaranteed rates. It is only available for dollar cost averaging during your
contract's first year.
TYPES OF CONTRACTS. We offer the contracts for use as:
o A nonqualified annuity ("NQ") for after-tax contributions only.
o An individual retirement annuity ("IRA"), either traditional IRA or Roth
IRA.
We offer two versions of the traditional IRA: "Rollover IRA" and "Flexible
Premium IRA." The Assured Payment Option and APO Plus are available under
Rollover IRA and Flexible Premium IRA contracts.
We also offer two versions of the Roth IRA: "Roth Conversion IRA" and
"Flexible Premium Roth IRA."
o An annuity which is an investment vehicle for a qualified defined
contribution or defined benefit plan ("QP").
o An Internal Revenue Code Section 403(b) Tax Sheltered Annuity ("TSA") -
("Rollover TSA").
A contribution of at least $5,000 is required to purchase an NQ, Rollover IRA,
Roth Conversion IRA, QP or Rollover TSA contract. For Flexible Premium IRA or
Flexible Premium Roth IRA contracts, we require a contribution of $2,000 to
purchase a contract. Under Rollover IRA or Flexible Premium IRA contracts you
may elect the Assured Payment Option or APO Plus with a minimum initial
contribution of $10,000.
Registration statements relating to this offering have been filed with the
Securities and Exchange Commission ("SEC"). The statement of additional
information ("SAI") dated May 1, 1999, is a part of the registration statement.
The SAI is available free of charge. You may request one by writing to our
Processing Office or calling 1-800-789-7771. The SAI has been incorporated by
reference into this prospectus. This prospectus and the SAI can also be obtained
from the SEC's website at http://www.sec.gov. The table of contents for the SAI
appears at the back of this prospectus.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE CONTRACTS 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.
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2 CONTENTS OF THIS PROSPECTUS
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Contents of this prospectus
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EQUITABLE ACCUMULATOR(SM)
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Index of key words and phrases 4
Who is Equitable Life? 5
How to reach us 6
Equitable Accumulator at a glance - key features 8
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FEE TABLE 11
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Examples 14
Condensed financial information 15
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CONTRACT FEATURES AND BENEFITS 16
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How you can purchase and contribute to your contract 16
Owner and annuitant requirements 20
How you can make your contributions 20
What are your investment options under the contract? 20
Portfolios of The Hudson River Trust 21
Portfolios of EQ Advisors Trust 21
Allocating your contributions 26
Our baseBUILDER option 27
Guaranteed minimum death benefit 30
Your right to cancel within a certain number of days 31
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DETERMINING YOUR CONTRACT'S VALUE 32
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Your account value 32
Your contract's value in the variable investment options 32
Your contract's value in the fixed maturity options 32
Your contract's value in the account for special dollar cost
averaging 32
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"We," "our" and "us" refer to Equitable Life.
When we address the reader of this prospectus with words such as "you" and
"your," we mean the person who has the right or responsibility that the
prospectus is discussing at that point. This is usually the contract owner.
When we use the word "contract" it also includes certificates that are issued
under group contracts in some states.
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CONTENTS OF THIS PROSPECTUS 3
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TRANSFERRING YOUR MONEY AMONG
INVESTMENT OPTIONS 33
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Transferring your account value 33
Rebalancing your account value 33
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ACCESSING YOUR MONEY 34
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Assured Payment Option and APO Plus 34
Withdrawing your account value 38
How withdrawals are taken from your account value 40
How withdrawals affect your guaranteed minimum
income benefit and guaranteed minimum death
benefit 40
Loans under Rollover TSA contracts 41
Surrendering your contract to receive its cash value 42
When to expect payments 42
Choosing your annuity payout options 43
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CHARGES AND EXPENSES 46
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Charges that Equitable Life deducts 46
Charges that the trusts deduct 48
Group or sponsored arrangements 48
Other distribution arrangements 49
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PAYMENT OF DEATH BENEFIT 50
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Your beneficiary and payment of benefit 50
How death benefit payment is made 51
Beneficiary continuation option for Rollover IRA and
Flexible Premium IRA contracts 51
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TAX INFORMATION 53
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Overview 53
Transfers among investment options 53
Taxation of nonqualified annuities 53
Special rules for NQ contracts issued in Puerto Rico 54
Individual retirement arrangements (IRAs) 55
Special rules for nonqualified contracts in qualified plans 66
Tax Sheltered Annuity contracts (TSAs) 66
Federal and state income tax withholding and
information reporting 71
Impact of taxes to Equitable Life 72
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MORE INFORMATION 73
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About our Separate Account No. 45 73
About The Hudson River Trust and EQ Advisors Trust 73
About our fixed maturity options 74
About the general account 75
About other methods of payment 76
Dates and prices at which contract events occur 76
About your voting rights 77
About our year 2000 progress 78
About legal proceedings 78
About our independent accountants 78
Transfers of ownership, collateral assignments, loans,
and borrowing 78
Distribution of the contracts 79
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INVESTMENT PERFORMANCE 80
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Benchmarks 80
Communicating performance data 91
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INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE 93
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Appendices
I - Condensed financial information A-1
II - Purchase considerations for QP contracts B-1
III - Market value adjustment example C-1
IV - Guaranteed minimum death benefit example D-1
V - Example of payments under the Assured Payment
Option and APO Plus E-1
VI - Assured Payment Option and APO Plus contracts
issued in the state of Maryland F-1
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
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4 INDEX OF KEY WORDS AND PHRASES
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Index of key words and phrases
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This index should help you locate more information on the terms used in this
prospectus.
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <S> <C>
account for special dollar cost Flexible Premium Roth IRA cover
averaging 25 guaranteed minimum death benefit 30
account value 32 guaranteed minimum income benefit 28
annuitant 16 IRA 55
APO Plus 37 IRS 53
Assured Payment Option 34 investment options 20
baseBUILDER 27 loan reserve account 42
beneficiary 50 market adjusted amount 23
benefit base 28 market value adjustment 24
business day 76 maturity value 23
cash value 32 NQ 53
conduit IRA 59 participant 20
contract date 9 payout option 43
contract date anniversary 9 Portfolio cover
contract year 9 Processing Office 6
contributions to Roth IRAs 63 QP 66
regular contributions 63 rate to maturity 23
rollover contributions 64 required beginning date 60
conversion contributions 64 Rollover IRA cover
direct custodian-to-custodian Rollover TSA cover
transfers 64 Roth Conversion IRA cover
contributions to traditional IRAs 55 Roth IRA 63
regular contributions 56 SAI cover
rollover contributions 58 SEC cover
direct custodian-to-custodian TOPS 6
transfers 58 TSA 66
ERISA 41 traditional IRA 55
fixed maturity amount 23 unit 32
fixed maturity options 23 variable investment options 20
Flexible Premium IRA cover
</TABLE>
To make this prospectus easier to read, we sometimes use different words than in
the contract or supplemental materials. This is illustrated below. Although we
use different words, they have the same meaning in this prospectus as in the
contract or supplemental materials. Your Equitable associate can provide further
explanation about your contract.
<TABLE>
<CAPTION>
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PROSPECTUS CONTRACT OR SUPPLEMENTAL MATERIALS
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<S> <C>
fixed maturity options Guarantee Periods (GIROs in Supplemental Materials)
variable investment options Investment Funds
account value Annuity Account Value
rate to maturity Guaranteed Rates
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</TABLE>
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Who is Equitable Life? 5
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Who is Equitable Life?
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We are The Equitable Life Assurance Society of the United States ("Equitable
Life"), a New York stock life insurance corporation. We have been doing
business since 1859. Equitable Life is a wholly owned subsidiary of The
Equitable Companies Incorporated ("Equitable Companies"), whose majority
shareholder is AXA, a French holding company for an international group of
insurance and related financial services companies. As a majority shareholder,
and under its other arrangements with Equitable Life and Equitable Life's
parent, AXA exercises significant influence over the operations and capital
structure of Equitable Life and its parent. No company other than Equitable
Life, however, has any legal responsibility to pay amounts that Equitable Life
owes under the contract. During 1999, Equitable Companies plans to change its
name to AXA Financial, Inc.
Equitable Companies and its consolidated subsidiaries managed approximately
$347.5 billion in assets as of December 31, 1998. For over 100 years we have
been among the largest insurance companies in the United States. We are
licensed to sell life insurance and annuities in all fifty states, the District
of Columbia, Puerto Rico, and the U.S. Virgin Islands. Our home office is
located at 1290 Avenue of the Americas, New York, N.Y. 10104.
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6 WHO IS EQUITABLE LIFE?
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HOW TO REACH US
You may communicate with our Processing Office as listed below for any of the
following purposes:
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FOR CONTRIBUTIONS SENT BY REGULAR MAIL:
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Equitable Accumulator
P.O. Box 13014
Newark, NJ 07188-0014
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FOR CONTRIBUTIONS SENT BY EXPRESS DELIVERY:
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Equitable Accumulator
c/o First Chicago National Processing Center
300 Harmon Meadow Boulevard, 3rd Floor
Attn: Box 13014
Secaucus, NJ 07094
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FOR ALL OTHER COMMUNICATIONS (E.G.,
REQUESTS FOR TRANSFERS, WITHDRAWALS, OR
REQUIRED NOTICES) SENT BY REGULAR MAIL:
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Equitable Accumulator
P.O. Box 1547
Secaucus, NJ 07096-1547
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FOR ALL OTHER COMMUNICATIONS (E.G.,
REQUESTS FOR TRANSFERS, WITHDRAWALS, OR
REQUIRED NOTICES) SENT BY EXPRESS DELIVERY:
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Equitable Accumulator
200 Plaza Drive, 4th Floor
Secaucus, NJ 07094
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REPORTS WE PROVIDE:
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o written confirmation of financial transactions;
o statement of your contract values at the close of each
calendar quarter (four per year);
o annual statement of your contract values as of the close of
the contract year.
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TELEPHONE OPERATED PROGRAM SUPPORT
("TOPS") SYSTEM:
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TOPS is designed to provide you with up-to-date information via touch-tone
telephone. You can obtain information on:
o your current account value;
o your current allocation percentages;
o the number of units you have in the variable investment options;
o rates to maturity for the fixed maturity options; and
o the daily unit values for the variable investment options.
You can also:
o change your allocation percentages and/or transfer among the investment
options; and
o change your personal identification number (PIN).
TOPS is normally available seven days a week, 24 hours a day, by calling
toll-free 1-888-909-7770. Of course, for reasons beyond our control, the
service may sometimes be unavailable.
We have established procedures to reasonably confirm that the instructions
communicated by telephone are genuine. For example, we will require certain
personal identification information before we will act on telephone
instructions and we will provide written confirmation of your transfers. We
will not be liable for following telephone instructions we reasonably believe
to be genuine.
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BY INTERNET:
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You can also access information about your contract on the Internet. Please
visit our website at http://www.equitable.com, and click on EQAccess.
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WHO IS EQUITABLE LIFE? 7
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CUSTOMER SERVICE REPRESENTATIVE:
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You may also use our toll-free number (1-800-789-7771) to speak with one of our
customer service representatives. Our customer service representatives are
available on any business day from 8:30 a.m. until 5:30 p.m., Eastern Time.
You should send all contributions, notices, and requests to our Processing
Office at the address above.
WE REQUIRE THAT THE FOLLOWING TYPES OF COMMUNICATIONS BE ON SPECIFIC FORMS WE
PROVIDE FOR THAT PURPOSE:
(1) conversion of a traditional IRA to a Roth Conversion IRA or Flexible
Premium Roth IRA contract;
(2) cancellation of your Roth Conversion IRA or Flexible Premium Roth IRA
contract and return to a Rollover IRA or Flexible Premium IRA contract;
(3) election of the Assured Payment Option or APO Plus;
(4) election of the automatic investment program;
(5) election of the rebalancing program;
(6) to obtain a PIN required for TOPS;
(7) requests for loans under Rollover TSA contracts;
(8) spousal consent for loans under Rollover TSA contracts;
(9) tax withholding election; and
(10) beneficiary continuation option election.
WE ALSO HAVE SPECIFIC FORMS THAT WE RECOMMEND YOU USE FOR THE FOLLOWING TYPES
OF REQUESTS:
(1) address changes;
(2) beneficiary changes;
(3) transfers between investment options;
(4) withdrawal requests;
(5) contract surrender; and
(6) requests to exercise your guaranteed minimum income benefit.
You must sign and date all these requests. Any written request that is not on
one of our forms must include your name and your contract number along with
adequate details about the notice you wish to give or the action you wish us to
take.
TO CANCEL OR CHANGE ANY OF THE FOLLOWING WE REQUIRE WRITTEN NOTIFICATION
GENERALLY AT LEAST SEVEN CALENDAR DAYS BEFORE THE NEXT SCHEDULED TRANSACTION:
(1) automatic investment program;
(2) general dollar cost averaging;
(3) rebalancing;
(4) special dollar cost averaging;
(5) Assured Payment Option or APO Plus;
(6) substantially equal withdrawals;
(7) systematic withdrawals; and
(8) the date annuity payments are to begin.
SIGNATURES:
The proper person to sign forms, notices and requests would normally be the
owner. If there are joint owners both must sign.
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8 EQUITABLE ACCUMULATOR AT A GLANCE -- KEY FEATURES
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Equitable Accumulator at a
glance -- key features
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<TABLE>
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<S> <C>
PROFESSIONAL Equitable Accumulator's variable investment options invest in 30 different Portfolios managed by
INVESTMENT professional investment advisers.
MANAGEMENT
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FIXED MATURITY o 10 fixed maturity options with maturities ranging from approximately 1 to 10 years. Under the
OPTIONS Assured Payment Option and APO Plus, 5 additional fixed maturity options with maturities
ranging from 11 to 15 years.
o Each fixed maturity option offers a guarantee of principal and interest rate if you hold it to
maturity.
o Principal guarantees.
-- If you make withdrawals or transfers from a fixed maturity option before maturity, there
will be a market value adjustment due to differences in interest rates. This may increase or
decrease any value that you have left in that fixed maturity option. If you surrender your
contract, a market value adjustment may also apply.
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ACCOUNT FOR SPECIAL DOLLAR Available for dollar cost averaging of your initial contribution.
COST AVERAGING
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TAX ADVANTAGES o On earnings inside the No tax on any dividends, interest or capital gains until you make
contract withdrawals from your contract or receive annuity payments.
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o On transfers inside the No tax on transfers among investment options.
contract
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If you are buying a contract to fund a retirement plan that already provides tax deferral under
sections of the Internal Revenue Code (IRA, QP, and Rollover TSA), you should do so for the
contract's features and benefits other than tax deferral. In such situations, the tax deferral
of the contract does not provide additional benefits.
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BASEBUILDER(R) baseBUILDER combines a guaranteed minimum income benefit with a guaranteed minimum
PROTECTION death benefit. This optional feature provides income protection for you while the
annuitant lives, as well as a death benefit for the beneficiary should the annuitant die.
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CONTRIBUTION AMOUNTS o NQ, Rollover IRA, Roth Conversion IRA, QP, and Rollover TSA contracts
o Initial minimum: $5,000
o Additional minimum: $1,000
$100 monthly, and $300 quarterly under our automatic
investment program (NQ contracts)
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o Flexible Premium IRA and Flexible Premium Roth IRA contracts
o Initial minimum: $2,000
o Additional minimum: $50 ($50 under our automatic investment program)
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o Assured Payment Option and APO Plus under Rollover IRA and Flexible Premium
IRA Contracts
o Initial minimum: $10,000
o Additional minimum: $1,000
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Maximum investment limitations may apply.
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</TABLE>
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EQUITABLE ACCUMULATOR AT A GLANCE - KEY FEATURES 9
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ACCESS TO YOUR MONEY o Assured Payment Option
o APO Plus
o Lump sum withdrawals
o Several withdrawal options on a periodic basis
o Loans under Rollover TSA contracts
o Contract surrender
You may incur a withdrawal charge for certain
withdrawals. You may also incur income tax and a tax
penalty.
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PAYOUT ALTERNATIVES o Annuity payout options
o Income Manager(Reg. TM) payout annuity options
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ADDITIONAL FEATURES o Dollar cost averaging
o Automatic investment program
o Account value rebalancing (quarterly, semiannually, and
annually)
o Unlimited free transfers
o Waiver of withdrawal charge for disability, terminal
illness or confinement to a nursing home
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FEES AND CHARGES o Daily charges on amounts invested in variable
investment options for mortality and expense risks and
administrative charges at an annual rate of 1.35%.
o Annual 0.30% benefit base charge for the optional
baseBUILDER benefit. The benefit base is described
under "Your guaranteed minimum income benefit under
baseBUILDER." No additional charge if you want a
guaranteed minimum death benefit only.
o Under Flexible Premium IRA and Flexible Premium Roth
IRA contracts, if your account value at the end of the
contract year is less than $25,000, we deduct an annual
administrative charge equal to $30 or during the first
two contract years 2% of your account value, if less.
If your account value is $25,000 or more, we will not
deduct the charge.
o No sales charge deducted at the time you make
contributions.
o During the first seven contract years following a
contribution, a charge will be deducted from amounts
that you withdraw that exceed 15% of your account
value. We use the account value on the most recent
contract date anniversary to calculate the 15% amount
available. The charge begins at 7% in the first
contract year following a contribution. It declines
each year to 1% in the seventh contract year. There is
no withdrawal charge in the eighth and later contract
years following a contribution.
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The 12-month period beginning on your contract date and
each 12-month period after that date is a "contract
year." The end of each 12-month period is your
"contract date anniversary." The "contract date" is the
effective date of a contract. This usually is the
business day we receive your initial contribution. Your
contract date will be shown in your contract.
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10 EQUITABLE ACCUMULATOR AT A GLANCE -- KEY FEATURES
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<TABLE>
<CAPTION>
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<S> <C>
FEES AND o We also deduct a charge for taxes such as premium taxes that may be imposed in your state. This
CHARGES (CONTINUED) charge is generally deducted from the amount applied to an annuity payout option.
o We generally deduct a $350 annuity administrative fee from amounts applied to purchase certain life
annuity payout options.
o Annual expenses of The Hudson River Trust and EQ Advisors Trust Portfolios are calculated as a
percentage of the average daily net assets invested in each Portfolio. These expenses include
management and advisory fees ranging from 0.25% to 1.15% annually, 12b-1 fees of 0.25% and other
expenses.
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ANNUITANT ISSUE AGES NQ: 0-83
Rollover IRA, Roth Conversion IRA, Flexible Premium Roth IRA, and Rollover TSA: 20-83
Flexible Premium IRA: 20-70
QP: 20-75
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</TABLE>
THE ABOVE IS NOT A COMPLETE DESCRIPTION OF ALL MATERIAL PROVISIONS OF THE
CONTRACT. IN SOME CASES RESTRICTIONS OR EXCEPTIONS APPLY. ALSO, ALL FEATURES OF
THE CONTRACT ARE NOT NECESSARILY AVAILABLE IN YOUR STATE OR AT CERTAIN AGES.
For more detailed information we urge you to read the contents of this
prospectus, as well as your contract. Please feel free to speak with your
Equitable associate, or call us, if you have any questions.
<PAGE>
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Fee table 11
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Fee table
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The fee table below will help you understand the various charges and expenses
that apply to your contract. The table reflects charges you will directly incur
under the contract, as well as charges and expenses of the Portfolios that you
will bear indirectly. Charges for taxes, such as premium taxes, may also apply.
Also, an administrative fee may apply when your annuity payments are to begin.
Each of the charges and expenses is more fully described under "Charges and
expenses" later in this prospectus. For a complete description of Portfolio
charges and expenses, please see the attached prospectuses for The Hudson River
Trust and EQ Advisors Trust.
The fixed maturity options and the account for special dollar cost averaging are
not covered by the fee table and examples. Generally, the only charges shown in
the table that are applicable to the fixed maturity options and the account for
special dollar cost averaging are the annual administrative charge and the
withdrawal charge. A market value adjustment (up or down) may apply as a result
of a withdrawal, transfer or surrender of amounts from a fixed maturity option.
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CHARGES WE DEDUCT FROM YOUR VARIABLE INVESTMENT
OPTIONS EXPRESSED AS AN ANNUAL PERCENTAGE OF DAILY
NET ASSETS
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Mortality and expense risks (1) 1.10%
Administrative (2) 0.25%
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Total annual expenses 1.35%
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FLEXIBLE PREMIUM IRA AND FLEXIBLE PREMIUM ROTH IRA
CONTRACTS ONLY: CHARGES WE DEDUCT FROM YOUR
ACCOUNT VALUE ON EACH CONTRACT DATE ANNIVERSARY
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Maximum annual administrative charge
If your account value is less than $25,000 $30(3)
If your account value is $25,000 or more $0
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CHARGES WE DEDUCT FROM YOUR ACCOUNT VALUE AT THE
TIME YOU REQUEST CERTAIN TRANSACTIONS
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WITHDRAWAL CHARGE AS A PERCENTAGE OF CONTRIBUTIONS Contract
(deducted if you surrender Contract your contract year
or make certain withdrawals. The withdrawal charge 1........7.00%
percentage we use is year determined by the 2........6.00
contract year in which you make the withdrawal or 3........5.00
surrender your contract. For each contribution, we 4........4.00
consider the contract year in which we receive 5........3.00
that contribution to be "contract year 1")(4) 6........2.00
7........1.00
8+.......0.00
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CHARGES WE DEDUCT FROM YOUR ACCOUNT VALUE EACH
YEAR IF YOU ELECT THE OPTIONAL BENEFIT
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BASEBUILDER BENEFITS CHARGE (calculated as a
percentage of the benefit base. Deducted annually
on each contract date anniversary)(5) 0.30%
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12 FEE TABLE
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THE HUDSON RIVER TRUST ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
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TOTAL
ANNUAL
INVESTMENT EXPENSES(6)
MANAGEMENT OTHER (AFTER EXPENSE
ADVISORY FEES 12B-1 FEES(6) EXPENSES LIMITATION)
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<S> <C> <C> <C> <C>
Alliance Aggressive Stock (7) 0.54% 0.25% 0.03% 0.82%
Alliance Common Stock(7) 0.36% 0.25% 0.03% 0.64%
Alliance Conservative Investors(7) 0.48% 0.25% 0.05% 0.78%
Alliance Equity Index(7) 0.31% 0.25% 0.03% 0.59%
Alliance Global(7) 0.64% 0.25% 0.07% 0.96%
Alliance Growth & Income(7) 0.55% 0.25% 0.03% 0.83%
Alliance Growth Investors(7) 0.51% 0.25% 0.04% 0.80%
Alliance High Yield(7) 0.60% 0.25% 0.03% 0.88%
Alliance Intermediate Government Securities(7) 0.50% 0.25% 0.05% 0.80%
Alliance International(7) 0.90% 0.25% 0.16% 1.31%
Alliance Money Market(7) 0.35% 0.25% 0.02% 0.62%
Alliance Small Cap Growth(7) 0.90% 0.24% 0.06% 1.20%
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</TABLE>
EQ ADVISORS TRUST ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO)
<TABLE>
<CAPTION>
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TOTAL
OTHER ANNUAL
INVESTMENT EXPENSES(8) EXPENSES(8)
MANAGEMENT & (AFTER EXPENSE (AFTER EXPENSE
ADVISORY FEES 12B-1 FEE(6) LIMITATION) LIMITATION)
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<S> <C> <C> <C> <C>
EQ/Alliance Premier Growth(8) 0.90% 0.25% 0.00% 1.15%
BT Equity 500 Index(8) 0.25% 0.25% 0.05% 0.55%
BT International Equity Index(8) 0.35% 0.25% 0.40% 1.00%
BT Small Company Index(8) 0.25% 0.25% 0.25% 0.75%
Capital Guardian Research(8) 0.65% 0.25% 0.05% 0.95%
Capital Guardian U.S. Equity(8) 0.65% 0.25% 0.05% 0.95%
EQ/Evergreen(8) 0.75% 0.25% 0.05% 1.05%
EQ/Evergreen Foundation(8) 0.63% 0.25% 0.07% 0.95%
MFS Emerging Growth Companies(8) 0.55% 0.25% 0.05% 0.85%
MFS Growth with Income(8) 0.55% 0.25% 0.05% 0.85%
MFS Research(8) 0.55% 0.25% 0.05% 0.85%
Merrill Lynch Basic Value Equity(8) 0.55% 0.25% 0.05% 0.85%
Merrill Lynch World Strategy(8) 0.70% 0.25% 0.25% 1.20%
Morgan Stanley Emerging Markets Equity(8) 1.15% 0.25% 0.35% 1.75%
EQ/Putnam Balanced(8) 0.55% 0.25% 0.10% 0.90%
EQ/Putnam Growth & Income Value(8) 0.55% 0.25% 0.05% 0.85%
T. Rowe Price Equity Income(8) 0.55% 0.25% 0.05% 0.85%
T. Rowe Price International Stock(8) 0.75% 0.25% 0.20% 1.20%
Warburg Pincus Small Company Value(8) 0.65% 0.25% 0.10% 1.00%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Fee table 13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------
Notes:
(1) A portion of this charge is for providing the guaranteed minimum death
benefit.
(2) We reserve the right to increase this charge to a maximum annual rate of
0.35%.
(3) For Flexible Premium IRA and Flexible Premium Roth IRA contracts, during
the first two contract years this charge is equal to the lesser of $30 or
2% of your account value. Thereafter, the charge is $30 for each contract
year.
(4) Deducted upon a withdrawal of amounts in excess of the 15% free withdrawal
amount, and upon surrender of a contract.
(5) The benefit base is described under "Your guaranteed minimum income
benefit under baseBUILDER."
(6) Portfolio shares are all subject to fees imposed under distribution plans
(the "Rule 12b-1 Plans") adopted by The Hudson River Trust and EQ
Advisors Trust pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended. The 12b-1 fee will not be increased for the life of the
contracts. The Rule 12b-1 Plan for the Alliance Small Cap Growth
Portfolio provides that Equitable Distributors, Inc. ("EDI") will receive
an annual fee not to exceed the lesser of (a) 0.25% of the average daily
net assets of the Portfolio attributable to Class IB shares and (b) an
amount that, when added to certain other expenses of the Class IB shares,
would result in the ratio of expenses to average daily net assets
attributable to Class IB shares equaling 1.20%. Absent the expense
limitation, the total annual expenses for 1998 for the Alliance Small Cap
Growth Portfolio would have been 1.21%.
(7) The fees and expenses shown for all Portfolios are for the year ended
December 31, 1998. The investment management and advisory fees for each
Portfolio of The Hudson River Trust may vary from year to year depending
upon the average daily net assets of the respective Portfolio. The
maximum investment management and advisory fees, however, cannot be
increased without a vote of that Portfolio's shareholders. See the
prospectus for The Hudson River Trust. The other direct operating
expenses will also fluctuate from year to year depending on actual
expenses.
(8) The maximum investment management and advisory fees for each Portfolio of
EQ Advisors Trust cannot be increased without a vote of that Portfolio's
shareholders. See the prospectus for EQ Advisors Trust. The amounts shown
as "Other Expenses" will fluctuate from year to year depending on actual
expenses. However, EQ Financial Consultants, Inc. ("EQF"), EQ Advisors
Trust's manager, has entered into an expense limitation agreement with
respect to each Portfolio. Under this agreement EQF has agreed to waive
or limit its fees and assume other expenses. Under the expense limitation
agreement, total annual operating expenses of each Portfolio (other than
interest, taxes, brokerage commissions, capitalized expenditures,
extraordinary expenses, and 12b-1 fees) are limited for the average daily
net assets of each Portfolio as follows: 0.90% for EQ/Alliance Premier
Growth; 0.30% for BT Equity 500 Index; 0.75% for BT International Equity
Index; 0.50% for BT Small Company Index; 0.70% for Capital Guardian
Research and Capital Guardian U.S. Equity; 0.80% for EQ/Evergreen; 0.70%
for EQ/Evergreen Foundation; 0.60% for MFS Emerging Growth Companies, MFS
Growth with Income, MFS Research, and Merrill Lynch Basic Value Equity;
0.95% for Merrill Lynch World Strategy; 1.50% for Morgan Stanley Emerging
Markets Equity; 0.65% for EQ/Putnam Balanced; 0.60% for EQ/Putnam Growth
& Income Value and T. Rowe Price Equity Income; 0.95% for T. Rowe Price
International Stock; and 0.75% for Warburg Pincus Small Company Value.
The expenses shown for the BT International Equity Index and BT Small
Company Index Portfolios reflect an increase effective on May 1, 1999.
Absent the expense limitation, the "Other Expenses" for 1998 on an
annualized basis for each of the Portfolios would have been as follows:
0.33% for BT Equity 500 Index; 0.89% for BT International Equity Index;
1.31% for BT Small Company Index;0.24% for MFS Emerging Growth Companies;
0.25% for MFS Research; 0.26% for Merrill Lynch Basic Value Equity; 0.66%
for Merrill Lynch World Strategy; 1.23% for Morgan Stanley Emerging
Markets Equity; 0.45% for EQ/Putnam Balanced; 0.24% for EQ/Putnam Growth &
Income Value and T. Rowe Price Equity Income; 0.40% for T. Rowe Price
International Stock; and 0.27% for Warburg Pincus Small Company Value. For
the following Portfolios, the "Other Expenses" for 1999, absent the
expense limitation, are estimated to be as follows: 0.74% for EQ/Alliance
Premier Growth, Capital Guardian Research, and Capital Guardian U.S.
Equity; 0.76% for EQ/Evergreen; 0.86% for EQ/Evergreen Foundation; and
0.59% for MFS Growth with Income. Initial seed capital was invested on
December 31, 1998 for the EQ/Evergreen, EQ/Evergreen Foundation, and MFS
Growth with Income Portfolios. The EQ/Alliance Premier Growth, Capital
Guardian Research, and Capital Guardian U.S. Equity Portfolios commenced
operations on May 1, 1999.
Each Portfolio may at a later date make a reimbursement to EQF for any of
the management fees waived or limited and other expenses assumed and paid
by EQF pursuant to the expense limitation agreement provided that, among
other things, such Portfolio has reached sufficient size to permit such
reimbursement to be made and provided that the Portfolio's current annual
operating expenses do not exceed the operating expense limit determined
for such Portfolio.
<PAGE>
- --------------------------------------------------------------------------------
14 Fee table
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLES
The examples below show the expenses that a hypothetical contract owner who has
purchased a Flexible Premium IRA or Flexible Premium Roth IRA contract would pay
in the two situations (surrender and nonsurrender) illustrated. The examples
show the expenses if (1) baseBUILDER is elected and (2) APO Plus is elected. We
assume that a $1,000 contribution is invested in one of the variable investment
options listed and a 5% annual return is earned on the assets in that option.(1)
The annual administrative charge is based on an estimated $10,000 average
account value at the end of the contract year and the maximum charge of $30, so
that the administrative charge per $1,000 is $3. Since the annual administrative
charge only applies under Flexible Premium IRA and Flexible Premium Roth IRA
contracts, the charges shown in the examples would be lower for the NQ, Rollover
IRA, Roth Conversion IRA, QP, and Rollover TSA contracts.
These examples should not be considered a representation of past or future
expenses for each option. 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.
(1) EXPENSES REFLECTING BASEBUILDER ELECTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CONTRACT AT THE END
OF EACH PERIOD SHOWN, THE EXPENSES
WOULD BE:
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE HUDSON RIVER TRUST OPTIONS
- -----------------------------------------------------------------------------------------------
Alliance Aggressive Stock $94.98 $132.84 $173.34 $307.10
Alliance Common Stock $93.19 $127.47 $164.38 $289.23
Alliance Conservative Investors $94.59 $131.65 $171.35 $303.16
Alliance Global $96.37 $137.00 $180.25 $320.78
Alliance Growth & Income $95.08 $133.14 $173.83 $308.07
Alliance Growth Investors $94.78 $132.24 $172.34 $305.12
Alliance High Yield $95.58 $134.62 $176.30 $312.98
Alliance Intermediate Government Securities $94.78 $132.24 $172.34 $305.12
Alliance International $99.85 $147.36 $197.38 $354.17
Alliance Money Market $93.00 $126.88 $163.38 $287.23
Alliance Small Cap Growth $98.76 $144.12 $192.03 $343.81
- -----------------------------------------------------------------------------------------------
EQ ADVISORS TRUST OPTIONS
- -----------------------------------------------------------------------------------------------
EQ/Alliance Premier Growth $98.26 $142.63 - -
BT Equity 500 Index $92.30 $124.78 $159.88 $280.19
BT International Equity Index $96.77 $138.19 $182.22 $324.65
BT Small Company Index $94.29 $130.75 $169.85 $300.17
Capital Guardian Research $96.27 $136.71 - -
Capital Guardian U.S. Equity $96.27 $136.71 - -
EQ/Evergreen $97.27 $139.68 - -
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
IF YOU DO NOT SURRENDER YOUR CONTRACT AT
THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------
THE HUDSON RIVER TRUST OPTIONS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Aggressive Stock $28.13 $ 86.31 $147.16 $311.98
Alliance Common Stock $26.34 $ 80.94 $138.21 $294.12
Alliance Conservative Investors $27.74 $ 85.13 $145.19 $308.05
Alliance Global $29.52 $ 90.47 $154.07 $325.65
Alliance Growth & Income $95.08 $133.14 $173.83 $308.07
Alliance Growth Investors $27.93 $ 85.72 $146.17 $310.01
Alliance High Yield $28.73 $ 88.10 $150.14 $317.87
Alliance Intermediate Government Securities $27.93 $ 85.72 $146.17 $310.01
Alliance International $33.00 $100.84 $171.21 $359.07
Alliance Money Market $26.15 $ 80.35 $137.22 $292.13
Alliance Small Cap Growth $31.91 $ 97.59 $165.86 $348.69
- -----------------------------------------------------------------------------------------------
EQ ADVISORS TRUST OPTIONS
- -----------------------------------------------------------------------------------------------
EQ/Alliance Premier Growth $31.41 $96.11 - -
BT Equity 500 Index $25.45 $78.25 $133.71 $285.07
BT International Equity Index $29.92 $91.66 $156.05 $329.53
BT Small Company Index $27.44 $84.23 $143.69 $305.09
Capital Guardian Research $29.42 $90.17 - -
Capital Guardian U.S. Equity $29.42 $90.17 - -
EQ/Evergreen $30.42 $93.15 - -
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FEE TABLE 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CONTRACT AT THE END
OF EACH PERIOD SHOWN, THE EXPENSES
WOULD BE:
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQ/Evergreen Foundation $ 96.27 $136.71 - -
MFS Emerging Growth Companies $ 95.28 $133.74 $174.83 $310.05
MFS Growth with Income $ 95.28 $133.74 - -
MFS Research $ 95.28 $133.74 $174.83 $310.05
Merrill Lynch Basic Value Equity $ 95.28 $133.74 $174.83 $310.05
Merrill Lynch World Strategy $ 98.76 $144.12 $192.03 $343.81
Morgan Stanley Emerging Markets Equity $104.22 $160.29 $218.58 $394.59
EQ/Putnam Balanced $ 95.78 $135.22 $177.29 $314.94
EQ/Putnam Growth & Income Value $ 95.28 $133.74 $174.83 $310.05
T. Rowe Price Equity Income $ 95.28 $133.74 $174.83 $310.05
T. Towe Price International Stock $ 98.76 $144.12 $192.03 $343.81
Warburg Pincus Small Company Value $ 96.77 $138.19 $182.22 $324.65
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
IF YOU DO NOT SURRENDER YOUR CONTRACT AT
THE END OF EACH PERIOD SHOWN, THE
EXPENSES WOULD BE:
------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQ/Evergreen Foundation $29.42 $ 90.17 - -
MFS Emerging Growth Companies $28.43 $ 87.20 $148.64 $314.93
MFS Growth with Income $28.43 $ 87.20 - -
MFS Research $28.43 $ 87.20 $148.64 $314.93
Merrill Lynch Basic Value Equity $28.43 $ 87.20 $148.64 $314.93
Merrill Lynch World Strategy $31.91 $ 97.59 $165.86 $348.69
Morgan Stanley Emerging Markets Equity $37.37 $113.76 $192.41 $399.49
EQ/Putnam Balanced $28.93 $ 88.70 $151.13 $319.83
EQ/Putnam Growth & Income Value $28.43 $ 87.20 $148.64 $314.93
T. Rowe Price Equity Income $28.43 $ 87.20 $148.64 $314.93
T. Towe Price International Stock $31.91 $ 97.59 $165.86 $348.69
Warburg Pincus Small Company Value $29.92 $ 91.66 $156.05 $329.53
- -----------------------------------------------------------------------------------------------
</TABLE>
(2) EXPENSES REFLECTING APO PLUS ELECTION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CONTRACT AT THE END IF YOU DO NOT SURRENDER YOUR CONTRACT AT
OF EACH PERIOD SHOWN, THE EXPENSES THE END OF EACH PERIOD SHOWN, THE
WOULD BE: EXPENSES WOULD BE:
------------------------------------------------- ------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Common Stock $93.19 $121.20 $151.48 $258.02 $23.19 $71.20 $121.48 $258.02
Alliance Equity Index $92.70 $119.71 $148.97 $252.93 $22.70 $69.71 $118.97 $252.93
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The amount accumulated from the $1,000 contribution could not be paid in
the form of an annuity payout option at the end of any of the periods
shown in the examples. This is because if the amount applied to purchase
an annuity payout option is less than $2,000, or the initial payment is
less than $20, we may pay the amount to you in a single sum instead of as
payments under an annuity payout option. See "Accessing your money."
IF YOU ELECT AN ANNUITY PAYOUT OPTION:
Assuming an annuity payout option could be issued (see note (1) above), and you
elect a life annuity payout option, the expenses shown in the example for "if
you do not surrender your contract" would, in each case, be increased by $4.43
based on the average amount applied to annuity payout options in 1998. See
"Annuity administrative fee" under "Charges and expenses."
CONDENSED FINANCIAL INFORMATION
Please see Appendix I, at the end of this prospectus for the unit values and the
number of units outstanding as of the end of the periods shown for each of the
variable investment options.
<PAGE>
- --------------------------------------------------------------------------------
16 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW YOU CAN PURCHASE AND CONTRIBUTE TO YOUR CONTRACT
You may purchase a contract by making payments to us we call "contributions." We
require a minimum contribution amount for each type of contract. The following
table summarizes our rules regarding contributions to your contract. All ages in
the table refer to the age of the annuitant named in the contract.
- ------------------------------------------------------------------------------
The "annuitant" is the person who is the measuring life for determining contract
benefits. The annuitant is not necessarily the contract owner.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AVAILABLE
CONTRACT FOR ANNUITANT MINIMUM LIMITATIONS ON
TYPE ISSUE AGES CONTRIBUTIONS SOURCE OF CONTRIBUTIONS CONTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NQ 0 through 83 o $5,000 (initial) o After-tax money. o No additional
contributions after
o $1,000 (additional) o Paid to us by check or age 84.
transfer of contract
value in a tax-deferred
exchange under Section
1035 of the Internal
Revenue Code.
- ------------------------------------------------------------------------------------------------------------------------------
Flexible 20 through 70 o $2,000 (initial) o "Regular" IRA o No additional regular
Premium IRA contributions. IRA contributions in the
o $50 (additional after calendar year you turn
the first contract year) o Rollovers from a age 70 1/2 and
qualified plan. thereafter.
o Rollovers from a TSA. o Total regular
contributions may
o Rollovers from another not exceed $2,000
traditional individual each year.
retirement arrangement.
o Direct custodian- o No additional rollover
to-custodian transfers or direct transfer
from another contributions after
traditional individual age 71.
retirement arrangement.
o Rollover and direct
transfer contributions
after age 70 1/2 must
be net of required
minimum distributions.
Although we accept rollover and direct transfer contributions under the Flexible Premium IRA
contract, we intend that this contract be used for ongoing regular contributions.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
17 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AVAILABLE
CONTRACT FOR ANNUITANT MINIMUM LIMITATIONS ON
TYPE ISSUE AGES CONTRIBUTIONS SOURCE OF CONTRIBUTIONS CONTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rollover IRA 20 through 83 o $5,000 (initial) o Rollovers from a o No additional rollover
qualified plan. or direct transfer
o $1,000 (additional) contributions after
o Rollovers from a TSA. age 84.
o Rollovers from another
traditional individual o Contributions after
retirement age 70 1/2 must be net
arrangement. of required minimum
distributions.
o Direct
custodian-to-custodian o Regular IRA
transfers from another contributions are not
traditional individual permitted.
retirement
arrangement.
Only rollover and direct transfer contributions are permitted under the Rollover IRA contract.
- ------------------------------------------------------------------------------------------------------------------------------
Flexible 20 through 83 o $2,000 (initial) o "Regular" after-tax o No additional regular
Premium contributions. after-tax contributions
Roth IRA o $50 (additional after after age 84.
the first contract year)
o Rollovers from another
Roth IRA. o No additional rollover
or direct transfer
o Conversion rollovers contributions after
from a traditional IRA. age 84.
o Direct transfers from
another Roth IRA. o Contributions are
subject to income
limits. See "Tax
information --
Contributions to
Roth IRAs."
Although we accept rollover and direct transfer contributions under the Flexible Premium Roth
IRA contract, we intend that this contract be used for ongoing regular contributions.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
18 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AVAILABLE
CONTRACT FOR ANNUITANT MINIMUM LIMITATIONS ON
TYPE ISSUE AGES CONTRIBUTIONS SOURCE OF CONTRIBUTIONS CONTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Roth 20 through 83 o $5,000 (initial) o Rollovers from another o No additional rollover
Conversion IRA Roth IRA. or direct transfer
o $1,000 (additional) contributions after
o Conversion rollovers age 84.
from a traditional IRA.
o Conversion rollovers
o Direct transfers from after age 70 1/2 must be
another Roth IRA. net of required
minimum distributions
for the traditional IRA
you are rolling over.
o You cannot roll over
funds from a traditional
IRA if your adjusted
gross income is
$100,000 or more.
o Regular after-tax
contributions are not
permitted.
Only rollover and direct transfer contributions are permitted under the Roth Conversion IRA
contract.
- ------------------------------------------------------------------------------------------------------------------------------
QP 20 through 75 o $5,000 (initial) o Only transfer o Regular ongoing
contributions from an payroll contributions
o $1,000 (additional) existing qualified plan are not permitted.
trust as a change of
investment vehicle o No additional transfer
under the plan. contributions after
age 76.
o The plan must be o For defined benefit
qualified under Section plans, employee
401(a) of the Internal contributions are not
Revenue Code. permitted.
o For 401(k) plans, o Contributions after
transferred age 70 1/2 must be net
contributions may only of any required
include employee minimum distributions.
pre-tax contributions.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Contract features and benefits 19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AVAILABLE
CONTRACT FOR ANNUITANT MINIMUM LIMITATIONS ON
TYPE ISSUE AGES CONTRIBUTIONS SOURCE OF CONTRIBUTIONS CONTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rollover TSA 20 through 83 o $ 5,000 (initial) o Rollovers from another o No additional rollover
TSA contract or or direct transfer
o $ 1,000 (additional) arrangement. contributions after
age 84.
o Rollovers from a
traditional IRA which o Contributions after age
was a "conduit" for 70 1/2 must be net of
TSA funds previously required minimum
rolled over. distributions.
o Direct transfers from
another contract or
arrangement under
Section 403(b) of the
Internal Revenue Code,
complying with IRS
Revenue Ruling 90-24.
- ------------------------------------------------------------------------------------------------------------------------------
Rollover 53 1/2 through 83 o $10,000 (initial) o Rollovers from a o Additional rollover or
IRA or qualified plan. direct transfer
Flexible o $ 1,000 (additional) contributions may be
Premium made until the earlier
IRA with o Rollovers from a TSA. of age 84 or within
Assured seven years from the
Payment o Rollovers from another end of the fixed period.
Option or traditional individual
APO Plus retirement o Contributions after age
arrangement. 70 1/2 must be net of
required minimum
o Direct distributions.
custodian-to-custodian
transfers from another
traditional individual
retirement
arrangement.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See "Tax information" for a more detailed discussion of sources of contributions
and certain contribution limitations. We may refuse to accept any contribution
if the sum of all contributions under all Equitable Accumulator contracts 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 contracts
that you own would then total more than $2,500,000.
For information on when contributions are credited under your contract see
"Dates and prices at which contract events occur" later in this prospectus.
<PAGE>
- --------------------------------------------------------------------------------
20 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OWNER AND ANNUITANT REQUIREMENTS
Under NQ contracts, the annuitant can be different than the owner. A joint
owner may also be named. Only natural persons can be joint owners. This means
that an entity such as a corporation cannot be a joint owner.
Under all IRA and Rollover TSA contracts, the owner and annuitant must be the
same person.
Under QP contracts, the owner must be the trustee of the qualified plan and
the annuitant must be the plan participant/employee. See Appendix II for more
information on QP contracts.
- --------------------------------------------------------------------------------
A participant is an individual who is currently, or was formerly participating
in an eligible employer's QP or TSA plan.
- --------------------------------------------------------------------------------
HOW YOU CAN MAKE YOUR CONTRIBUTIONS
Except as noted below, contributions must be by check drawn on a bank in the
U.S. clearing through the Federal Reserve System, in U.S. dollars, and made
payable to Equitable Life. We do not accept third party checks endorsed to us
except for rollover contributions, tax-free exchanges or trustee checks that
involve no refund. All checks are subject to our ability to collect the funds.
We reserve the right to reject a payment if it is received in an unacceptable
form.
Additional contributions may also be made under our automatic investment
program. This method of payment is discussed in detail under "More information"
later in this prospectus.
Your initial contribution must generally be accompanied by an application and
any other form we need to process the payments. If any information is missing
or unclear, we will try to obtain that information. If we are unable to obtain
all of the information we require within five business days after we receive an
incomplete application or form, we will inform the Equitable associate
submitting the application on your behalf. We will then return the contribution
to you unless you specifically direct us to keep your contribution until we
receive the required information.
- --------------------------------------------------------------------------------
Our "business day" is any day the New York Stock Exchange is open for trading.
- --------------------------------------------------------------------------------
Section 1035 exchanges
You may apply the value of an existing nonqualified deferred annuity contract
(or life insurance or endowment contract) to purchase an Equitable Accumulator
NQ contract in a tax-free exchange if you follow certain procedures as shown in
the form that we require you to use. Also see "Tax information" later in this
prospectus.
WHAT ARE YOUR INVESTMENT OPTIONS UNDER THE CONTRACT?
Your investment options are the variable investment options, the fixed maturity
options, and the account for special dollar cost averaging.
Variable investment options
Your investment results in any one of the 30 variable investment options will
depend on the investment performance of the underlying Portfolios. Listed
below are the currently available Portfolios, their investment objectives, and
their advisers.
- --------------------------------------------------------------------------------
You can choose among 30 variable investment options.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Contract features and benefits 21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIOS OF THE HUDSON RIVER TRUST
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME OBJECTIVE ADVISER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Aggressive Stock Long-term growth of capital Alliance Capital Management L.P.
- ----------------------------------------------------------------------------------------------------------------------
Alliance Common Stock Long-term growth of capital and increasing Alliance Capital Management L.P.
income
- ----------------------------------------------------------------------------------------------------------------------
Alliance Conservative Investors High total return without, in the adviser's Alliance Capital Management L.P.
opinion, undue risk to principal
- ----------------------------------------------------------------------------------------------------------------------
Alliance Equity Index Total return (before deduction of Portfolio Alliance Capital Management L.P.
(available only under APO Plus) expenses) that approximates the total return
performance of the Standard & Poor's 500
Composite Index
- ----------------------------------------------------------------------------------------------------------------------
Alliance Global Long-term growth of capital Alliance Capital Management L.P.
- ----------------------------------------------------------------------------------------------------------------------
Alliance Growth & Income High total return through a combination of Alliance Capital Management L.P.
current income and capital appreciation
- ----------------------------------------------------------------------------------------------------------------------
Alliance Growth Investors High total return consistent with the adviser's Alliance Capital Management L.P.
determination of reasonable risk
- ----------------------------------------------------------------------------------------------------------------------
Alliance High Yield High return by maximizing current income and, Alliance Capital Management L.P.
to the extent consistent with that objective,
capital appreciation
- ----------------------------------------------------------------------------------------------------------------------
Alliance Intermediate High current income consistent with relative Alliance Capital Management L.P.
Government Securities stability of principal
- ----------------------------------------------------------------------------------------------------------------------
Alliance International Long-term growth of capital Alliance Capital Management L.P.
- ----------------------------------------------------------------------------------------------------------------------
Alliance Money Market High level of current income while preserving Alliance Capital Management L.P.
assets and maintaining liquidity
- ----------------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth Long-term growth of capital Alliance Capital Management L.P.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PORTFOLIOS OF EQ ADVISORS TRUST
- --------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME OBJECTIVE ADVISER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQ/Alliance Premier Growth Long-term growth of capital Alliance Capital Management L.P.
- --------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index Replicate as closely as possible (before Bankers Trust Company
deduction of Portfolio expenses) the total
return of the Standard & Poor's 500
Composite Stock Price Index
- --------------------------------------------------------------------------------------------------------------------
BT International Equity Index Replicate as closely as possible (before Bankers Trust Company
deduction of Portfolio expenses) the total
return of the Morgan Stanley Capital
International Europe, Australia, Far East Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
22 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIOS OF EQ ADVISORS TRUST
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME OBJECTIVE ADVISER
- ----------------------------------- -------------------------------------------------- -----------------------------------------
<S> <C> <C>
BT Small Company Index Replicate as closely as possible (before Bankers Trust Company
deduction of Portfolio expenses) the total
return of the Russell 2000 Index
- --------------------------------------------------------------------------------------------------------------------------------
Capital Guardian Research* Long-term growth of capital Capital Guardian Trust Company
- --------------------------------------------------------------------------------------------------------------------------------
Capital Guardian U.S. Equity* Long-term growth of capital Capital Guardian Trust Company
- --------------------------------------------------------------------------------------------------------------------------------
EQ/Evergreen Capital appreciation Evergreen Asset Management Corp.
- --------------------------------------------------------------------------------------------------------------------------------
EQ/Evergreen Foundation In order of priority, reasonable income, Evergreen Asset Management Corp.
conservation of capital, and capital appreciation
- --------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Long-term capital growth Massachusetts Financial Services Company
Companies
- --------------------------------------------------------------------------------------------------------------------------------
MFS Growth with Income Reasonable current income and long-term Massachusetts Financial Services Company
growth of capital and income
- --------------------------------------------------------------------------------------------------------------------------------
MFS Research Long-term growth of capital and future income Massachusetts Financial Services Company
- --------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity Capital appreciation and secondarily, income Merrill Lynch Asset Management, L.P.
- --------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Long-term capital appreciation Morgan Stanley Asset Management
Markets Equity
- --------------------------------------------------------------------------------------------------------------------------------
EQ/Putnam Balanced Balanced investment Putnam Investment Management, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
EQ/Putnam Growth & Income Capital growth, current income is a secondary Putnam Investment Management, Inc.
Value objective
- --------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy High total investment return Merrill Lynch Asset Management, L.P.
- --------------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Substantial dividend income and also capital T. Rowe Price Associates, Inc.
appreciation
- --------------------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Long-term growth of capital Rowe Price-Fleming International, Inc.
Stock
- --------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Small Company Long-term capital appreciation Warburg Pincus Asset Management, Inc.
Value
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* May not currently be available in all states.
<PAGE>
- --------------------------------------------------------------------------------
Contract features and benefits 23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other important information about the Portfolios is included in the separate
prospectuses for The Hudson River Trust and EQ Advisors Trust attached at the
end of this prospectus.
See "Proposed substitution of Portfolios" under "More information" for
information regarding the proposed substitution of newly created Portfolios of
EQ Advisors Trust for the Portfolios of The Hudson River Trust currently
available under the variable investment options.
Fixed maturity options
We offer fixed maturity options with maturity dates ranging from one to ten
years. You can allocate your contributions to one or more of these fixed
maturity options. Under the Assured Payment Option and APO Plus, we offer
additional fixed maturity options with maturity dates ranging from eleven to
fifteen years. We provide distributions during the fixed period under the
Assured Payment Option and APO Plus by allocating your contributions to fixed
maturity options that mature in consecutive order. These amounts become part of
our general account assets. They will accumulate interest at the "rate to
maturity" for each fixed maturity option. The total amount you allocate to and
accumulate in each fixed maturity option is called the "fixed maturity amount."
The fixed maturity options are generally not available in contracts issued in
Maryland. In Maryland the fixed maturity options are only available under the
Assured Payment Option and APO Plus which are issued as separate contracts
rather than as a part of a Rollover IRA or Flexible Premium IRA contract. See
Appendix VI for more information on the Assured Payment Option and APO Plus
contracts available in Maryland.
- --------------------------------------------------------------------------------
Fixed maturity options ranging from one to ten years to maturity. Assured
Payment Option and APO Plus offer additional fixed maturity options for years
eleven to fifteen.
- --------------------------------------------------------------------------------
The rate to maturity you will receive for each fixed maturity option is the
rate to maturity in effect for new contributions allocated to that fixed
maturity option on the date we apply your contribution. If you make any
withdrawals or transfers from a fixed maturity option before the maturity date,
we will make a "market value adjustment" that may increase or decrease any
fixed maturity amount you have left in that fixed maturity option. We will
discuss the market value adjustment below and in greater detail later in this
prospectus under "More information."
On the maturity date of a fixed maturity option your fixed maturity amount,
assuming you have not made any withdrawals or transfers, will equal your
contribution to that fixed maturity option plus interest, at the rate to
maturity for that contribution, to the date of the calculation. This is the
fixed maturity option's "maturity value." Before maturity, the current value we
will report for your fixed maturity amounts will reflect a market value
adjustment. It will reflect the market value adjustment that we would make if
you were to withdraw all of your fixed maturity amounts on the date of the
report. We call this your "market adjusted amount."
Fixed maturity options and maturity dates. We currently offer fixed maturity
options ending on February 15th for each of the maturity years 2000 through
2009. Not all of these fixed maturity options will be available for annuitant
ages 76 and older. See "Allocating your contributions" below. As fixed maturity
options expire, we expect to add maturity years so that generally 10 are
available at any time.
Under the Assured Payment Option and APO Plus, we offer additional fixed
maturity options ending on February 15th for each of the maturity years 2010
through 2014.
We will not accept allocations to a fixed maturity option if on the date the
contribution is to be applied:
o the fixed maturity option's maturity date is within the current calendar
year; or
o the rate to maturity is 3%; or
<PAGE>
- --------------------------------------------------------------------------------
24 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
o for annuitants ages 76 or older, the fixed maturity option's maturity date
is later than the February 15th immediately following the date annuity
payments are to begin.
Options at maturity date. We will notify you on or before December 31st of the
year before each of your fixed maturity options is scheduled to mature. At that
time, you may choose to have one of the following options take place on the
maturity date, as long as none of the conditions listed above or in "Allocating
your contributions," below would apply:
(a) transfer the maturity value into another available fixed maturity
option, or into any of the variable investment options; or
(b) withdraw the maturity value (there may be a withdrawal charge).
If we do not receive your choice on or before the fixed maturity option's
maturity date, we will automatically transfer your maturity value into the
fixed maturity option that will mature next.
Rates to maturity and price per $100 of maturity value
We can determine the amount required to be allocated to one or more fixed
maturity options in order to produce specified maturity values. For example, we
can tell you how much you need to allocate per $100 of maturity value.
The rates to maturity for new allocations as of April 1, 1999 and the related
price per $100 of maturity value were as follows:
- -----------------------------------------------------------------
FIXED MATURITY
OPTIONS WITH
FEBRUARY 15TH RATE TO MATURITY PRICE
MATURITY DATE OF AS OF PER $100 OF
MATURITY YEAR APRIL 1, 1999 MATURITY VALUE
- -----------------------------------------------------------------
2000 3.25% $97.23
2001 4.04% $92.83
2002 4.33% $88.51
2003 4.46% $84.43
2004 4.52% $80.60
2005 4.67% $76.45
2006 4.77% $72.56
2007 4.79% $69.16
2008 4.87% $65.55
2009 4.97% $61.91
- -----------------------------------------------------------------
Available under the Assured Payment Option and APO Plus
- -----------------------------------------------------------------
FIXED MATURITY
OPTIONS WITH
FEBRUARY 15TH RATE TO MATURITY PRICE
MATURITY DATE OF AS OF PER $100 OF
MATURITY YEAR APRIL 1, 1999 MATURITY VALUE
- -----------------------------------------------------------------
2010 4.90% $59.41
2011 4.90% $56.63
2012 4.90% $53.99
2013 4.90% $51.46
2014 4.90% $49.05
- -----------------------------------------------------------------
Market value adjustment. If you make any withdrawals (including transfers,
surrender of your contract or when we make deductions for charges) from a fixed
maturity option before it matures we will make a market value adjustment, which
will increase or decrease any fixed maturity amount you have in that fixed
maturity option. The amount of the adjustment will depend on two factors:
(a) the difference between the rate to maturity that applies to the amount
being withdrawn and the rate to maturity in effect at that time for new
allocations to that same fixed maturity option, and
(b) the length of time remaining until the maturity date.
In general, if interest rates rise from the time that you originally allocate
an amount to a fixed maturity option to the time that you take a withdrawal,
the market value adjustment will be negative. Likewise, if interest rates drop
at the end of that time, the market value adjustment will be positive. Also,
the amount of the market value adjustment, either up or down, will be greater
the longer the time remaining until the fixed maturity option's maturity date.
Therefore, it is possible that the market value adjustment could greatly reduce
your value in the fixed maturity options, particularly in the fixed maturity
options with later maturity dates.
We provide an explanation of how we calculate the market value adjustment and
information concerning our general account and investments purchased with
amounts allocated to the fixed maturity options, under "More information"
<PAGE>
- --------------------------------------------------------------------------------
Contract features and benefits 25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
later in this prospectus. Appendix III of this prospectus provides an example
of how the market value adjustment is calculated.
Separate account for the fixed maturity options. Amounts allocated to the fixed
maturity options are held in a "nonunitized" separate account we have
established under the New York Insurance Law. This separate account provides an
additional measure of assurance that we will make full payment of amounts due
under the fixed maturity options. We provide additional information about this
separate account later in this prospectus under "More information."
Off maturity date payments. Under Assured Payment Option and APO Plus, you may
choose to receive payments monthly, quarterly or annually. If you choose annual
payments, generally your payments will be made on February 15th as each fixed
maturity option matures. You may instead choose to have your annual payments
made in a month other than February. We refer to payments we make on an annual
basis in any month other than February and monthly or quarterly payments, as
payments made "off maturity dates." If you choose to have your payments made
off maturity dates, we will be required to begin making your payments before
the maturity date of a fixed maturity option. In planning for these payments we
will allocate a portion of your initial contribution or account value to the
separate account for the fixed maturity options, but not to the fixed maturity
options contained in the separate account. We will credit these amounts with
interest at rates that will not be less than 3%.
After that, as each fixed maturity option expires we will transfer your
maturity value from the expired fixed maturity option and hold the maturity
value in the separate account. We will credit interest to these amounts at the
same rate as the rate to maturity that was credited in the expired fixed
maturity option. These amounts will then be used to provide for payments off
maturity dates during the fixed period.
- --------------------------------------------------------------------------------
Whether you choose monthly, quarterly, or annual payments, your payments will
be made on the 15th day of the month.
- --------------------------------------------------------------------------------
We will not make a market value adjustment to the amounts held in the separate
account to provide for payments off maturity dates.
Account for special dollar cost averaging
The account for special dollar cost averaging is part of our general account.
We pay interest at guaranteed rates in this account. We will credit interest to
the amounts that you have in the account for special dollar cost averaging
every day. We set the interest rates periodically, according to procedures that
we have. We reserve the right to change these procedures.
The account for special dollar cost averaging is available for allocation of
your initial contribution only under the special dollar cost averaging program.
It is available only for the first year of your contract. We will guarantee to
pay our current interest rate that is in effect on the date that your
contribution is allocated to this account. Your guaranteed interest rate will
be shown in your contract. The rate will never be less than 3%. See "Allocating
your contributions," below for the rules and restrictions that apply to the
special dollar cost averaging program.
<PAGE>
- --------------------------------------------------------------------------------
26 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE CONTRACT FEATURES AND BENEFITS DESCRIBED BELOW DO NOT APPLY WHEN THE ASSURED
PAYMENT OPTION OR APO PLUS IS IN EFFECT UNDER A ROLLOVER IRA OR FLEXIBLE PREMIUM
IRA CONTRACT. FOR INFORMATION REGARDING YOUR CONTRACT BENEFITS UNDER THE ASSURED
PAYMENT OPTION OR APO PLUS, SEE "ACCESSING YOUR MONEY ASSURED PAYMENT OPTION AND
APO PLUS."
ALLOCATING YOUR CONTRIBUTIONS
You may choose from among three ways to allocate your contributions under your
contract: self-directed, principal assurance or dollar cost averaging.
Self-directed allocation
You may allocate your contributions to one or more, or all, of the variable
investment options and fixed maturity options. Allocations must be in whole
percentages and you may change your allocations at any time. However, the total
of your allocations must equal 100%. If the annuitant is age 76 or older, you
may allocate contributions to fixed maturity options if their maturities are
five years or less. Also, you may not allocate amounts to fixed maturity
options with maturity dates that are later than the February 15th immediately
following the date annuity payments are to begin.
Principal assurance allocation
Under this allocation program you select a fixed maturity option. We specify
the portion of your initial contribution to be allocated to that fixed maturity
option in an amount that will cause the maturity value to equal the amount of
your entire initial contribution on the fixed maturity option's maturity date.
The maturity date you select generally may not be later than 10 years, or
earlier than seven years from your contract date. You allocate the rest of your
contribution to the variable investment options however you choose.
For example, if your initial contribution is $10,000, and on April 1, 1999 you
chose the fixed maturity option with a maturity date of February 15, 2009,
since the rate to maturity was 4.97% on April 1, 1999, we would have allocated
$6,191.16 to that fixed maturity option and the balance to your choice of
variable investment options. On the maturity date your value in the fixed
maturity option would be $10,000.
The principal assurance allocation is only available for annuitant ages 75 or
younger when the contract is issued. If you are purchasing a Rollover IRA,
Flexible Premium IRA, QP or Rollover TSA contract, before you select a maturity
year that would extend beyond the year in which you will reach age 70 1/2, you
should consider whether your value in the variable investment options, or your
other traditional IRA or TSA funds are sufficient to meet your required minimum
distributions. See "Tax information."
Dollar cost averaging
We offer two dollar cost averaging programs. Each program allows you to
gradually allocate amounts to the variable investment options by periodically
transferring approximately the same dollar amount to the variable investment
options you select. This will cause you to purchase more units if the unit's
value is low and fewer units if the unit's value is high. Therefore, you may
get a lower average cost per unit over the long term. These plans of
investing, however, do not guarantee that you will earn a profit or be
protected against losses.
- --------------------------------------------------------------------------------
Units measure your value in each variable investment option.
- --------------------------------------------------------------------------------
Special dollar cost averaging programs. You may dollar cost average from the
account for special dollar cost averaging into any of the variable investment
options. You must allocate your entire initial contribution into the account.
We will transfer your value in the account for special dollar cost averaging
into the variable investment options that you select over the next 12 months.
The transfer date will be the same day of the month as the contract date, but
not later than the 28th. All amounts will
<PAGE>
- --------------------------------------------------------------------------------
Contract features and benefits 27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
be transferred out by the end of the first contract year. You may not allocate
additional contributions to the account for special dollar cost averaging.
- --------------------------------------------------------------------------------
The account for special dollar cost averaging provides guaranteed interest.
- --------------------------------------------------------------------------------
The only amounts that should be transferred from the account for special dollar
cost averaging are your regularly scheduled monthly transfers to the variable
investment options. If you request to transfer or withdraw any other amounts,
we will transfer all of the value that you have remaining in the account for
special dollar cost averaging to the investment options according to the
allocation percentages we have on file for you. As a result, you will no longer
be able to participate in the special dollar cost averaging program. You may
also ask us to cancel your participation at any time.
If the account for special dollar cost averaging is not available in your
state, we offer a special dollar cost averaging program in the Alliance Money
Market option. Under this program we will not deduct the mortality and expense
risks and administrative charges from assets in the Alliance Money Market
option. You may not allocate amounts other than your initial contribution to
this program, which is in effect only for your first contract year. We reserve
the right to discontinue offering the Alliance Money Market special dollar cost
averaging program for new contracts once the account for special dollar cost
averaging becomes available in a state. Your Equitable associate can provide
information about state availability. You may also contact us directly.
General dollar cost averaging program. If your value in the Alliance Money
Market option is at least $5,000, you may choose, at any time, to have a
specified dollar amount or percentage of your value transferred from that
option to the other variable investment options. You can select to have
transfers made on a monthly, quarterly or annual basis. The transfer date will
be the same calendar day of the month as the contract date, but not later than
the 28th day of the month.
The minimum amount that we will transfer each time is $250. The maximum amount
we will transfer is equal to your value in the Alliance Money Market option at
the time the program is elected, divided by the number of transfers scheduled.
If, on any transfer date, your value in the Alliance Money Market option is
equal to or less than the amount you have elected to have transferred, the
entire amount will be transferred. The general dollar cost averaging program
will then end. You may change the transfer amount once each contract year, or
cancel this program at any time.
----------------------------------------
You may not elect dollar cost averaging if you are participating in the
rebalancing program. See "Transferring your money among investment options."
OUR BASEBUILDER OPTION
The baseBUILDER option offers you a combined guaranteed minimum income benefit
and guaranteed minimum death benefit. The combined benefit is available if the
annuitant is between the ages of 20 and 75. There is an additional charge for
this benefit. See "baseBUILDER benefits charge" under "Charges and expenses."
- --------------------------------------------------------------------------------
baseBUILDER provides income protection if you elect an income payout while the
annuitant is alive and a death benefit if the annuitant dies.
- --------------------------------------------------------------------------------
The guaranteed minimum income benefit component of baseBUILDER is described
below under "Your guaranteed minimum income benefit under baseBUILDER." As part
of baseBUILDER you have a choice of two guaranteed minimum death benefit
options: either a "5% roll up to age 80" or an "annual ratchet to age 80."
Under Rollover IRA, Flexible Premium IRA, and Rollover TSA contracts, we offer
an additional option, a "5% roll up to age 70" for ages 20 through 60. The
options are described under "Guaranteed minimum death benefit." The 5% roll up
to age 80 and annual ratchet to age 80 guaranteed minimum death benefits are
provided under the contract even if you do not elect baseBUILDER, and for a
broader range of annuitant
<PAGE>
- --------------------------------------------------------------------------------
28 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ages at contract issue than those available under baseBUILDER. The 5% roll up
to age 70 guaranteed minimum death benefit is only available if baseBUILDER is
elected. baseBUILDER is not currently available in New York.
Your guaranteed minimum income benefit under baseBUILDER
The guaranteed minimum income benefit guarantees you a minimum amount of
lifetime income under our Income Manager (Life Annuity with a Period Certain)
payout annuity contract. The Income Manager (Life Annuity with a Period
Certain) payout annuity contract provides payments during a specified period
of time (called a period certain) that will continue for the rest of the
annuitant's life thereafter. If the annuitant dies before the period certain
has ended, payments will continue to the beneficiary for the time remaining in
the period certain.
- --------------------------------------------------------------------------------
We also refer to the guaranteed minimum income benefit as the "Living
Benefit."
- --------------------------------------------------------------------------------
Guaranteed minimum income benefit's benefit base.
On the contract date, your guaranteed minimum income benefit's benefit base
("benefit base") is equal to the initial contribution. Thereafter, the benefit
base will be credited with interest each day through the annuitant's age 80
(age 70 if the 5% roll up to age 70 is elected). The effective annual interest
rate is 5% for amounts in the variable investment options (other than the
Alliance Money Market option and Alliance Intermediate Government Securities
option) and in the special dollar cost averaging programs. Amounts in the
Alliance Money Market option, Alliance Intermediate Government Securities
option, fixed maturity options, and in a Rollover TSA contract loan reserve
account will be credited with interest at a 3% effective annual rate. No
interest is credited after age 80 (age 70 if the 5% roll up to age 70 is
elected).
If you make an additional contribution to your contract, we will increase your
current benefit base by the dollar amount of the additional contribution on
the date that the contribution is allocated to your investment options. If you
take a withdrawal from your contract, we will adjust your benefit base for the
withdrawal on the date that you make the withdrawal. See "How withdrawals
affect your guaranteed minimum income benefit and guaranteed minimum death
benefit" under "Accessing Your Money" for more detailed information. The
benefit base will be reduced by any withdrawal charge remaining when you
exercise your guaranteed minimum income benefit. Under Rollover TSA contracts,
we will also reduce your benefit base by the amount of any outstanding loan
plus accrued interest on the date that you exercise your guaranteed minimum
income benefit.
- --------------------------------------------------------------------------------
Your benefit base is not an account value or a cash value and is used solely
for purposes of calculating your guaranteed minimum income benefit.
- --------------------------------------------------------------------------------
Exercising your benefit and income you will receive.
If you exercise the guaranteed minimum income benefit, the annual lifetime
income that you will receive under the Income Manager (Life Annuity with a
Period Certain) payout annuity contract, will be the greater of (i) your
guaranteed minimum income benefit, and (ii) the income provided by applying
your actual account value at our then current annuity purchase factors.
The guaranteed minimum income benefit is based on conservative actuarial
factors. Therefore, even if your account value is less than your benefit base,
you may generate more income by applying your account value to current annuity
purchase factors. We will make this comparison for you when the need arises.
- --------------------------------------------------------------------------------
The guaranteed minimum income benefit should be regarded as a safety net only.
- --------------------------------------------------------------------------------
Illustrations of guaranteed minimum income benefit.
The table below illustrates the guaranteed minimum income benefit amounts per
$100,000 of initial contribution, for a male annuitant age 60 (at issue) on the
contract date anniversaries indicated, assuming no additional contributions,
withdrawals, or loans under Rollover TSA contracts, and assuming there were no
allocations to the Alliance Money Market option, Alliance Intermediate
<PAGE>
- --------------------------------------------------------------------------------
Contract features and benefits 29
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Government Securities option or the fixed maturity options.
- --------------------------------------------------------------
GUARANTEED MINIMUM
INCOME BENEFIT -- ANNUAL INCOME
CONTRACT DATE PAYABLE FOR LIFE WITH
ANNIVERSARY AT EXERCISE 10 YEAR PERIOD CERTAIN
- --------------------------------------------------------------
7 $ 8,315
10 10,341
15 14,924
- --------------------------------------------------------------
Under NQ, and all IRA contracts, you may exercise the guaranteed minimum income
benefit only within 30 days following the seventh or later contract date
anniversary under your contract. However, you may not exercise the benefit
before the annuitant is age 60, or after the annuitant is age 83. There is an
exception if the annuitant is between ages 20 and 44 when your contract is
issued. In this case you may exercise the benefit following the 15th or later
contract date anniversary, but not after the annuitant is age 83. See "Exercise
of guaranteed minimum income benefit under QP and Rollover TSA contracts" below
regarding exercising the benefit under QP and Rollover TSA contracts.
Your contract will terminate when you exercise your guaranteed minimum income
benefit. You will then receive an Income Manager (Life Annuity with a Period
Certain) payout annuity contract. Your period certain will be based on the
annuitant's age at the time the benefit is exercised, as follows:
- ----------------------------------------
LEVEL PAYMENTS*
- ----------------------------------------
PERIOD CERTAIN
YEARS
--------------------
ANNUITANT'S
AGE AT EXERCISE IRAS NQ
- ----------------------------------------
60 to 75 10 10
76 9 10
77 8 10
78 7 10
79 7 10
80 7 10
81 7 9
82 7 8
83 7 7
- ----------------------------------------
* Other forms and periods certain may also be available. For Rollover IRA and
Flexible Premium IRA contracts, please see "Minimum distributions" under "Tax
information," as to how this option may be affected if exercised after age
70 1/2.
You will begin receiving payments one payment period after the payout annuity
contract is issued. For example, if you select monthly annuity payments, we
will send your first payment to you approximately one month from the date your
contract is issued.
Each year on your contract date anniversary, if you are eligible to exercise
the guaranteed minimum income benefit, we will send you an eligibility notice
illustrating how much income could be provided as of the contract date
anniversary. You may then notify us within 30 days following the contract date
anniversary if you want to exercise the guaranteed minimum income benefit. You
must return your contract to us in order to exercise this benefit. The amount
of income you actually receive will be determined when we receive your request
to exercise the benefit.
You may also apply your cash value at any time to an Income Manager (Life
Annuity with a Period Certain) payout annuity contract, and you may always
apply your account value to any of our annuity payout options. The traditional
annuity payout options are discussed under "Accessing your money." These
options differ from the Income Manager payout annuity contracts. They may
provide higher or lower income levels, but do not have all the features of the
Income Manager payout annuity contract. You may request an illustration of the
Income Manager payout annuity contract from your Equitable associate.
The Income Manager (Life Annuity with a Period Certain) payout annuity
contracts are offered through our prospectus for the Income Manager payout
annuities. You may obtain a copy of the most current version from your
Equitable associate. You should read it carefully before you decide to exercise
your guaranteed minimum income benefit.
Successor annuitant/contract owner. If the successor annuitant/contract owner
(discussed under "More information" later in this prospectus) elects to
continue the contract after your death, the guaranteed minimum income
<PAGE>
- --------------------------------------------------------------------------------
30 Contract features and benefits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
benefit will continue to be available on the contract date anniversaries
specified above based on the contract date. However, the guaranteed minimum
income benefit must be exercised based on the age of the successor
annuitant/contract owner.
Exercise of guaranteed minimum income benefit under QP and Rollover TSA
contracts. Under QP contracts, the guaranteed minimum income benefit may be
exercised in the same manner as described above only after the trustee of the
qualified plan directly rolls over the QP contract to a Rollover IRA contract.
In this process the ownership of the QP contract is changed to the annuitant.
The rollover to a Rollover IRA contract and change of ownership may only occur
when the annuitant will no longer be a participant in the qualified plan.
Similarly, under Rollover TSA contracts the contract owner must convert the
Rollover TSA contract in a direct rollover to a Rollover IRA contract according
to our rules. The rollover to a Rollover IRA contract may only occur when you
are eligible for a rollover distribution from a TSA. This may generally occur
when you are age 59 1/2, or you are separated from service from the employer
who provided the Rollover TSA funds. See "Rollover or direct transfer
contributions" under "Tax information" later in this prospectus.
GUARANTEED MINIMUM DEATH BENEFIT
Applicable for annuitant ages 0 through 79 at issue of NQ contracts; 20 through
79 at issue of Rollover IRA, Roth Conversion IRA, Flexible Premium Roth IRA,
and Rollover TSA contracts; 20 through 70 at issue of Flexible Premium IRA
contracts; and 20 through 75 at issue of QP contracts.
You may elect either the "5% roll up to age 80" or the "annual ratchet to age
80" guaranteed minimum death benefit when you apply for a contract. Once you
have made your election, you may not change it.
5% roll up to age 80. On the contract date, the guaranteed minimum death
benefit equals your initial contribution. Thereafter, the guaranteed minimum
death benefit will be credited with interest each day through the annuitant's
age 80. The effective annual interest rate is 5% for amounts in the variable
investment options (other than the Alliance Money Market option and Alliance
Intermediate Government Securities option) and in the special dollar cost
averaging programs. Amounts in the Alliance Money Market option, Alliance
Intermediate Government Securities option, fixed maturity options, and in a
Rollover TSA contract loan reserve account will be credited with interest at a
3% effective annual rate. No interest is credited after the annuitant is age
80.
If you make additional contributions, we will increase your current guaranteed
minimum death benefit by the dollar amount of the additional contribution on
the date the contribution is allocated to your investment options. If you take
a withdrawal from your contract, we will adjust your guaranteed minimum death
benefit for the withdrawal on the date you take the withdrawal.
The 5% roll up to age 80 guaranteed minimum death benefit is not available in
New York.
Annual ratchet to age 80. On the contract date, your guaranteed minimum death
benefit equals your initial contribution. Then, on each contract date
anniversary, we will determine your guaranteed minimum death benefit by
comparing your current guaranteed minimum death benefit to your account value
on that contract date anniversary. If your account value is higher than your
guaranteed minimum death benefit, we will increase your guaranteed minimum
death benefit to equal your account value. On the other hand, if your account
value on the contract date anniversary is less than your guaranteed minimum
death benefit, we will not adjust your guaranteed minimum death benefit either
up or down.
If you make additional contributions, we will increase your current guaranteed
minimum death benefit by the dollar amount of the contribution on the date the
contribution is allocated to your investment options. If you take a withdrawal
from your contract, we will adjust your guaranteed minimum death benefit on the
date you take the withdrawal.
<PAGE>
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Contract features and benefits 31
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- --------------------------------------------------------------------------------
Optional guaranteed minimum death benefit available for ages 20 through 60 at
issue of Rollover IRA, Flexible Premium IRA, and TSA contracts if baseBUILDER
is also elected.
5% roll up to age 70. Your guaranteed minimum death benefit will be calculated
as described above under "5% roll up to age 80" except that interest will be
credited only through age 70. Additional contributions or withdrawals will also
be adjusted as described above under "5% roll up to age 80."
Applicable for annuitant ages 80 through 83 when the contract is issued.
On the contract date, your guaranteed minimum death benefit equals your
initial contribution. Thereafter, it will be increased by the dollar amount of
any additional contributions. We will adjust your guaranteed minimum death
benefit if you take any withdrawals.
----------------------------------------
Please see "How withdrawals affect your guaranteed minimum income benefit and
guaranteed minimum death benefit" under "Accessing your money" for information
on how withdrawals affect your guaranteed minimum death benefit. For contracts
issued in New York, the guaranteed minimum death benefit at the annuitant's
death will never be less than your value in the variable investment options,
plus the sum of the fixed maturity amounts in each fixed maturity option.
See Appendix IV for an example of how we calculate the guaranteed minimum death
benefit.
YOUR RIGHT TO CANCEL WITHIN A CERTAIN NUMBER OF DAYS
If for any reason you are not satisfied with your contract, you may return it
to us for a refund. To exercise this cancellation right you must mail the
contract directly to our Processing Office within 10 days after you receive it.
In some states, this "free look" period may be longer.
Generally, your refund will equal your account value under the contract and
will reflect (i) any investment gain or loss in the variable investment
options, (ii) any positive or negative market value adjustments in the fixed
maturity options, and (iii) any guaranteed interest in the account for special
dollar cost averaging, through the date we receive your contract. However, some
states require that we refund the full amount of your contribution (not
reflecting (i), (ii) or (iii) above). For any IRA contract returned to us
within seven days after you receive it, we are required to refund the full
amount of your contribution.
We may require that you wait six months before you may apply for a contract
with us again if:
o you cancel your contract during the free look period; or
o you change your mind before you receive your contract whether we have
received your contribution or not.
Please see "Tax information" for possible consequences of cancelling your
contract.
If you fully convert an existing traditional IRA contract to a Roth Conversion
IRA or Flexible Premium Roth IRA contract, you may cancel your Roth Conversion
IRA contract and return to a Rollover IRA or Flexible Premium IRA contract,
whichever applies. Our Processing Office, or your Equitable associate, can
provide you with the cancellation instructions.
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32 Determining your contract's value
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2
Determining your contract's value
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YOUR ACCOUNT VALUE
Your "account value" is the total of the values you have allocated to the (i)
variable investment options, (ii) fixed maturity options, and (iii) account for
special dollar cost averaging. These amounts are subject to certain fees and
charges discussed under "Charges and expenses." Under Rollover TSA contracts,
if you have any outstanding loan your account value will include any amount in
the loan reserve account.
Your contract also has a "cash value." At any time before annuity payments
begin, your contract's cash value is equal to the account value, less the
annual administrative charge under Flexible Premium IRA and Flexible Premium
Roth IRA contracts, and less any withdrawal charge that may apply if you
surrender your contract. If you have a Rollover TSA contract with an
outstanding loan, your cash value also is reduced by the amount of any
outstanding loan plus accrued interest. Please see "Surrendering your contract
to receive its cash value."
YOUR CONTRACT'S VALUE IN THE VARIABLE INVESTMENT OPTIONS
Each variable investment option invests in shares of a corresponding Portfolio.
Your value in each variable investment option is measured by "units." The value
of your units will increase or decrease as though you had invested it in the
corresponding Portfolio's shares directly. Your value, however, will be reduced
by the amount of the fees and charges that we deduct under the contract. Your
value will also be reduced by the dollar amount of any withdrawals that you
make.
The unit value for each variable investment option depends on the investment
performance of that option, minus daily charges for mortality and expense risks
and administrative expenses. On any day, your value in any variable investment
option equals the number of units credited to your contract under that option,
multiplied by that day's value for one unit. The number of your contract units
in any variable investment option does not change unless you make additional
contributions, make a withdrawal, or transfer amounts among investment options,
or we transfer your loan amount to the loan reserve account under a TSA
contract. In addition, when we deduct the baseBUILDER benefits charge and any
withdrawal charge the number of units credited to your contract will be
reduced. Your units are also reduced under Flexible Premium IRA and Flexible
Premium Roth IRA contracts when we deduct the annual administrative charge. A
description of how unit values are calculated is found in the SAI.
YOUR CONTRACT'S VALUE IN THE FIXED MATURITY OPTIONS
Your value in each fixed maturity option at any time before the maturity date
is the market adjusted amount in each option. This is equivalent to your fixed
maturity amount increased or decreased by the market value adjustment. Your
value, therefore, may be higher or lower than your contributions (less
withdrawals) accumulated at the rate to maturity. At the maturity date, your
value in the fixed maturity option will equal its maturity value. Your value
will also include any amounts held in the separate account to provide for
payments off maturity dates under the Assured Payment Option and APO Plus.
YOUR CONTRACT'S VALUE IN THE ACCOUNT FOR SPECIAL DOLLAR COST AVERAGING
Your value in the account for special dollar cost averaging at any time will
equal your initial contribution allocated to that option, plus interest, less\
the sum of all amounts that have been transferred to the variable investment
options you have selected.
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Transferring your money among investment options 33
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3
Transferring your money among investment options
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TRANSFERRING YOUR ACCOUNT VALUE
At any time before the date annuity payments are to begin, you can transfer
some or all of your account value among the investment options, subject to the
following:
o You may not transfer any amount to the account for special dollar cost
averaging.
o You may not transfer to a fixed maturity option that matures in the current
calendar year, or if its rate to maturity is 3%.
o If the annuitant is 76 or older, you must limit your transfers to fixed
maturity options to those with maturities of five years or less. Also, the
maturity dates may be no later than the February 15th immediately following
the date annuity payments are to begin.
o If you make transfers out of a fixed maturity option other than at its
maturity date the transfer may cause a market value adjustment.
o A transfer request while the Assured Payment Option or APO Plus is in effect
will terminate the option.
You may request a transfer in writing or by telephone using TOPS. You must send
in all written transfer requests directly to our Processing Office.
Transfer requests should specify:
(1) the contract number,
(2) the dollar amounts or percentages of your current account value to be
transferred, and
(3) the investment options to and from which you are transferring.
We may, at any time, restrict the use of market timers and other agents acting
under a power of attorney who are acting on behalf of more than one contract
owner. Any agreements to use market timing services to make transfers are
subject to our rules in effect at that time.
We will confirm all transfers in writing.
REBALANCING YOUR ACCOUNT VALUE
We currently offer a rebalancing program that you can use to automatically
reallocate your account value among the variable investment options. You must
tell us:
(a) the percentage you want invested in each variable investment option
(whole percentages only), and
(b) how often you want the rebalancing to occur (quarterly, semiannually, or
annually on a contract year basis. However, it will occur on the same day
of the month as the contract date).
While your rebalancing program is in effect, we will transfer amounts among
each variable investment option so that the percentage of your account value
that you specify is invested in each option at the end of each rebalancing
date.
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Rebalancing does not assure a profit or protect against loss. You should
periodically review your allocation percentages as your needs change. You may
want to discuss the rebalancing program with your Equitable associate or other
financial adviser before electing the program.
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You may elect the rebalancing program at any time. You may also change your
allocation instructions or cancel the program at any time. If you request a
transfer while the rebalancing program is in effect, we will process the
transfer as requested and then cancel the rebalancing program.
You may not elect the rebalancing program if you are participating in a dollar
cost averaging program or if the Assured Payment Option or APO Plus are in
effect. Rebalancing is not available for amounts you have allocated in the
fixed maturity options.
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34 Accessing your money
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4
Accessing your money
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ASSURED PAYMENT OPTION AND APO PLUS
(Rollover IRA and Flexible Premium IRA contracts only)
We offer two options, the Assured Payment Option and APO Plus, under which you
may receive distributions from your Rollover IRA or Flexible Premium IRA
contract. If you choose one of these two distribution options you will receive
guaranteed payments for a specified period of time we call the "fixed period."
When the fixed period ends you will continue to receive payments for as long as
you are living. Payments based solely on your life are made on a "single life"
basis. You may also elect to receive "joint and survivor" payments that are
based on the joint lifetimes of you and a joint annuitant.
You can elect the Assured Payment Option or APO Plus in the application or at a
later date, provided that your account value is at least $10,000 at the time of
election.
Assured Payment Option and APO Plus benefits will differ for contracts issued
in Maryland. See Appendix VI at the end of this prospectus for more
information.
Assured Payment Option
How we allocate your contributions. In order to provide for the payments you
receive during the fixed period, we allocate a portion of your initial
contribution or account value to fixed maturity options that mature in
consecutive date order. The remaining portion is allocated to the "life
contingent annuity" to provide for the payments you will receive after the
fixed period. The payments are intended to pay out your entire account value
by the end of the fixed period. If you are age 70 1/2 or older, the payments
are also designed to satisfy minimum distribution requirements. See "Tax
Information."
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The life contingent annuity provides for the payments after the fixed period
ends.
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We determine the allocation of your contributions based on a number of factors.
They are:
o the amount of your contribution;
o the form of payments;
o your age and sex (and the age and sex of the joint annuitant, if joint and
survivor payments are elected);
o the frequency of the payments; and
o the fixed period.
We then allocate your initial contribution among:
(1) the fixed maturity options;
(2) the separate account that holds amounts allocated to the fixed maturity
options if we need to make payments to you off maturity dates; and
(3) the life contingent annuity.
We will allocate your additional contributions in the same manner. Additional
contributions will increase the level of your future payments. You may not
change this allocation.
While the Assured Payment Option is in effect, no amounts may be allocated to
the variable investment options and the account for special dollar cost
averaging.
If you are using funds from multiple sources to purchase the Rollover IRA or
Flexible Premium IRA contract with the Assured Payment Option in effect, we
will allocate your contributions to the Alliance Money Market option until we
receive all amounts under the contract. Once all amounts are received we will
then apply them under the Assured Payment Option.
Payments. The payments you receive will increase by 10% every three years
during the fixed period 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.
Whether you choose monthly, quarterly or annual payments, you will usually
begin receiving payments one payment period from the contract date, unless you
elect otherwise, as described under "Off maturity date payments" earlier in
this prospectus. Your payments will always be made on the 15th day of the
month. However, if you are age 53 1/2 or older, you must defer the date your
payments will start until you
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Accessing your money 35
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are age 59 1/2. If you are at least age 59 1/2 at the time the Assured
Payment Option is elected you may choose to defer the date your payments will
start. Generally, you may defer payments for a period of up to 72 months. This
is called the deferral period. 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 contract.
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The deferral period together with the fixed period may be referred to as a
"liquidity period." You will be able to make withdrawals before the end of the
fixed period. You may also choose to surrender your contract for its cash value
while keeping the life contingent annuity in effect.
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Before you decide to defer payments, you should consider the fact that the
amount of income you purchase is based on the rates to maturity in effect on
the date we allocate your contribution. Therefore, if rates rise during the
deferral period, 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 if you are older than age 80. If your deferred
payment start date is after you reach age 70 1/2, you should consider the
effect that deferral may have on your required minimum distributions.
See Appendix V for an example of how payments are made under the Assured
Payment Option.
If you are age 70 1/2 or older, your payments during the fixed period are
designed to meet required minimum distributions under your contract. We
determine the amount of the payments based on the value in each fixed maturity
option and the assigned 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 may then choose to have an additional
amount withdrawn under your contract. We will treat such withdrawal as a lump
sum withdrawal. However, no withdrawal charge will apply. We will then adjust
your future scheduled payments so that the minimum distribution rules are met.
You also have the option to take the amount from other traditional IRA funds
you may have.
Fixed period. The fixed period based on your age at the time the contract is
issued (or your age at the time the Assured Payment Option is elected) 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 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 payments, the fixed period is based on the age of the
younger annuitant.
Purchase restrictions for joint and survivor payments
If you elect payments on a joint and survivor basis;
o the joint annuitant must be your spouse; and
o neither you nor the joint annuitant can be over age 83.
Payments after the fixed period. After the end of the fixed period, we will
continue your payments under the life contingent annuity if either you or the
joint annuitant is living. Payments continue throughout your lifetime (or the
lifetime of the joint annuitant, if joint and survivor payments are elected) on
the same payment schedule (either monthly, quarterly or annually) as the
payments you received during the fixed period.
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36 Accessing your money
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The portion of your contribution allocated to the life contingent annuity does
not have a cash value or an account value and, therefore, does not provide for
withdrawals.
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THERE IS NO DEATH BENEFIT PROVIDED UNDER THE LIFE CONTINGENT ANNUITY AND
PAYMENTS ARE MADE TO YOU ONLY IF YOU (OR THE JOINT ANNUITANT) ARE LIVING WHEN
THE PAYMENTS ARE SCHEDULED TO BEGIN. THESE PAYMENTS ARE ONLY MADE DURING YOUR
LIFETIME AND, IF APPLICABLE, THE LIFETIME OF THE JOINT ANNUITANT. THEREFORE,
YOU SHOULD CONSIDER THE POSSIBILITY THAT NO PAYMENTS WILL BE MADE UNDER THE
LIFE CONTINGENT ANNUITY IF YOU (OR THE JOINT ANNUITANT) DO NOT SURVIVE TO THE
DATE PAYMENTS ARE TO BEGIN.
Under the life contingent annuity you may elect single life or joint and
survivor payments. Joint and survivor payments are available on a 100%,
one-half or two-thirds to survivor basis. Your first payment under the life
contingent annuity will be 10% greater than the final payment under the fixed
period. After the fixed period we will increase your payments annually on each
anniversary of the payment start date under the life contingent annuity. We
will base this increase on the annual increase in the Consumer Price Index, but
it will never be greater than 3% per year.
Allocation of withdrawals. Only lump sum withdrawals are permitted under the
Assured Payment Option. We will subtract your withdrawal from all remaining
fixed maturity options to which your account value is allocated as well as from
amounts held in the separate account to provide for payments off maturity
dates. As a result we will reduce the amount of your payments and the length of
your fixed period. We will also begin making payments to you under the life
contingent annuity at an earlier date. In order to achieve this result we will
withdraw additional amounts over the amount of the withdrawal you requested.
These amounts will be taken from the fixed maturity options and from amounts
held in the separate account to provide for payments off maturity dates. The
amounts are then allocated to the life contingent annuity. The exact additional
amount we withdraw will depend on how much is necessary to assure that the same
pattern of payments will continue in reduced amounts for your life and the life
of the joint annuitant. The first increase in your payments will take place no
later than the date of the next planned increase.
Withdrawals are subject to a withdrawal charge and will have a 10% free
withdrawal amount available. No withdrawal charges will apply to the payments
made during the fixed period or a withdrawal made to meet the minimum
distribution requirement under the contract.
Death benefit. If a death benefit becomes payable during the fixed period we
will pay the death benefit amount to the designated beneficiary. The death
benefit amount is the greater of:
(1) your account value; and
(2) the sum of the fixed maturity amounts in each fixed maturity option plus
any amounts held in the separate account to provide for payments off
maturity dates.
We will not make any payments under the life contingent annuity after your
death unless you have elected payments on a joint and survivor basis. If you
elect joint and one-half or joint and two-thirds to survivor payments, at your
death or the joint annuitant's death, we will reduce the payments by one-half
or one-third, whichever applies.
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A death benefit is never payable under the life contingent annuity. The death
benefit applies only during the fixed period.
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Termination. The Assured Payment Option will be terminated if you:
(1) cancel the option at any time by sending a written request satisfactory to
us; or
(2) submit an additional contribution and you do not want it allocated under
the Assured Payment Option; or
(3) request a transfer of your account value; or
(4) request a change in the date the payments are to start under the life
contingent annuity.
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Accessing your money 37
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Once the Assured Payment Option has ended, the life contingent annuity will
remain in effect and payments will be made if you or the joint annuitant, are
living on the date payments are to start. No additional amounts will be
allocated under the life contingent annuity. You may elect to restart the
Assured Payment Option by submitting a written request satisfactory to us, but
no sooner than three years after the option was terminated. If you own an
Equitable Accumulator Rollover IRA or Flexible Premium IRA contract 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
under your contract. Before terminating the Assured Payment Option, you should
consider the implications this may have under the minimum distribution
requirements. See "Tax information."
Annuity payout options and surrendering the contract. Once your contract is
surrendered or an annuity payout option is chosen, we will return the contract
to you with a notation that the life contingent annuity is still in effect.
You may not surrender the life contingent annuity.
APO Plus
APO Plus is a variation of the Assured Payment Option. Except as indicated
below, APO Plus operates under the same guidelines as the Assured Payment
Option. Under APO Plus you will be able to keep a portion of your value in the
Alliance Common Stock option or the Alliance Equity Index option, whichever one
you choose. Once you have selected a variable investment option it may not be
changed.
You may not elect APO Plus if the Assured Payment Option is already in effect.
APO Plus allows you to remain invested in the variable investment option for
longer than would be possible if you had applied your entire account value all
at once to the Assured Payment Option or to an annuity payout option.
How we allocate your contributions. We allocate a portion of your initial
contribution or account value to the Assured Payment Option. Under the Assured
Payment Option amounts are allocated to the fixed maturity options, the
separate account for payments off maturity dates, and the life contingent
annuity to provide you with a minimum level amount of lifetime payments. Your
remaining account value is allocated to the variable investment option you
select. Periodically during the fixed period we transfer a portion of your
value in the variable investment option to the fixed maturity options to
increase your guaranteed level payments under the Assured Payment Option.
The amount allocated under the Assured Payment Option will provide for level
payments. The amount of the level payments are equal to the amount of the
initial payment that would have been provided if you had allocated your entire
initial contribution or account value under the Assured Payment Option. The
difference between the amount required for level payments and the amount
required for increasing payments provided under the Assured Payment Option, is
allocated to the variable investment option you selected. If you have any value
in the fixed maturity options at the time this option is elected, a market
value adjustment may apply as a result of such amounts being transferred to
activate the Assured Payment Option.
Fixed period. The fixed period and deferral period schedule shown for the
Assured Payment Option will also apply under APO Plus.
On the third February 15th following the date your first payment is made during
the fixed period, a portion of your value in the variable investment option is
transferred to the Assured Payment Option in order to increase your level
payments. If you elect a deferral period of three years or more, a portion of
your value in the variable investment option will be allocated to the Assured
Payment Option on the February 15th before the date your first payment is made.
If your payments are to be made on February 15th, the date of the first payment
will be counted as the first February 15th for the purpose of this transfer to
the Assured Payment Option.
The transfer of amounts to the Assured Payment Option is repeated each third
year during the fixed period. The first increase in payments will be reflected
in the payment made to you after three full years of payments and then every
three years after that. Immediately following your last payment
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38 Accessing your money
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during the fixed period, your remaining value in the variable investment option
is first allocated to the life contingent annuity to change the level payments
previously purchased to increasing payments. If you have any value remaining
after the increasing payments are purchased, this amount is allocated to the
life contingent annuity to further increase your lifetime payments. If your
value in the variable investment option is insufficient to purchase the
increasing payments, then the level payments previously purchased will be
increased as much as possible.
While APO Plus provides you with a minimum amount of level guaranteed lifetime
payments under the Assured Payment Option, the total amount of income that you
will receive over time will depend on the investment performance of the
variable investment option which you selected. It will also depend on the
current rates to maturity and the cost of the life contingent annuity, which
also varies. As a result, the combined amount of guaranteed lifetime income you
receive under APO Plus may be more or less than the amount that could have been
purchased if your entire initial contribution or account value had been
allocated to the Assured Payment Option.
See Appendix V for an example of the payments purchased under APO Plus.
Allocation of additional contributions. Any additional contributions you make
may only be allocated to the variable investment option. We do not permit
additional contributions after the end of the fixed period.
Withdrawals. If you take a lump sum withdrawal or if a lump sum withdrawal is
made to satisfy minimum distribution requirements such withdrawal will be taken
from your value in the variable investment option unless you specify otherwise.
If there is insufficient value in the variable investment option any additional
amount will be taken from the fixed maturity options and from amounts held in
the separate account to provide for payments off maturity dates, in the same
manner as described above for the Assured Payment Option.
Death Benefit. If a death benefit becomes payable during the fixed period we
will pay the death benefit amount to the designated beneficiary. The death
benefit amount is equal to the greater of:
(1) your value in the fixed maturity options; and
(2) the sum of the fixed maturity amounts in each fixed maturity option plus
any amounts held in the separate account to provide for payments off
maturity dates.
When the greater of (1) and (2) above is determined, the value in the variable
investment option is added. 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
written request satisfactory to us. You may choose one of the following two
options if you terminate APO Plus:
(1) your contract will operate under the Equitable Accumulator Rollover IRA
or Flexible Premium IRA rules; or
(2) you may elect the Assured Payment Option.
If you elect the Assured Payment Option, your remaining value in the variable
investment option will be allocated to the fixed maturity options, the separate
account to provide for payments off maturity dates, and the life contingent
annuity. A market value adjustment may apply for any amounts allocated from a
fixed maturity option. 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 account value, current rates to maturity for the fixed maturity
options, and current purchase rates under the life contingent annuity as of the
date of the quote. The actual amount of future income you would receive depends
on the rates in effect on the day you switch to the Assured Payment Option.
WITHDRAWING YOUR ACCOUNT VALUE
You have several ways to withdraw your account value before annuity payments
begin. The table below shows the
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Accessing your money 39
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methods available under each type of contract. More information follows the
table. For the tax consequences of withdrawals, see "Tax information."
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METHOD OF WITHDRAWAL
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SUBSTANTIALLY MINIMUM
CONTRACT LUMP SUM SYSTEMATIC EQUAL DISTRIBUTION
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NQ Yes Yes No No
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Rollover IRA* Yes Yes Yes Yes
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Flexible
Premium IRA* Yes Yes Yes Yes
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Roth Conversion
IRA Yes Yes Yes Yes
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Flexible Premium
Roth IRA Yes Yes Yes No
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QP Yes No No Yes
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Rollover TSA Yes** No No Yes
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* If Assured Payment Option or APO Plus is elected, only lump sum withdrawals
are available.
** For some Rollover TSA contracts, your ability to take withdrawals, loans or
surrender your contract may be limited. You must provide withdrawal
restriction information when you apply for a contract. See "Tax
information -- Tax Sheltered Annuity contracts (TSAs)."
Lump sum withdrawals
(All contracts)
You may take lump sum withdrawals from your account value at any time.
(Rollover TSA contracts may have restrictions.) The minimum amount you may
withdraw is $1,000. If you request to withdraw more than 90% of a contract's
current cash value we will treat it as a request to surrender the contract for
its cash value. See "Surrendering your contract to receive its cash value"
below.
Lump sum withdrawals in excess of the 15% (10% under Assured Payment Option or
APO Plus) free withdrawal amount may be subject to a withdrawal charge. Under
Rollover TSA contracts, if a loan is outstanding, you may only take lump sum
withdrawals as long as the cash value remaining after any withdrawal equals at
least 10% of the outstanding loan plus accrued interest.
Systematic withdrawals
(NQ and all IRA contracts)
You may take systematic withdrawals of a particular dollar amount or a
particular percentage of your account value.
You may take systematic withdrawals on a monthly, quarterly or annual basis as
long as the withdrawals do not exceed the following percentages of your account
value: 1.2% monthly, 3.6% quarterly, and 15.0% annually. The minimum amount you
may take in each systematic withdrawal is $250. If the amount withdrawn would
be less than $250 on the date a withdrawal is to be taken, we will not make a
payment and we will terminate your systematic withdrawal election.
We will make the withdrawals on any day of the month that you select as long as
it is not later than the 28th day of the month. If you do not select a date, we
will make the withdrawals on the same calendar day of the month as the contract
date. You must wait at least 28 days after your contract is issued before your
systematic withdrawals can begin.
You may elect to take systematic withdrawals at any time. If you own an IRA
contract, you may elect this withdrawal method only if you are between ages
59 1/2 and 70 1/2. You may not elect the systematic withdrawal method if you
have balances in the account for special dollar cost averaging.
You may change the payment frequency, or the amount or percentage of your
systematic withdrawals, once each contract year. However, you may not change
the amount or percentage in any contract year in which you have already taken a
lump sum withdrawal. You can cancel the systematic withdrawal option at any
time.
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 withdrawal
amount.
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40 Accessing your money
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Substantially equal withdrawals
(All IRA contracts)
The substantially equal withdrawals option allows you to receive distributions
from your account value without triggering the 10% additional federal tax
penalty, which normally applies to distributions made before age 59 1/2. See
"Tax information." Once you begin to take substantially equal withdrawals, you
should not stop them or change the pattern of your withdrawals until the later
of age 59 1/2 or five full years after the first withdrawal. If you stop or
change the withdrawals or take a lump sum withdrawal, you may be liable for the
10% federal tax penalty that would have otherwise been due on prior withdrawals
made under this option and for any interest on those withdrawals.
You may elect to take substantially equal withdrawals at any time before age
59 1/2. We will make the withdrawal on any day of the month that you select as
long as it is not later than the 28th day of the month. You may not elect to
receive the first payment in the same contract year in which you took a lump
sum withdrawal. We will calculate the amount of your substantially equal
withdrawals based on the method you choose from the choices we offer. The
payments will be made monthly, quarterly or annually as you select. These
payments will continue until we receive written notice from you to cancel this
option or you take a lump sum withdrawal. You may elect to start receiving
substantially equal withdrawals again, but the payments may not restart in the
same contract year in which you took a lump sum withdrawal. We will calculate
the new withdrawal amount.
You may not elect substantially equal withdrawals if you have balances in the
account for special dollar cost averaging.
Substantially equal withdrawals are not subject to a withdrawal charge.
Minimum distribution withdrawals
(Rollover IRA, Flexible Premium IRA, QP, and Rollover TSA contracts only -- See
"Tax information")
We offer the minimum distribution withdrawal option to help you meet required
minimum distributions under federal income tax rules. You may elect this option
in the year in which you reach age 70 1/2. The minimum amount we will pay out
is $250. You may elect the method you want us to use to calculate your minimum
distribution withdrawals from the choices we offer. Currently, minimum
distribution withdrawal payments will be made annually.
We do not impose a withdrawal charge on minimum distribution withdrawals except
if when added to a lump sum withdrawal previously taken in the same contract
year, the minimum distribution withdrawal exceeds the 15% free withdrawal
amount.
We will calculate your annual payment based on your account value at the end of
the prior calendar year based on the method you choose.
Under Rollover TSA contracts, you may not elect minimum distribution
withdrawals if a loan is outstanding.
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For Rollover IRA, Flexible Premium IRA, QP, and Rollover TSA contracts, we will
send a form outlining the distribution options available before you reach age
70 1/2 (if you have not begun your annuity payments before that time).
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HOW WITHDRAWALS ARE TAKEN FROM YOUR ACCOUNT VALUE
Unless you specify otherwise, we will subtract your withdrawals on a pro rata
basis from your value in the variable investment options. If there is
insufficient value or no value in the variable investment options, any
additional amount of the withdrawal required or the total amount of the
withdrawal will be withdrawn from the fixed maturity options in order of the
earliest maturity date(s) first. A market value adjustment may apply.
HOW WITHDRAWALS AFFECT YOUR GUARANTEED MINIMUM INCOME BENEFIT AND GUARANTEED
MINIMUM DEATH BENEFIT
Withdrawals will reduce your guaranteed benefits on either a dollar-for-dollar
basis or on a pro rata basis as explained below:
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Accessing your money 41
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Income benefit
Benefit base - Your current benefit base will be reduced on a dollar-for-dollar
basis as long as the sum of your withdrawals in a contract year is 5% or less
of the guaranteed minimum death benefit on the most recent contract date
anniversary. Once you take a withdrawal that causes the sum of your withdrawals
in a contract year to exceed 5% of the guaranteed minimum death benefit on the
most recent contract date anniversary, that withdrawal and any subsequent
withdrawals in that same contract year will reduce your current benefit base on
a pro rata basis.
Death benefit
5% roll up to age 80 or age 70 - If you elect the 5% roll up to age 80 or 5%
roll up to age 70 guaranteed minimum death benefit, your current guaranteed
minimum death benefit will be reduced on a dollar-for-dollar basis as long as
the sum of your withdrawals in a contract year is 5% or less of the guaranteed
minimum death benefit on the most recent contract date anniversary. Once you
take a withdrawal that causes the sum of your withdrawals in a contract year to
exceed 5% of the guaranteed minimum death benefit on the most recent contract
date anniversary, that withdrawal and any subsequent withdrawals in that same
contract year will reduce your current guaranteed minimum death benefit on a
pro rata basis.
Annual ratchet to age 80 - If you elect the annual ratchet to age 80 guaranteed
minimum death benefit, each withdrawal will always reduce your current
guaranteed minimum death benefit on a pro rata basis.
Annuitant issue ages 80 through 83 - If your contract was issued when the
annuitant was between ages 80 and 83, each withdrawal will always reduce your
current guaranteed minimum death benefit on a pro rata basis.
----------------------------------------
Reduction on a dollar-for-dollar basis means that your current benefit will be
reduced by the dollar amount of the withdrawal. Reduction on a pro rata basis
means that we calculate the percentage of your current account value that is
being withdrawn and we reduce your current benefit by that same percentage. For
example, if your account value is $30,000 and you withdraw $12,000, you have
withdrawn 40% of your account value. If your guaranteed minimum death benefit
was $40,000 before the withdrawal, it would be reduced by $16,000 ($40,000
x.40) and your new guaranteed minimum death benefit after the withdrawal would
be $24,000 ($40,000 - $16,000).
The timing of your withdrawals and whether they exceed the 5% threshold
described above can have a significant impact on your guaranteed minimum income
benefit or guaranteed minimum death benefit.
LOANS UNDER ROLLOVER TSA CONTRACTS
You may take loans from a Rollover TSA unless restricted by the employer who
provided the Rollover TSA funds. If you cannot take a loan, or cannot take a
loan without approval from the employer who provided the funds, we will have
this information in our records based on what you and the employer who provided
the funds told us when you purchased your contract. The employer must also tell
us whether special employer plan rules of the Employee Retirement Income
Security Act of 1974 ("ERISA") apply. We will not permit you to take a loan
while you are taking minimum distribution withdrawals.
You should read the terms and conditions on our loan request form carefully
before taking out a loan. Under Rollover TSA contracts subject to ERISA, you
may only take a loan with the written consent of your spouse. Your contract
contains further details of the loan provision. Also, see "Tax information" for
general rules applicable to loans.
We will permit you to have only one loan outstanding at a time. The minimum
loan amount is $1,000. The maximum amount is $50,000 or, if less, 50% of your
account value, subject to any limits under the federal income tax rules. The
term of a loan is five years. However, if you use the loan to acquire your
primary residence, the term is 10 years. The term may not extend beyond the
earliest of:
(1) the date annuity payments begin,
(2) the date the contract terminates, and
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42 Accessing your money
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(3) the date a death benefit is paid (the outstanding loan will be deducted
from the death benefit amount).
Interest will accrue daily on your outstanding loan at a rate we set. The loan
interest rate will be equal to the Moody's Corporate Bond Yield Averages for
the calendar month ending two months before the day of the calendar quarter in
which the rate is determined.
Loan reserve account. On the date your loan is processed, we will transfer the
amount of your loan to the loan reserve account. Unless you specify otherwise,
we will subtract your loan on a pro rata basis from your value in the variable
investment options. If there is insufficient value or no value in the variable
investment options, any additional amount of the loan will be subtracted from
the fixed maturity options in order of the earliest maturity date(s) first. A
market value adjustment may apply.
We will credit interest to the amount in the loan reserve account at a rate of
2% lower than the loan interest rate that applies for the time your loan is
outstanding. On each contract date anniversary after the date the loan is
processed, we will transfer the amount of interest earned in the loan reserve
account to the variable investment options on a pro rata basis. When you make a
loan repayment, unless you specify otherwise, we will transfer the dollar
amount of the loan repaid from the loan reserve account to the investment
options according to the allocation percentages we have on our records.
SURRENDERING YOUR CONTRACT TO RECEIVE ITS CASH VALUE
You may surrender your contract to receive its cash value at any time while the
annuitant is living and before you begin to receive annuity payments. (Rollover
TSA contracts may have restrictions.) For a surrender to be effective, we must
receive your written request and your contract at our Processing Office. We
will determine your cash value on the date we receive the required information.
All benefits under the contract will terminate as of that date.
You may receive your cash value in a single sum payment or apply it to one or
more of the annuity payout options. See "Choosing your annuity payout options"
below. We will usually pay the cash value within seven calendar days, but we
may delay payment as described in "When to expect payments," below. For the tax
consequences of surrenders, see "Tax information."
WHEN TO EXPECT PAYMENTS
Generally, we will fulfill requests for payments out of the variable investment
options within seven calendar days after the date of the transaction to which
the request relates. These transactions may include applying proceeds to a
variable annuity, payment of a death benefit, payment of any amount you
withdraw (less any withdrawal charge) and, upon surrender, payment of the cash
value. We may postpone such payments or applying proceeds for any period during
which:
(1) the New York Stock Exchange is closed or restricts trading,
(2) sales of securities or determination of the fair value of a variable
investment option's assets is not reasonably practicable because of an
emergency, or
(3) the SEC, by order, permits us to defer payment to protect people
remaining in the variable investment options.
We can defer payment of any portion of your value in the fixed maturity options
and the account for special dollar cost averaging (other than for death
benefits) for up to six months while you are living. We also may defer payments
for a reasonable amount of time (not to exceed 15 days) while we are waiting
for a contribution check to clear.
All payments are made by check and are mailed to you (or the payee named in a
tax-free exchange) by U.S. mail, unless you request that we use an express
delivery service at your expense.
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Accessing your money 43
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CHOOSING YOUR ANNUITY PAYOUT OPTIONS
The Equitable Accumulator offers you several choices for receiving retirement
income. Each choice enables you to receive fixed or, in some cases, variable
annuity payments.
You can choose from among the six different annuity payout options listed
below. Restrictions apply, depending on the type of contract you own.
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Annuity payout options Life annuity
Life annuity - period
certain
Life annuity - refund
certain
Period certain annuity
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Income Manager payout Life annuity with a period
options certain
Period certain annuity
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Annuity payout options
You can choose from among the following annuity payout options:
o Life annuity: An annuity that 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 continuation of benefits following
the annuitant's death with this payout option, it provides the highest
monthly payment of any of the life annuity options, so long as the annuitant
is living.
o Life annuity - period certain: An annuity that guarantees payments for the
rest of the annuitant's life. If the annuitant dies before the end of a
selected period of time ("period certain"), payments continue to the
beneficiary for the balance of the period certain. A life annuity with a
period certain of 10 years is the normal form of annuity under the
contracts. The period certain cannot extend beyond the annuitant's life
expectancy.
o Life annuity - refund certain: An annuity that guarantees payments for the
rest of the annuitant's life. If the annuitant dies before the amount
applied to purchase the annuity option has been recovered, payments to the
beneficiary will continue until that amount has been recovered. This payout
option is available only as a fixed annuity.
o Period certain annuity: An annuity that guarantees payments for a specific
period of time, usually 5, 10, 15 or 20 years. This option does not
guarantee payments for the rest of the annuitant's life. It does not permit
any repayment of the unpaid principal, so you cannot elect to receive part
of the payments as a single sum payment with the rest paid in monthly
annuity payments. Currently, this payout option is available only as a fixed
annuity.
All of the above payout options are available as fixed annuities. With fixed
annuities, we guarantee fixed annuity payments that will be based either on the
tables of guaranteed annuity payments in your contract or on our then current
annuity rates, whichever is more favorable for you.
The life annuity, life annuity - period certain, and life annuity - refund
certain payout options are available on a single life or joint and survivor
life basis. The joint and survivor life annuity guarantees payments for the
rest of the annuitant's life and, after the annuitant's death, payments
continue to the survivor.
The following annuity payout options are available as variable annuities:
o Life annuity (except in New York).
o Life annuity - period certain.
o Joint and survivor life annuity (100% to survivor).
o Joint and survivor life period certain annuity (100% to survivor).
Variable annuities may be funded through your choice of variable investment
options investing in Portfolios of The Hudson River Trust. The contract also
offers a fixed annuity payout option which can be elected in combination with
the variable annuity payout options. The amount of each variable annuity
payment will fluctuate, depending upon the performance of the variable
investment options, and
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44 Accessing your money
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whether the actual rate of investment return is higher or lower than an assumed
base rate. Please see "Annuity Unit Values" in the SAI.
We may offer other payout options not outlined here. Your Equitable associate
can provide details.
Selecting an annuity payout option
When you select a payout option, we will issue you a separate written agreement
confirming your right to receive annuity payments. We require you to return
your contract before annuity payments begin.
For NQ and IRA contracts, unless you choose a different payout option, we will
pay annuity payments under a life annuity with a certain period of 10 years.
The only payout options available under QP contracts and Rollover TSA contracts
are the life annuity 10 year period certain and the joint and survivor life
annuity 10 year period certain.
You can choose the date annuity payments begin but it may not be earlier than
one year from the contract date. You can change the date your annuity payments
are to begin anytime before that date as long as you do not choose a date later
than the 28th day of any month. Also, that date may not be later than the
contract date anniversary that follows the annuitant's 90th birthday. This may
be different in some states.
Before your annuity payments are to begin, we will notify you by letter that
the annuity payout options are available. Once you have selected a payout
option and payments have begun, no change can be made other than transfers (if
permitted in the future) among the variable investment options if a variable
annuity is selected.
The amount of the annuity payments will depend on the amount applied to
purchase the annuity, the type of annuity chosen and whether it is fixed or
variable, in the case of a life annuity, the annuitant's age (or the
annuitant's and joint annuitant's ages) and in certain instances, the sex of
the annuitant(s).
The amount we apply to provide annuity payments will depend on the type of
payout option you select. If you select a payout option that provides for
payments for the rest of the annuitant's life, then we will apply your account
value. If you select a payout option that provides for payments for a period
certain, then we will apply your cash value. However, if the period certain is
more than five years, we will apply not less than 95% of the account value.
Amounts in the fixed maturity options that are applied to a payout option
before a maturity date will result in a market value adjustment.
If, at the time you elect a payout option, 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 account value in a single sum rather
than as payments under the payout option chosen.
Income Manager payout options
For NQ and IRA contracts, two Income Manager payout options are also available.
These are the Income Manager (Life Annuity with a Period Certain) and the
Income Manager (Period Certain).
For QP contracts, the Income Manager payout options are available only after
the trustee of the qualified plan directly rolls over the QP contract to a
Rollover IRA contract. In this process the ownership of the QP contract is
changed to the annuitant. The rollover to a Rollover IRA contract and the
change of ownership may only occur when the annuitant will no longer be a
participant in the qualified plan.
For Rollover TSA contracts, the Income Manager payout annuity options are
available only after the Rollover TSA contract is rolled over to a Rollover IRA
contract. This may generally occur when you are age 59 1/2, or you have
separated from service with the employer who provided the Rollover TSA funds.
The Income Manager (Life Annuity with a Period Certain) provides guaranteed
payments for the annuitant's life or for the annuitant's life and the life of a
joint annuitant. The Income Manager (Period Certain) provides payments for a
specified period. The contract owner and annuitant must meet the issue age and
payment requirements. Both Income Manager annuities provide guaranteed level
payments (NQ
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Accessing your money 45
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and IRA contracts). The Income Manager (Life Annuity with a Period Certain)
also provides guaranteed increasing payments (NQ contracts only).
If you apply only part of the account value of your contract to either of the
Income Manager payout annuities we will consider it a withdrawal and may deduct
a withdrawal charge. We will not deduct a withdrawal charge if you apply all of
your account value at a time when the dollar amount of the withdrawal charge is
greater than 2% of remaining contributions (after withdrawals). However, a new
withdrawal charge schedule will apply under the Income Manager annuity. For
purposes of the withdrawal charge schedule, the year in which your account
value is applied under the Income Manager annuity will be "contract year 1." In
addition, we will not deduct a withdrawal charge if you apply all of your
account value from your Equitable Accumulator contract when the dollar amount
of the withdrawal charge under such contract is 2% or less. This means that no
withdrawal charge schedule will apply under the Income Manager payout annuity
contract.
You should consider the timing of your purchase as it relates to the potential
for withdrawal charges under the Income Manager annuity. No additional
contributions will be permitted under an Income Manager (Life Annuity with a
Period Certain).
You also may apply your account value to an Income Manager (Period Certain)
annuity once withdrawal charges are no longer in effect under your contract. No
withdrawal charges will apply under that Income Manager annuity.
The Income Manager annuities are described in a separate prospectus. Copies of
the most current version are available from your Equitable associate. To
purchase an Income Manager annuity we also require the return of your contract.
We will issue an Income Manager annuity to put one of the payout annuities into
effect. Depending upon your circumstances, this may be done on a tax-free
basis. Please consult your tax adviser.
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46 Charges and expenses
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5
Charges and expenses
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CHARGES THAT EQUITABLE LIFE DEDUCTS
We deduct the following charges each day from the net assets of each variable
investment option. These charges are reflected in the unit values of each
variable investment option:
o A mortality and expense risks charge.
o An administrative charge.
We deduct the following charges from your account value. When we deduct these
charges from your variable investment options, we reduce the number of units
credited to your contract:
o On each contract date anniversary - an annual administrative charge
(Flexible Premium IRA and Flexible Premium Roth IRA contracts only)
o At the time you make certain withdrawals or surrender your contract - a
withdrawal charge.
o If you elect the optional benefit - a charge for the optional baseBUILDER
benefit.
o At the time annuity payments are to begin - charges for state premium and
other taxes. An annuity administrative fee may also apply.
More information about these charges appears below. We will not increase these
charges for the life of your contract, except as noted. We may reduce certain
charges under group or sponsored arrangements. See "Group or sponsored
arrangements" below.
To help with your retirement planning, we may offer other annuities with
different charges, benefits, and features. Please contact your Equitable
associate for more information.
Mortality and expense risks charge
We deduct a daily charge from the net assets in each variable investment option
to compensate us for mortality and expense risks, including the guaranteed
minimum death benefit. The daily charge is equivalent to an annual rate of
1.10% of the net assets in each variable investment option.
The mortality risk we assume is the risk that annuitants as a group will live
for a longer time than our actuarial tables predict. If that happens, 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 contract, 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 contract. The
expense risk we assume is the risk that it will cost us more to issue and
administer the contracts than we expect.
Administrative charge
We deduct a daily charge from the net assets in each variable investment option
to compensate us for administrative expenses under the contracts. The daily
charge is equivalent to an annual rate of 0.25% of the net assets in each
variable investment option. We reserve the right under the contracts to
increase this charge to an annual rate of 0.35%.
Annual administrative charge (Flexible Premium IRA and Flexible Premium Roth
IRA contracts only)
Under Flexible Premium IRA and Flexible Premium Roth IRA contracts, we deduct
an administrative charge from your account value on each contract date
anniversary. We deduct the charge if your account value on the last business
day of the contract year, before the deduction of any other charges, is less
than $25,000. If your account value on such date is $25,000 or more, this
charge will equal zero. During the first two contract years, the charge is
equal to $30 or, if less, 2% of your account value. The charge is $30 for
contract years three and later.
We will deduct this charge from your value in the variable investment options
on a pro rata basis. If there is not enough value in the variable investment
options, we will deduct all or a portion of the charge from the fixed maturity
options in order of the earliest maturity date(s) first. If you surrender your
contract during the contract year we will deduct a pro rata portion of the
charge.
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Charges and expenses 47
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Withdrawal charge
A withdrawal charge applies in two circumstances:
(1) if you make one or more withdrawals during a contract year that, in total,
exceed the 15% free withdrawal amount, described below, or (2) if you surrender
your contract to receive its cash value.
The withdrawal charge equals a percentage of the contributions withdrawn. The
percentage that applies depends on how long each contribution has been invested
in the contract. We determine the withdrawal charge separately for each
contribution according to the following table:
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CONTRACT YEAR
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1 2 3 4 5 6 7 8+
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Percentage of
contribution 7% 6% 5% 4% 3% 2% 1% 0%
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If the Assured Payment Option or APO Plus is in effect, the withdrawal charge
is equal to a percentage of the contributions withdrawn minus any amounts
allocated to the life contingent annuity.
For purposes of calculating the withdrawal charge, we treat the contract year
in which we receive a contribution as "contract year 1." Amounts withdrawn up
to the free withdrawal amount are not considered withdrawal of any
contribution. We also treat contributions that have been invested the longest
as being withdrawn first. We treat contributions as withdrawn before earnings
for purposes of calculating the withdrawal charge. However, federal income tax
rules treat earnings under your contract as withdrawn first. See "Tax
information."
In order to give you the exact dollar amount of the withdrawal you request, we
deduct the amount of the withdrawal and the withdrawal charge from your account
value. Any amount deducted to pay a withdrawal charge is also subject to a
withdrawal charge. We deduct the charge in proportion to the amount of the
withdrawal subtracted from each investment option. The withdrawal charge helps
cover our sales expenses.
The withdrawal charge does not apply in the circumstances described below.
15% free withdrawal amount. Each contract year you can withdraw up to 15% of
your account value without paying a withdrawal charge. The 15% free withdrawal
amount is determined using your account value on the most recent contract date
anniversary, minus any other withdrawals made during the contract year. The 15%
free withdrawal amount does not apply if you surrender your contract.
The free withdrawal amount is 10% of your account value under the Assured
Payment Option and APO Plus.
Note the following special rule for NQ contracts issued to a charitable
remainder trust, the free withdrawal amount will equal the greater of: (1) the
current account value, less contributions that have not been withdrawn
(earnings in the contract), and (2) the 15% free withdrawal amount defined
above.
Minimum distributions. The withdrawal charge does not apply to withdrawals
taken under our minimum distribution withdrawal option. However, those
withdrawals are counted towards the 15% free withdrawal amount if you also make
a lump sum withdrawal in any contract year.
Disability, terminal illness or confinement to nursing home. The withdrawal
charge also does not apply if:
o The annuitant has qualified to receive Social Security disability benefits
as certified by the Social Security Administration; or
o We receive proof satisfactory to us (including certification by a licensed
physician) that the annuitant's life expectancy is six months or less; or
o The annuitant has been confined to a nursing home for more than 90 days (or
such other period, as required in your state) as verified by a licensed
physician. A nursing home for this purpose means one that is (a) approved by
Medicare as a provider of skilled nursing care service, or (b) licensed as a
skilled nursing home by the state or territory in which it is located (it
must be within the United States,
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48 Charges and expenses
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Puerto Rico, or U.S. Virgin Islands) and meets all of the following:
- its main function is to provide skilled, intermediate, or custodial
nursing care;
- it provides continuous room and board to three or more persons;
- it is supervised by a registered nurse or licensed practical nurse;
- it keeps daily medical records of each patient;
- it controls and records all medications dispensed; and
- its primary service is other than to provide housing for residents.
We reserve the right to impose a withdrawal charge, in accordance with your
contract and applicable state law, if the disability is caused by a preexisting
condition or a condition that began within 12 months of the contract date. Some
states may not permit us to waive the withdrawal charge in the above
circumstances, or may limit the circumstances for which the withdrawal charge
may be waived. Your Equitable associate can provide more information or you may
contact our Processing Office.
baseBUILDER benefits charge
If you elect the baseBUILDER combined guaranteed minimum income benefit and
guaranteed minimum death benefit, we deduct a charge annually from your account
value on each contract date anniversary. The charge is equal to 0.30% of the
benefit base in effect on the contract date anniversary.
We will deduct this charge from your value in the variable investment options
on a pro rata basis. If there is not enough value in the variable investment
options, we will deduct all or a portion of the charge from the fixed maturity
options in order of the earliest maturity date(s) first. A market value
adjustment may apply.
Charges for state premium and other applicable taxes
We deduct a charge for applicable taxes such as premium taxes that may be
imposed in your state. Generally, we deduct the charge from the amount applied
to provide an annuity payout. The current tax charge that might be imposed
varies by state and ranges from 0% to 3.5% (1% in Puerto Rico and 5% in the
U.S. Virgin Islands).
Annuity administrative fee
We generally deduct a fee of up to $350 from the amount to be applied to
purchase a life annuity payout option.
CHARGES THAT THE TRUSTS DEDUCT
The Hudson River Trust and EQ Advisors Trust each deducts charges for the
following types of fees and expenses:
o Investment advisory fees ranging from 0.25% to 1.15%.
o 12b-1 fees of 0.25%.
o Operating expenses, such as trustees' fees, independent auditors' fees,
legal counsel fees, administrative service fees, custodian fees, and
liability insurance.
o Investment-related expenses, such as brokerage commissions.
These charges are reflected in the daily share price of each Portfolio. Since
shares of each trust are purchased at their net asset value, these fees and
expenses are, in effect, passed on to the variable investment options and are
reflected in their unit values. For more information about these charges,
please refer to the prospectuses for The Hudson River Trust and EQ Advisors
Trust following this 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 also may change the guaranteed minimum income
benefit and the guaranteed minimum death benefit,
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Charges and expenses 49
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or offer variable investment options that invest in shares of The Hudson River
Trust or EQ Advisors Trust that are not subject to the 12b-1 fee. Group
arrangements include those in which a trustee or an employer, for example,
purchases contracts covering a group of individuals on a group basis. Group
arrangements are not available for IRA contracts. Sponsored arrangements
include those in which an employer allows us to sell contracts to its employees
or retirees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the size
and stability of the group or sponsoring organization, among other factors. We
take all these factors into account when reducing charges. To qualify for
reduced charges, a group or sponsored arrangement must meet certain
requirements, such as requirements for size and number of years in existence.
Group or sponsored arrangements that have been set up solely to buy contracts
or that have been in existence less than six months will not qualify for
reduced charges.
We also may establish different rates to maturity for the fixed maturity
options under different classes of contracts for group or sponsored
arrangements.
We will make these and any similar reductions according to our rules in effect
when we approve a contract for issue. We may change these rules from time to
time. Any variation in the withdrawal charge will reflect differences in costs
or services and will not be unfairly discriminatory.
Group or sponsored arrangements may be governed by federal income tax rules,
ERISA, or both. We make no representations with regard to the impact of these
and other applicable laws on such programs. We recommend that employers,
trustees, and others purchasing or making contracts available for purchase
under such programs seek the advice of their own legal and benefits advisers.
OTHER DISTRIBUTION ARRANGEMENTS
We may reduce or eliminate charges when sales are made in a manner that result
in savings of sales and administrative expenses, such as sales through persons
who are compensated by clients for recommending investments and who receive no
commission or reduced commissions in connection with the sale of the contracts.
We will not permit a reduction or elimination of charges where it would be
unfairly discriminatory.
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Payment of death benefit
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YOUR BENEFICIARY AND PAYMENT OF BENEFIT
You designate your beneficiary when you apply for your contract. You may change
your beneficiary at any time. The change will be effective on the date the
written request for the change is signed. Under jointly owned contracts, the
surviving owner is considered the beneficiary, and will take the place of any
other beneficiary. You may be limited as to the beneficiary you can designate
in a Rollover TSA contract. In a QP contract, the beneficiary must be the
trustee.
The death benefit is equal to your account value, or, if greater, the
guaranteed minimum death benefit. The guaranteed minimum death benefit is part
of your contract, whether you select the combined baseBUILDER benefit or not.
We determine the amount of the death benefit as of the date we receive
satisfactory proof of the annuitant's death and any required instructions for
the method of payment. Under Rollover TSA contracts we will deduct the amount
of any outstanding loan plus accrued interest from the amount of the death
benefit.
The death benefit payable under the Assured Payment Option or APO Plus is
described earlier in this prospectus. See "Assured Payment Option and APO
Plus."
Effect of the annuitant's death
If the annuitant dies before the annuity payments begin, we will pay the death
benefit to your beneficiary.
Generally, the death of the annuitant terminates the contract. However, a
beneficiary who is the surviving spouse of the owner/annuitant can choose to be
treated as the successor owner/annuitant and continue the contract. Only a
spouse can be a successor owner/annuitant. Under Rollover TSA contracts, you
cannot have a successor owner/annuitant.
For Rollover IRA and Flexible Premium IRA contracts, a beneficiary who is not a
surviving spouse may be able to have limited ownership.
When an NQ contract owner dies before the annuitant
Under certain conditions the owner can change after the original owner's death.
When you are not the annuitant under an NQ contract and you die before annuity
payments begin, the beneficiary named to receive the death benefit upon the
annuitant's death will automatically become the successor owner. If you do not
want the person named to receive the death benefit upon the annuitant's death
to be the successor owner, you should name a successor owner. You may name a
different person that will become the successor owner at any time by sending
satisfactory notice to our Processing Office. If the contract is jointly owned
and the first owner to die is not the annuitant, the surviving owner becomes
the sole contract owner. This person will be considered the "beneficiary" for
purposes of the distribution rules described in this section. The surviving
owner automatically takes the place of any other beneficiary designation.
Unless the surviving spouse of the owner who has died (or in the case of a
joint ownership situation, the surviving spouse of the first owner to die) is
the successor owner for this purpose, the entire interest in the contract must
be distributed under the following rules:
o The cash value of the contract must be fully paid to the designated
beneficiary (new owner) by December 31st of the fifth calendar year after
your death (or in a joint ownership situation, the death of the first owner
to die).
o The successor owner may instead elect to receive the cash value as a life
annuity (or payments for a period certain of not longer than the new owner's
life expectancy). Payments must begin no later than December 31st following
the calendar year of the non-annuitant owner's death. Unless this
alternative is elected, we will pay any cash value on December 31st of the
fifth calendar year following the year of your death (or the death of the
first owner to die).
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o If the surviving spouse is the successor owner or joint owner, the spouse
may elect to continue the contract. No distributions are required as long as
the surviving spouse and annuitant are living.
HOW DEATH BENEFIT PAYMENT IS MADE
We will pay the death benefit to the beneficiary in the form of the annuity
payout option you have chosen. If you have not chosen an annuity payout option
as of the time of the annuitant's death, the beneficiary will receive the death
benefit in a single sum. However, subject to any exceptions in the contract,
our rules and any applicable requirements under federal income tax rules, the
beneficiary may elect to apply the death benefit to one or more annuity payout
options we offer at the time. See "Choosing your annuity payout options"
earlier in this prospectus. Please note that if you are both the contract owner
and the annuitant, you may elect only a life annuity or an annuity that does
not extend beyond the life expectancy of the beneficiary.
Successor owner and annuitant
If you are both the contract owner and the annuitant, and your spouse is the
sole beneficiary or the joint owner, then your spouse may elect to receive the
death benefit or continue the contract as successor owner/annuitant.
If your surviving spouse decides to continue the contract, then on the contract
date anniversary following your death, we will increase the account value to
equal your current guaranteed minimum death benefit, if it is higher than the
account value. In determining whether the guaranteed minimum death benefit will
continue to grow, we will use your surviving spouse's age (as of the contract
date anniversary).
BENEFICIARY CONTINUATION OPTION FOR ROLLOVER IRA AND FLEXIBLE PREMIUM IRA
CONTRACTS
Upon your death under a Rollover IRA or Flexible Premium IRA contract, a
non-spouse beneficiary may generally elect to keep the contract in your name
and receive distributions under the contract instead of the death benefit being
paid in a single sum.
If you die AFTER the "required beginning date" (see "Tax information") for
required minimum distributions, the contract will continue if:
(a) you were receiving minimum distribution withdrawals from this contract;
and
(b) the pattern of minimum distribution withdrawals you chose was based in
part on the life of the designated beneficiary.
The withdrawals will then continue to be paid to the beneficiary on the same
basis as you chose before your death. We will be able to tell your beneficiary
whether this option is available to them. You should contact our Processing
Office for further information.
If you die BEFORE the "required beginning date" (and therefore you were not
taking minimum distribution withdrawals under the contract), the beneficiary
may begin taking minimum distribution withdrawals under the contract. We will
increase the account value to equal the death benefit if the death benefit is
greater than the account value. That amount will be used to provide the
withdrawals. These withdrawals will begin by December 31st of the calendar year
following your death and will be based on the beneficiary's life expectancy. If
there is more than one beneficiary, the shortest life expectancy is used.
The designated beneficiary must be a natural person and of legal age at the
time of election. The beneficiary must elect this option within 30 days
following the date we receive proof of your death. This option may not be
elected if the Assured Payment Option or APO Plus were in effect at the time of
your death.
While the contract continues in your name, the beneficiary may make transfers
among the investment options. However, additional contributions will not be
permitted and the guaranteed minimum income benefit and the death benefit
(including the guaranteed minimum death benefit)
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provisions will no longer be in effect. Although the only withdrawals that will
be permitted are minimum distribution withdrawals, the beneficiary may choose
at any time to withdraw all of the account value and no withdrawal charges will
apply.
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OVERVIEW
In this part of the prospectus, we discuss the current federal income tax rules
that generally apply to Equitable Accumulator contracts owned by United States
taxpayers. The tax rules can differ, depending on the type of contract, whether
NQ, Rollover IRA, Flexible Premium IRA, Roth Conversion IRA, Flexible Premium
Roth IRA, QP or Rollover TSA. Therefore, we discuss the tax aspects of each
type of contract separately.
We cannot provide detailed information on all tax aspects of the contracts.
Moreover, the tax aspects that apply to a particular person's contract may vary
depending on the facts applicable to that person. We do not discuss state
income and other state taxes, federal income tax and withholding rules for
non-U.S. taxpayers, or federal gift and estate taxes. Transfers of the
contract, rights under the contract, or payments under the contract may be
subject to gift or estate taxes. You should not rely only on this document, but
should consult your tax adviser before your purchase.
If you are buying a contract to fund a retirement plan that already provides
tax deferral under sections of the Internal Revenue Code (IRA, QP, and Rollover
TSA), you should do so for the contract's features and benefits other than tax
deferral. In such situations, the tax deferral of the contract does not provide
additional benefits.
Federal income tax rules include the United States laws in the Internal Revenue
Code, and Treasury Department Regulations and Internal Revenue Service ("IRS")
interpretations of the Internal Revenue Code. These tax rules may change. We
cannot predict whether, when, or how these rules could change. Any change could
affect contracts purchased before the change.
TRANSFERS AMONG INVESTMENT OPTIONS
You can make transfers among investment options inside the contract without
triggering taxable income.
TAXATION OF NONQUALIFIED ANNUITIES
Contributions
You may not deduct the amount of your contributions for a nonqualified annuity
contract.
Contract earnings
Generally, you are not taxed on contract earnings until you receive a
distribution from your contract, whether as a withdrawal or as an annuity
payment. However, earnings are taxable, even without a distribution:
o if a contract fails investment diversification requirements as specified in
federal income tax rules (these rules are based on or are similar to those
specified for mutual funds under the securities laws);
o if you transfer a contract, for example, as a gift to someone other than
your spouse (or former spouse);
o if you use a contract as security for a loan (in this case, the amount
pledged will be treated as a distribution); and
o if the owner is other than an individual (such as a corporation,
partnership, trust, or other non-natural person).
All nonqualified deferred annuity contracts that we issue to you during the
same calendar year are linked together and treated as one contract for
calculating the taxable amount of any distribution from any of those contracts.
Annuity payments
Once annuity payments begin, a portion of each payment is taxable as ordinary
income. You get back the remaining portion without paying taxes on it. This is
your "investment in the contract." Generally, your investment in the contract
equals the contributions you made, less any amounts you previously withdrew
that were not taxable.
For fixed annuity payments, the tax-free portion of each payment is determined
by (1) dividing your investment in the contract by the total amount you are
expected to receive out of the contract, and (2) multiplying the result by the
amount of the payment. For variable annuity payments, your
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investment in the contract divided by the number of expected payments is your
tax-free portion of each payment.
Once you have received the amount of your investment in the contract, all
payments after that are fully taxable. If payments under a life annuity stop
because the annuitant dies, there is an income tax deduction for any
unrecovered investment in the contract.
Payments made before annuity payments begin
If you make withdrawals before annuity payments begin under your contract, they
are taxable to you as ordinary income if there are earnings in the contract.
Generally, earnings are your account value less your investment in the
contract. If you withdraw an amount which is more than the earnings in the
contract as of the date of the withdrawal, the balance of the distribution is
treated as a return of your investment in the contract and is not taxable.
Contracts purchased through exchanges
You may purchase your NQ contract through an exchange of another contract.
Normally, exchanges of contracts are taxable events. The exchange will not be
taxable under Section 1035 of the Internal Revenue Code if:
o The contract which is the source of the funds you are using to purchase the
NQ contract is another nonqualified deferred annuity contract (or life
insurance or endowment contract).
o The owner and the annuitant are the same under the source contract and the
Equitable Accumulator NQ contract (if you are using a life insurance or
endowment contract the owner and the insured must be the same on both sides
of the exchange transaction).
The tax basis of the source contract carries over to the Equitable Accumulator
NQ contract.
Surrenders
If you surrender or cancel the contract, the distribution is taxable as
ordinary income (not capital gain) to the extent it exceeds your investment in
the contract.
Death benefit payments made to a beneficiary after your death
For the rules applicable to death benefits, see "Payment of death benefit" and
"When an NQ contract owner dies before the annuitant" earlier in this
prospectus. The tax treatment of a death benefit taken as a single sum is
generally the same as the tax treatment of a withdrawal from or surrender of
your contract. The tax treatment of a death benefit taken as annuity payments
is generally the same as the tax treatment of annuity payments under your
contract.
Early distribution penalty tax
If you take distributions before you are age 59 1/2 a penalty tax of 10% of
the taxable portion of your distribution applies in addition to the income tax.
The extra penalty tax does not apply to pre-age 59 1/2 distributions made:
o on or after your death; or
o because you are disabled (special federal income tax definition); or
o in the form of substantially equal periodic annuity payments for your life
(or life expectancy) or the joint lives (or joint life expectancy) of you
and a beneficiary.
SPECIAL RULES FOR NQ CONTRACTS ISSUED IN
PUERTO RICO
Under current law we treat income from NQ contracts as U.S.-source. A Puerto
Rico resident is subject to U.S. taxation on such U.S.-source income. Only
Puerto Rico-source income of Puerto Rico residents is excludable from U.S.
taxation. Income from NQ contracts is also subject to Puerto Rico tax. The
calculation of the taxable portion of amounts distributed from a contract may
differ in the two jurisdictions. Therefore, you might have to file both U.S.
and Puerto Rico tax returns, showing different amounts of income from the
contract for each tax return. Puerto Rico generally provides a credit against
Puerto Rico tax for U.S. tax paid. Depending on your
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personal situation and the timing of the different tax liabilities, you may not
be able to take full advantage of this credit.
INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAS)
General
"IRA" stands for individual retirement arrangement. There are two basic types
of such arrangements, individual retirement accounts and individual retirement
annuities. In an individual retirement account, a trustee or custodian holds
the assets for the benefit of the IRA owner. The assets can include mutual
funds and certificates of deposit. In an individual retirement annuity, an
insurance company issues an annuity contract that serves as the IRA.
There are several types of IRAs, as follows:
o "Traditional IRAs," typically funded on a pre-tax basis;
o Roth IRAs, first available in 1998, funded on an after-tax basis; and
o SEP-IRAs and SIMPLE-IRAs, issued and funded in connection with
employer-sponsored retirement plans.
Regardless of the type of IRA, your ownership interest in the IRA cannot be
forfeited. You or your beneficiaries who survive you are the only ones who can
receive the IRA's benefits or payments.
You can hold your IRA assets in as many different accounts and annuities as you
would like, as long as you meet the rules for setting up and making
contributions to IRAs. However, if you own multiple IRAs, you may be required
to combine IRA values or contributions for tax purposes. For further
information about individual retirement arrangements, you can read Internal
Revenue Service Publication 590 ("Individual Retirement Arrangements (IRAs)").
This publication is usually updated annually, and can be obtained from any IRS
district office or the IRS website (http://www.irs.ustreas.gov).
The Equitable Accumulator IRA contract is designed to qualify as an "individual
retirement annuity" under Section 408(b) of the Internal Revenue Code. You may
purchase the contract as a traditional IRA or Roth IRA. The traditional IRAs we
offer are the Rollover IRA and Flexible Premium IRA. The versions of the Roth
IRA available are the Roth Conversion IRA and Flexible Premium Roth IRA. This
prospectus contains the information that the IRS requires you to have before
you purchase an IRA. This section of the prospectus covers some of the special
tax rules that apply to IRAs. The next section covers Roth IRAs. Education IRAs
are not discussed in this prospectus because they are not available in
individual retirement annuity form.
The Equitable Accumulator IRA contract has been approved by the IRS as to form
for use as a traditional IRA. We expect to submit the Roth IRA version for
formal IRS approval in 1999. This IRS approval is a determination only as to
the form of the annuity. It does not represent a determination of the merits of
the annuity as an investment. The IRS approval does not address every feature
possibly available under the Equitable Accumulator IRA contract.
Cancellation
You can cancel an Equitable Accumulator IRA contract by following the
directions under "Your right to cancel within a certain number of days" earlier
in the prospectus. You can cancel an Equitable Accumulator Roth Conversion IRA
contract issued as a result of a full conversion of an Equitable Accumulator
Rollover IRA or Flexible Premium IRA contract by following the instructions in
the request for full conversion form. The form is available from our Processing
Office or your registered representative. If you cancel an IRA contract, we may
have to withhold tax, and we must report the transaction to the IRS. A contract
cancellation could have an unfavorable tax impact.
Traditional individual retirement annuities (traditional IRAs)
Contributions to traditional IRAs
Individuals may make three different types of contributions to a traditional
IRA:
o regular contributions out of earned income or compensation; or
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o tax-free "rollover" contributions; or
o direct custodian-to-custodian transfers from other traditional IRAs ("direct
transfers").
Regular traditional IRA, direct transfer, and rollover contributions may be
made to a Flexible Premium IRA contract. We only permit direct transfer and
rollover contributions under a Rollover IRA contract. See "Rollovers and
transfers" below.
Regular contributions to traditional IRAs
Limits on contributions
Generally, $2,000 is the maximum amount that you may contribute to all IRAs
(including Roth IRAs) in any taxable year. When your earnings are below $2,000,
your earned income or compensation for the year is the most you can contribute.
This $2,000 limit does not apply to rollover contributions or direct
custodian-to-custodian transfers into a traditional IRA. You cannot make
regular traditional IRA contributions for the tax year in which you reach age
70 1/2 or any tax year after that.
Special rules for spouses
If you are married and file a joint income tax return, you and your spouse may
combine your compensation to determine the amount of regular contributions you
are permitted to make 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 earned income is 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 IRAs. Each spouse
owns his or her traditional IRAs and Roth IRAs even if the other spouse funded
the contributions. A working spouse age 70 1/2 or over can contribute up to
the lesser of $2,000 or 100% of "earned income" to a traditional IRA for a
nonworking spouse until the year in which the nonworking spouse reaches age
70 1/2.
Deductibility of contributions
The amount of traditional IRA contributions that you can deduct for a tax year
depends on whether you are covered by an employer-sponsored tax-favored
retirement plan, as defined under special federal income tax rules. Your Form
W-2 will indicate whether or not you are covered by such a retirement plan.
IF YOU ARE NOT COVERED BY A RETIREMENT PLAN DURING ANY PART OF THE YEAR, you
can make fully deductible contributions to your traditional IRAs for each tax
year up to $2,000 or, if less, your earned income.
IF YOU ARE COVERED BY A RETIREMENT PLAN DURING ANY PART OF THE YEAR, and your
adjusted gross income (AGI) is BELOW THE LOWER DOLLAR FIGURE IN A PHASE-OUT
RANGE, you can make fully deductible contributions to your traditional IRAs.
For each tax year, your fully deductible contribution can be up to $2,000 or,
if less, your earned income.
IF YOU ARE COVERED BY A RETIREMENT PLAN DURING ANY PART OF THE YEAR, and your
AGI falls within a PHASE-OUT range, you can make PARTIALLY DEDUCTIBLE
CONTRIBUTIONS to your traditional IRAs.
IF YOU ARE COVERED BY A RETIREMENT PLAN DURING ANY PART OF THE YEAR, and your
AGI falls ABOVE THE HIGHER FIGURE IN THE PHASE-OUT RANGE, you may not deduct
any of your regular contributions to your traditional IRAs.
If you are single and covered by a retirement plan during any part of the
taxable year, the deduction for IRA contributions phases out with AGI between
$31,000 and $41,000 in 1999. This range will increase every year until 2005
when the range is $50,000-$60,000.
If you are married and file a joint return, and you are covered by a retirement
plan during any part of the taxable year, the deduction for traditional IRA
contributions phases out with
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AGI between $51,000 and $61,000 in 1999. This range will increase every year
until 2007 when the range is $80,000-$100,000.
Married individuals filing separately and living apart at all times are not
considered 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 in 1999, you determine
AGI and subtract $31,000 if you are single, or $51,000 if you are married and
file a joint return with your spouse. The resulting amount is your excess AGI.
You then determine the limit on the deduction for traditional IRA contributions
using the following formula:
times $2,000 (or earned Equals the adjusted
($10,000-excess AGI) x income, if less) = deductible
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divided by $10,000 limit
Nondeductible regular contributions
If you are not eligible to deduct part or all of the traditional IRA
contribution, you may still make nondeductible contributions on which earnings
will accumulate on a tax-deferred basis. The combined deductible and
nondeductible contributions to your traditional IRA (or the nonworking spouse's
traditional IRA) may not, however, exceed the maximum $2,000 per person limit.
See "Excess contributions" below. You must keep your own records of deductible
and nondeductible contributions in order to prevent double taxation on the
distribution of previously taxed amounts. See "Withdrawals, payments and
transfer of funds out of traditional IRAs" below.
If you are making nondeductible contributions in any taxable year, or you have
made nondeductible contributions to a traditional IRA in prior years and are
receiving distributions from any traditional IRA, you must file the required
information with the IRS. Moreover, if you are making nondeductible traditional
IRA contributions, you must retain all income tax returns and records
pertaining to such contributions until interests in all traditional IRAs are
fully distributed.
When you can make regular contributions
If you file your tax returns on a calendar year basis like most taxpayers, you
have until the April 15 return filing deadline (without extensions) of the
following calendar year to make your regular traditional IRA contributions for
a tax year.
Excess contributions
Excess contributions to IRAs are subject to a 6% excise tax for the year in
which made and for each year after until withdrawn. The following are excess
contributions to IRAs:
o regular contributions of more than $2,000; or
o regular contributions of more than earned income for the year, if that
amount is under $2,000; or
o regular contributions to a traditional IRA made after you reach age
70 1/2; or
o rollover contributions of 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.
You can avoid the excise tax by withdrawing an excess contribution (rollover or
regular) before the due date (including extensions) for filing your federal
income tax return for the year. If it is an excess regular traditional IRA
contribution, you cannot take a tax deduction for the amount withdrawn. You do
not have to include the excess contribution withdrawn as part of your income.
It is also not subject to the 10% additional penalty tax on early
distributions, discussed below under "Early distribution penalty tax." You do
have to withdraw any earnings that are attributed to the excess contribution.
The withdrawn earnings would be included in your gross income and could be
subject to the 10% penalty tax.
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Even after the due date for filing your return, you may withdraw an excess
rollover contribution, without income inclusion or 10% penalty, if:
(1) the rollover was from a qualified retirement plan to a traditional IRA;
(2) the excess contribution was due to incorrect information that the plan
provided; and
(3) you took no tax deduction for the excess contribution.
Rollovers and transfers
Rollover contributions may be made to a traditional IRA from these sources:
o qualified plans;
o TSAs (including Internal Revenue Code Section 403(b)(7) custodial
accounts); and
o other traditional IRAs.
You may also change your mind about amounts contributed as Roth IRA funds to
traditional IRA funds, in accordance with special federal income tax rules, if
you use the forms we prescribe. This is referred to as having "recharacterized"
your contribution.
Any amount contributed to a traditional IRA after you reach 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.
Rollovers from qualified plans or TSAs
There are two ways to do rollovers:
o Do it yourself
You actually receive a distribution that can be rolled over and you roll it
over to a traditional IRA within 60 days after the date you receive the
funds. The distribution from your qualified plan or TSA will be net of 20%
mandatory federal income tax withholding. If you want, you can replace the
withheld funds yourself and roll over the full amount.
o Direct rollover
You tell your qualified plan trustee or TSA issuer/custodian/fiduciary to
send the distribution directly to your traditional IRA issuer. Direct
rollovers are not subject to mandatory federal income tax withholding.
All distributions from a TSA or qualified plan are eligible rollover
distributions, unless the distribution is:
o only after-tax contributions you made to the plan; or
o "required minimum distributions" after age 70 1/2 or separation from
service; or
o substantially equal periodic payments made at least annually for your life
(or life expectancy) or the joint lives (or joint life expectancies) of you
and your designated beneficiary; or
o a hardship withdrawal; or
o substantially equal periodic payments made for a specified period of 10
years or more; or
o corrective distributions which fit specified technical tax rules; or
o loans that are treated as distributions; or
o a death benefit payment to a beneficiary who is not your surviving spouse;
or
o a qualified domestic relations order distribution to a beneficiary who is
not your current spouse or former spouse.
Rollovers from traditional IRAs to traditional IRAs
You may roll over amounts from one traditional IRA to one or more of your other
traditional IRAs if you complete the transaction within 60 days after you
receive the funds. You may make such a rollover only once in every 12-month
period for the same funds. Trustee-to-trustee or custodian-to-custodian direct
transfers are not rollover transactions. You can make these more frequently
than once in every 12-month period.
The surviving spouse beneficiary of a deceased individual can roll over or
directly transfer an inherited traditional IRA to one or more other traditional
IRAs. Also, in some cases,
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traditional IRAs can be transferred on a tax-free basis between spouses or
former spouses as a result of a court ordered divorce or separation decree.
Withdrawals, payments and transfers of funds out of traditional IRAs
No federal income tax law restrictions on withdrawals
You can withdraw any or all of your funds from a traditional IRA at any time.
You do not need to wait for a special event like retirement.
Taxation of payments
Earnings in traditional IRAs are not subject to federal income tax until you or
your beneficiary receives them. Taxable payments or distributions include
withdrawals from your contract, surrender of your contract and annuity payments
from your contract. Death benefits are also taxable. Except as discussed below,
the total amount of any distribution from a traditional IRA must be included in
your gross income as ordinary income.
If you have ever made nondeductible IRA contributions to any traditional IRA
(it does not have to be to this particular traditional IRA contract), those
contributions are recovered tax free when you get distributions from any
traditional IRA. You must keep permanent tax records of all of your
nondeductible contributions to traditional IRAs. At the end of any year in
which you have received a distribution from any traditional IRA, you calculate
the ratio of your total nondeductible traditional IRA contributions (less any
amounts previously withdrawn tax free) to the total account balances of all
traditional IRAs you own at the end of the year plus all traditional IRA
distributions made during the year. Multiply this by all distributions from the
traditional IRA during the year to determine the nontaxable portion of each
distribution.
In addition, a distribution is not taxable if:
o the amount received is a withdrawal of excess contributions, as described
under "Excess contributions" above; or
o the entire amount received is rolled over to another traditional IRA (see
"Rollovers and transfers" above); or
o in certain limited circumstances, where the traditional IRA acts as a
"conduit," you roll over the entire amount into a qualified plan or TSA that
accepts rollover contributions. To get this "conduit" traditional IRA
treatment:
o the source of funds you used to establish the traditional IRA must have
been a rollover contribution from a qualified plan, and
o 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.
However, you may lose conduit treatment, if you make an eligible rollover
distribution contribution to a traditional IRA and you commingle this
contribution with other contributions. In that case, you may not be able to
roll over these eligible rollover distribution contributions and earnings to
another qualified plan or TSA at a future date. The Rollover IRA contract can
be used as a conduit IRA if amounts are not commingled.
Distributions from a traditional IRA are not eligible for favorable five-year
averaging (or, in some cases, ten-year averaging and long-term capital gain
treatment) available to certain distributions from qualified plans.
Required minimum distributions
Lifetime required minimum distributions
You must start taking annual distributions from your traditional IRAs beginning
at age 70 1/2.
When you have to take the first required minimum distribution
The first required minimum distribution is for the calendar year in which you
turn age 70 1/2. You have the choice to take this first required minimum
distribution during the
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calendar year you actually reach age 70 1/2, or to delay taking it until the
first three-month period in the next calendar year (January 1 - April 1).
Distributions must start no later than your "required beginning date," which is
April 1st of the calendar year after the calendar year in which you turn age
70 1/2. If you choose to delay taking the first annual minimum distribution,
then you will have to take two minimum distributions in that year - the delayed
one for the first year and the one actually for that year. Once minimum
distributions begin, they must be made at some time each year.
How you can calculate required minimum distributions
There are two approaches to taking required minimum distributions -
"account-based" or "annuity-based."
Account-based method. If you choose an "account-based" method, you divide the
value of your traditional IRA as of December 31st of the past calendar year by
a life expectancy factor from IRS tables. This gives you the required minimum
distribution amount for that particular IRA for that year. The required minimum
distribution amount will vary each year as the account value and your life
expectancy factors change.
You have a choice of life expectancy factors, depending on whether you choose a
method based only on your life expectancy, or the joint life expectancies of
you and another individual. You can decide to "recalculate" your life
expectancy every year by using your current life expectancy factor. You can
decide instead to use the "term certain" method, where you reduce your life
expectancy by one every year after the initial year. If your spouse is your
designated beneficiary for the purpose of calculating annual account-based
required minimum distributions, you can also annually "recalculate" your
spouse's life expectancy if you want. If you choose someone who is not your
spouse as your designated beneficiary for the purpose of calculating annual
account-based required minimum distributions, you have to use the "term
certain" method of calculating that person's life expectancy. If you pick a
nonspouse designated beneficiary, you may also have to do another special
calculation.
You can later apply your traditional IRA funds to a life annuity-based payout.
You can only do this if you already chose to recalculate your life expectancy
annually (and your spouse's life expectancy if you select a spousal joint
annuity). 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.
Annuity-based method. If you choose an "annuity-based" method, you do not have
to do annual calculations. You apply the account value to an annuity payout for
your life or the joint lives of you and a designated beneficiary, or for a
period certain not extending beyond applicable life expectancies.
Do you have to pick the same method to calculate your required minimum
distributions for all of your traditional IRAs and other retirement plans?
No. If you want, you can choose a different method and a different beneficiary
for each of your traditional IRAs and other retirement plans. For example, you
can choose an annuity payout from one IRA, a different annuity payout from a
qualified plan, and an account-based annual withdrawal from another IRA.
Will we pay you the annual amount every year from your traditional IRA based on
the method you choose?
No, unless you affirmatively select an annuity payout option or an
account-based withdrawal option such as our minimum distribution withdrawal
option. Because the options we offer do not cover every option permitted under
federal income tax rules, you may prefer to do your own required minimum
distribution calculations for one or more of your traditional IRAs.
What if you take more than you need to for any year?
The required minimum distribution amount for your traditional IRAs is
calculated on a year-by-year basis. There are no carry-back or carry-forward
provisions. Also, you cannot apply required minimum distribution amounts you
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take from your qualified plans to the amounts you have to take from your
traditional IRAs and vice-versa. However, the IRS will let you calculate the
required minimum distribution for each traditional IRA that you maintain, using
the method that you picked for that particular IRA. You can add these required
minimum distribution amount calculations together. As long as the total amount
you take out every year satisfies your overall traditional IRA required minimum
distribution amount, you may choose to take your annual required minimum
distribution from any one or more traditional IRAs that you own.
What if you take less than you need to for any year?
Your IRA could be disqualified, and you could have to pay tax on the entire
value. Even if your IRA is not disqualified, you could have to pay a 50%
penalty tax on the shortfall (required amount for traditional IRAs less amount
actually taken). It is your responsibility to meet the required minimum
distribution rules. We will remind you when our records show that your age
70 1/2 is approaching. If you do not select a method with us, we will assume
you are taking your required minimum distribution from another traditional IRA
that you own.
What are the required minimum distribution payments after you die?
If you die after either (a) the start of annuity payments, or (b) your required
beginning date, your beneficiary must receive payment of the remaining values
in the contract at least as rapidly as under the distribution method before
your death. In some circumstances, your surviving spouse may elect to become
the owner of the traditional IRA and halt distributions until he or she reaches
age 70 1/2.
If you die before your required beginning date and before annuity payments
begin, federal income tax rules require complete distribution of your entire
value in the contract within five years after your death. Payments to a
designated beneficiary over the beneficiary's life or over a period certain
that does not extend beyond the beneficiary's life expectancy are also
permitted, if these payments start within one year of your death. A surviving
spouse beneficiary can also (a) delay starting any payments until you would
have reached age 70 1/2 or (b) roll over your traditional IRA into his or her
own traditional IRA.
Successor annuitant and owner
If your spouse is the sole primary beneficiary and elects to become the
successor annuitant and owner, no death benefit is payable until your surviving
spouse's death.
Payments to a beneficiary after your death
IRA death benefits are taxed the same as IRA distributions.
Required minimum distributions under the Assured Payment Option and APO Plus
Although the life contingent annuity portion of the Assured Payment Option and
APO Plus does not have a cash value, it will be assigned a value for tax
purposes. This value will generally be changed each year. When you determine
the amount of account-based required minimum distributions from your
traditional IRA this value must be included. This must be done even though the
life contingent annuity may not be providing a source of funds to satisfy the
required minimum distribution.
You will generally be required to determine your required minimum distribution
by annually recalculating your life expectancy. The Assured Payment Option and
APO Plus will not be available if you have previously made a different
election. Recalculation is no longer required once the only payments you or
your spouse receive are under the life contingent annuity.
If you surrender your contract, or withdraw any remaining account value before
your payments under the life contingent annuity begin, it may be necessary for
you to satisfy your required minimum distribution by moving forward the start
date of payments under your life contingent annuity. Or to the extent
available, you have to take distributions from other traditional IRA funds you
may have. Or, you may convert your traditional IRA life contingent annuity
under the contract to a nonqualified life
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contingent annuity. This would be viewed as a distribution of the value of the
life contingent annuity from your traditional IRA, and therefore, would be a
taxable event. However, since the life contingent annuity would no longer be
part of the traditional IRA, you would not have to include its value when
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. Once the only
payments you or your spouse are receiving are under the life contingent annuity
recalculation is no longer required. In the event of your death or the death of
your spouse the value of such annuity will change. For this reason, it is
important that someone tell us 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.
Allocation of funds to the life contingent annuity may prevent the contract
from later receiving conduit IRA treatment.
Borrowing and loans are prohibited transactions
You cannot get loans from a traditional IRA. You cannot use a traditional IRA
as collateral for a loan or other obligation. If you borrow against your IRA or
use it as collateral, its tax-favored status will be lost as of the first day
of the tax year in which this prohibited event occurs. If this happens, you
must include the value of the traditional IRA in your federal gross income.
Also, the early distribution penalty tax of 10% will apply if you have not
reached age 59 1/2 before the first day of that tax year.
Early distribution penalty tax
A penalty tax of 10% of the taxable portion of a distribution applies to
distributions from a traditional IRA made before you reach age 59 1/2. The
extra penalty tax does not apply to pre-age 59 1/2 distributions made:
o on or after your death; or
o because you are disabled (special federal income tax definition); or
o used to pay certain extraordinary medical expenses (special federal income
tax definition); or
o used to pay medical insurance premiums for unemployed individuals (special
federal income tax definition); or
o used to pay certain first-time home buyer expenses (special federal income
tax definition); or
o used to pay certain higher education expenses (special federal income tax
definition); or
o in the form of substantially equal periodic payments made at least annually
over your life (or your life expectancy), or over the joint lives of you and
your beneficiary (or your joint life expectancy) using an IRS-approved
distribution method.
To meet this last exception, you could elect to apply your contract value to an
Income Manager (Life Annuity with a Period Certain) payout annuity contract
(level payments version). You could also elect the substantially equal
withdrawals option. We will calculate the substantially equal annual payments
under a method we select based on guidelines issued by the IRS (currently
contained in IRS Notice 89-25, Question and Answer 12). Although substantially
equal withdrawals and Income Manager payments are not subject to the 10%
penalty tax, they are taxable as discussed in "Withdrawals, payments and
transfers of funds out of traditional IRAs" above. Once substantially equal
withdrawals or Income Manager annuity payments begin, the distributions should
not be stopped or changed until the later of your reaching 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
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contract as changing your pattern of substantially equal withdrawals or Income
Manager payments for purposes of determining whether the penalty applies.
Roth individual retirement annuities (Roth IRAs)
This section of the prospectus covers some of the special tax rules that apply
to Roth IRAs. If the rules are the same as those that apply to the traditional
IRA, we will refer you to the same topic under "traditional IRAs."
The Equitable Accumulator Roth IRA contract is designed to qualify as a Roth
individual retirement annuity under Sections 408A and 408(b) of the Internal
Revenue Code.
Contributions to Roth IRAs
Individuals may make four different types of contributions to a Roth IRA:
o regular after-tax contributions out of earnings; or
o taxable "rollover" contributions from traditional IRAs ("conversion"
contributions); or
o tax-free rollover contributions from other Roth IRAs; or
o tax-free direct custodian-to-custodian transfers from other Roth IRAs
("direct transfers").
Regular after-tax, direct transfer, and rollover contributions may be made to a
Flexible Premium Roth IRA contract. We only permit direct transfer and rollover
contributions under the Roth Conversion IRA contract. See "Rollovers and direct
transfers" below. If you use the forms we require, we will also accept
traditional IRA funds which are subsequently recharacterized as Roth IRA funds
following special federal income tax rules.
Regular contributions to Roth IRAs
Limits on regular contributions
Generally, $2,000 is the maximum amount that you may contribute to all IRAs
(including Roth IRAs) in any taxable year. This $2,000 limit does not apply to
rollover contributions or direct custodian-to-custodian transfers into a Roth
IRA. Any contributions to Roth IRAs reduce your ability to contribute to
traditional IRAs and vice versa. When your earnings are below $2,000, your
earned income or compensation for the year is the most you can contribute. If
you are married and file a joint income tax return, you and your spouse may
combine your compensation to determine the amount of regular contributions you
are permitted to make to Roth IRAs and traditional IRAs. See the discussion
above under traditional IRAs.
With a Roth IRA, you can make regular contributions when you reach 70 1/2, as
long as you have sufficient earnings. But, you cannot make contributions for
any year that:
o your federal income tax filing status is "married filing jointly" and your
adjusted gross income is over $160,000; or
o your federal income tax filing status is "single" and your adjusted gross
income is over $110,000.
However, you can make regular Roth IRA contributions in reduced amounts when:
o your federal income tax filing status is "married filing jointly" and your
adjusted gross income is between $150,000 and $160,000; or
o your federal income tax filing status is "single" and your adjusted gross
income is between $95,000 and $110,000.
If you are married and filing separately and your adjusted gross income is
between $0 and $10,000 the amount of regular contribution you are permitted to
make is phased out. If your adjusted gross income is more than $10,000 you
cannot make a regular Roth IRA contribution.
When you can make contributions
Same as traditional IRAs.
Deductibility of contributions
Roth IRA contributions are not tax deductible.
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Rollovers and direct transfers
What is the difference between rollover and direct transfer transactions?
You may make rollover contributions to a Roth IRA from only two sources:
o another Roth IRA ("tax-free rollover contribution"); or
o another traditional IRA, including a SEP-IRA or SIMPLE-IRA, in a taxable
"conversion" rollover ("conversion contribution").
You may not make contributions to a Roth IRA from a qualified plan under
Section 401(a) of the Internal Revenue Code, or a TSA under Section 403(b) of
the Internal Revenue Code. You may make direct transfer contributions to a Roth
IRA only from another Roth IRA.
The difference between a rollover transaction and a direct transfer transaction
is the following: in a rollover transaction you actually take possession of the
funds rolled over, or are considered to have received them under tax law in the
case of a change from one type of plan to another. In a direct transfer
transaction, you never take possession of the funds, but direct the first Roth
IRA custodian, trustee, or issuer to transfer the first Roth IRA funds directly
to Equitable Life, as the Roth IRA issuer. You can make direct transfer
transactions only between identical plan types (for example, Roth IRA to Roth
IRA). You can also make rollover transactions between identical plan types.
However, you can only use rollover transactions between different plan types
(for example, traditional IRA to Roth IRA).
You may make both Roth IRA to Roth IRA rollover transactions and Roth IRA to
Roth IRA direct transfer transactions. This can be accomplished on a completely
tax-free basis. However, you may make Roth IRA to Roth IRA rollover
transactions only once in any 12-month period for the same funds.
Trustee-to-trustee or custodian-to-custodian direct transfers can be made more
frequently than once a year. Also, if you send us the rollover contribution to
apply it to a Roth IRA, you must do so within 60 days after you receive the
proceeds from the original IRA to get rollover treatment.
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. In some
cases, Roth IRAs can be transferred on a tax-free basis between spouses or
former spouses as a result of a court ordered divorce or separation decree.
Conversion contributions to Roth IRAs
In a conversion rollover transaction, you withdraw (or are considered to have
withdrawn) 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 considered to
have received) the traditional IRA proceeds. Unlike a rollover from a
traditional IRA to another traditional IRA, the conversion rollover transaction
is not tax-free. Instead, the distribution from the traditional IRA is
generally fully taxable. For this reason, we are required to withhold 10%
federal income tax from the amount converted unless you elect out of such
withholding. (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.)
There is, however, no early distribution penalty tax on the traditional IRA
withdrawal that you are converting to a Roth IRA, even if you are under age
59 1/2.
You cannot make conversion 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
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subject to the annual required minimum distribution rule applicable to
traditional IRAs beginning at age 70 1/2.
Withdrawals, payments and transfers of funds out of Roth IRAs
No federal income tax law 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.
Distributions from Roth IRAs
Distributions include withdrawals from your contract, surrender of your
contract and annuity payments from your contract. Death benefits are also
distributions.
The following distributions from Roth IRAs are free of income tax:
o Rollovers from a Roth IRA to another Roth IRA;
o Direct transfers from a Roth IRA to another Roth IRA;
o "Qualified Distributions" from Roth IRAs; and
o Return of excess contributions or amounts recharacterized to a traditional
IRA.
Qualified distributions from Roth IRAs
Qualified distributions from Roth IRAs made because of one of the following
four qualifying events or reasons are not includable in income:
o you reach age 59 1/2; or
o you die; or
o you become disabled (special federal income tax definition); or
o your distribution is a "qualified first-time homebuyer distribution"
(special federal income tax definition; $10,000 lifetime total limit for
these distributions from all of your traditional and Roth IRAs).
You also have to meet a five-year aging period. A qualified distribution is any
distribution made after the five-taxable year period beginning with the first
taxable year for which you made any contribution to any Roth IRA (whether or
not the one from which the distribution is being made). It is not possible to
have a tax-free qualified distribution before the year 2003 because of the
five-year aging requirement.
Nonqualified distributions from Roth IRAs
Nonqualified distributions from Roth IRAs are distributions that do not meet
the qualifying event and five-year aging period tests described above. Such
distributions are potentially taxable as ordinary income. Nonqualified
distributions receive return-of-investment-first treatment. Only the difference
between the amount of the distribution and the amount of contributions to all
of your Roth IRAs is taxable. You have to reduce the amount of contributions to
all of your Roth IRAs to reflect any previous tax-free recoveries.
You must keep your own records of regular and conversion contributions to all
Roth IRAs to assure appropriate taxation. You may have to file information on
your contributions to and distributions from any Roth IRA on your tax return.
You may have to retain all income tax returns and records pertaining to such
contributions and distributions until your interests in all Roth IRAs are
distributed.
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.
Required minimum distributions at death
Same as traditional IRA under "What are the required minimum distribution
payments after you die?" Lifetime required minimum distributions do not apply.
Payments to a beneficiary after your death
Distributions to a beneficiary generally receive the same tax treatment as if
the distribution had been made to you.
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Borrowing and loans are prohibited transactions
Same as traditional IRA.
Excess contributions
Same as traditional IRA, except that regular contributions made after age
70 1/2 are not "excess contributions."
Excess rollover contributions to Roth IRAs are contributions 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).
You can withdraw or recharacterize any contribution to a Roth IRA before the
due date (including extensions) for filing your federal income tax return for
the tax year. If you do this, you must also withdraw or recharacterize any
earnings attributable to the contribution.
Early distribution penalty tax
Same as traditional IRA.
For Roth IRAs, special penalty rules may apply to amounts withdrawn
attributable to 1998 conversion rollovers.
SPECIAL RULES FOR NONQUALIFIED CONTRACTS IN QUALIFIED PLANS
Under QP contracts your plan administrator or trustee notifies you as to tax
consequences. See Appendix II.
TAX SHELTERED ANNUITY CONTRACTS (TSAS)
General
This section of the prospectus covers some of the special tax rules that apply
to TSA contracts under Section 403(b) of the Internal Revenue Code (TSAs). If
the rules are the same as those that apply to another kind of contract, for
example, traditional IRAs, we will refer you to the same topic under
"traditional IRAs."
Contributions to TSAs
There are two ways you can make contributions to this Equitable Accumulator
Rollover TSA contract:
o a rollover from another TSA contract or arrangement that meets the
requirements of Section 403(b) of the Internal Revenue Code, or
o a full or partial direct transfer of assets ("direct transfer") from another
contract or arrangement that meets the requirements of Section 403(b) of the
Internal Revenue Code by means of IRS Revenue Ruling 90-24.
With appropriate written documentation satisfactory to us, we will accept
rollover contributions from "conduit IRAs" for TSA funds.
If you make a direct transfer, you must fill out our transfer form.
Employer-remitted contributions
The Equitable Accumulator Rollover TSA contract does not accept
employer-remitted contributions. However, we provide the following discussion
as part of our description of restrictions on the distribution of funds
directly transferred, which include employer-remitted contributions to other
TSAs.
Employer-remitted contributions to TSAs made through the employer's payroll are
subject to annual limits. (Tax-free transfer or tax-deferred rollover
contributions from another 403(b) arrangement are not subject to these annual
contribution limits.) Commonly, some or all of the contributions made to a TSA
are made under a salary reduction agreement between the employee and the
employer. These contributions are called "salary reduction" or "elective
deferral" contributions. However, a TSA can also be wholly or partially funded
through nonelective employer contributions or after-tax employee contributions.
Amounts attributable to salary reduction contributions to TSAs are generally
subject to withdrawal restrictions. Also, all amounts attributable to
investments in a 403(b)(7) custodial account are subject to withdrawal
restrictions discussed below.
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Rollover or direct transfer contributions
You may make rollover contributions to your Equitable Accumulator Rollover TSA
contract from TSAs under Section 403(b) of the Internal Revenue Code.
Generally, you may make a rollover contribution to a TSA when you have a
distributable event from an existing TSA as a result of your:
o termination of employment with the employer who provided the TSA funds; or
o reaching age 59 1/2 even if you are still employed; or
o disability (special federal income tax definition).
A transfer occurs when changing the funding vehicle, even if there is no
distributable event. Under a direct transfer, you do not receive a
distribution. We accept direct transfers of TSA funds under Revenue Ruling
90-24 only if:
o you give us acceptable written documentation as to the source of the funds,
and
o the Equitable Accumulator contract receiving the funds has provisions at
least as restrictive as the source contract.
Before you transfer funds to an Equitable Accumulator Rollover TSA contract,
you may have to obtain your employer's authorization or demonstrate that you do
not need employer authorization. For example, the transferring TSA may be
subject to Title I of ERISA, if the employer makes matching contributions to
salary reduction contributions made by employees. In that case, the employer
must continue to approve distributions from the plan or contract.
Your contribution to the Equitable Accumulator Rollover TSA must be net of the
required minimum distribution for the tax year in which we issue the contract
if:
o you are or will be at least age 70 1/2 in the current calendar year, and
o you have separated from service with the employer who provided the funds to
purchase the TSA you are transferring or rolling over to the Equitable
Accumulator Rollover TSA.
This rule applies regardless of whether the source of funds is a:
o rollover by check of the proceeds from another TSA; or
o direct rollover from another TSA; or
o direct transfer under Revenue Ruling 90-24 from another TSA.
Further, you must use the same elections regarding recalculation of your life
expectancy (and if applicable, your spouse's life expectancy) if you have
already begun to receive required minimum distributions from or with respect to
the TSA from which you are making your contribution to the Equitable
Accumulator Rollover TSA. You must also elect or have elected a minimum
distribution calculation method requiring recalculation of your life expectancy
(and if applicable, your spouse's life expectancy) if you elect an annuity
payout for the funds in this contract subsequent to this year.
Distributions from TSAs
General
Depending on the terms of the employer plan and your employment status, you may
have to get your employer's consent to take a loan or withdrawal. Your employer
will tell us this when you establish the TSA through a direct transfer.
Withdrawal restrictions
If this is a Revenue Ruling 90-24 direct transfer, we will treat all amounts
transferred to this contract and any future earnings on the amount transferred
as not eligible for withdrawal until one of the following events happens:
o you are separated from service with the employer who provided the funds to
purchase the TSA you are transferring to the Equitable Accumulator Rollover
TSA;
o you reach age 59 1/2; or
o you die; or
o you become disabled (special federal income tax definition); or
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o you take a "hardship" withdrawal (special federal income tax definition).
If any portion of the funds directly transferred to your TSA contract is
attributable to amounts that you invested in a 403(b)(7) custodial account,
such amounts, including earnings, are subject to withdrawal restrictions. With
respect to the portion of the funds that were never invested in a 403(b)(7)
custodial account, these restrictions apply to the salary reduction (elective
deferral) contributions to a TSA annuity contract you made and any earnings on
them. These restrictions do not apply to the amount directly transferred to
your TSA contract that represents your December 31, 1988 account balance
attributable to salary reduction contributions to a TSA annuity contract and
earnings. To take advantage of this grandfathering you must properly notify us
in writing at our Processing Office of your December 31, 1988 account balance
if you have qualifying amounts transferred to your TSA contract.
This paragraph applies only to participants in a Texas Optional Retirement
Program. Texas Law permits withdrawals only after one of the following
distributable events occur:
(1) the requirements for minimum distribution (discussed under "Required
minimum distributions" below) are met; or
(2) death; or
(3) retirement; or
(4) termination of employment in all Texas public institutions of higher
education.
For you to make a withdrawal, we must receive a properly completed written
acknowledgement from the employer. If a distributable event occurs before you
are vested, we will refund to the employer any amounts provided by an
employer's first-year matching contribution. We reserve the right to change
these provisions without your consent, but only to the extent necessary to
maintain compliance with applicable law. Loans are not permitted under Texas
Optional Retirement Programs.
Tax treatment of distributions
Amounts held under TSAs are generally not subject to federal income tax until
benefits are distributed. Distributions include withdrawals from your TSA
contract and annuity payments from your TSA contract. Death benefits paid to a
beneficiary are also taxable distributions. Unless an exception applies,
amounts distributed from TSAs are includable in gross income as ordinary
income. Distributions from TSAs may be subject to 20% federal income tax
withholding. See "Federal and state income tax withholding and information
reporting" below. In addition, TSA distributions may be subject to additional
tax penalties.
If you have made after-tax contributions, you will have a tax basis in your TSA
contract, which will be recovered tax-free. Since we do not track your
investment in the contract, if any, it is your responsibility to determine how
much of the distribution is taxable.
Distributions before annuity payments begin. On a total surrender, the amount
received in excess of the investment in the contract is taxable. We will report
the total amount of the distribution. The amount of any partial distribution
from a TSA prior to the annuity starting date is generally taxable, except to
the extent that the distribution is treated as a withdrawal of after-tax
contributions. Distributions are normally treated as pro rata withdrawals of
after-tax contributions and earnings on those contributions.
Annuity payments. If you elect an annuity payout option, you will recover any
investment in the contract as each payment is received by dividing the
investment in the contract by an expected return determined under an IRS table
prescribed for qualified annuities. The amount of each payment not excluded
from income under this exclusion ratio is fully taxable. The full amount of the
payments received after your investment in the contract is recovered is fully
taxable. If you (and your beneficiary under a joint and survivor annuity) die
before recovering the full investment in the contract, a deduction is allowed
on your (or your beneficiary's) final tax return.
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Payments to a beneficiary after your death
Death benefit distributions from a TSA generally receive the same tax treatment
as distributions during your lifetime. In some instances, distributions from a
TSA made to your surviving spouse may be rolled over to a traditional IRA.
Loans from TSAs
You may take loans from a TSA unless restricted by the employer (for example,
under an employer plan subject to ERISA). If you cannot take a loan, or cannot
take a loan without approval from the employer who provided the funds, we will
have this information in our records based on what you and the employer who
provided the TSA funds told us when you purchased your contract.
Loans are generally not treated as a taxable distribution. If the amount of the
loan exceeds permissible limits under federal income tax rules when made, the
amount of the excess is treated (solely for tax purposes) as a taxable
distribution. Additionally, if the loan is not repaid at least quarterly,
amortizing (paying down) interest and principal, the amount not repaid when due
will be treated as a taxable distribution. Under Proposed Treasury Regulations
the entire unpaid balance of the loan is includable in income in the year of
the default.
TSA loans are subject to federal income tax limits and may also be subject to
the limits of the plan from which the funds came. Federal income tax rule
requirements apply even if the plan is not subject to ERISA. For example, loans
offered by TSAs are subject to the following conditions:
o The amount of a loan to a participant, when combined with all other loans to
the participant from all qualified plans of the employer, cannot exceed the
lesser of (1) the greater of $10,000 or 50% of the participant's
nonforfeitable accrued benefits and (2) $50,000 reduced by the excess (if
any) of the highest outstanding loan balance over the previous twelve months
over the outstanding loan balance of plan loans on the date the loan was
made.
o In general, the term of the loan cannot exceed five years unless the loan is
used to acquire the participant's primary residence. Equitable Accumulator
Rollover TSA contracts have a term limit of 10 years for loans used to
acquire the participant's primary residence.
o All principal and interest must be amortized in substantially level payments
over the term of the loan, with payments being made at least quarterly.
The amount borrowed and not repaid may be treated as a distribution if:
o the loan does not qualify under the conditions above,
o the participant fails to repay the interest or principal when due, or
o in some instances, the participant separates from service with the employer
who provided the funds or the plan is terminated.
In this case, the participant may have to include the unpaid amount due as
ordinary income. In addition, the 10% early distribution penalty tax may apply.
The amount of the unpaid loan balance is reported to the IRS on Form 1099-R as
a distribution.
Tax-deferred rollovers and direct transfers
You may roll over any "eligible rollover distribution" from a TSA into another
eligible retirement plan, either directly or within 60 days of your receiving
the distribution. To the extent rolled over, a distribution remains
tax-deferred.
You may roll over a distribution from a TSA to another TSA or to a traditional
IRA. A spousal beneficiary may roll over death benefits only to a traditional
IRA.
The taxable portion of most distributions will be eligible for rollover, except
as specifically excluded under federal income tax rules. Distributions that you
cannot roll over generally include periodic payments for life or for a period
of 10 years or more, hardship withdrawals, and required minimum distributions
under federal income tax rules.
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Direct transfers of TSA funds from one TSA to another under Revenue Ruling
90-24 are not distributions.
Required minimum distributions
Same as traditional IRA with these differences:
When you have to take the first required minimum distribution
The minimum distribution rules force TSA participants to start calculating and
taking annual distributions from their TSAs by a required date. Generally, you
must take the first required minimum distribution for the calendar year in
which you turn age 70 1/2. You may be able to delay the start of required
minimum distributions for all or part of your account balance until after age
70 1/2, as follows:
o For TSA participants who have not retired from service with the employer who
provided the funds for the TSA by the calendar year the participant turns
age 70 1/2, the required beginning date for minimum distributions is
extended to April 1 following the calendar year of retirement.
o TSA plan participants may also delay the start of required minimum
distributions to age 75 of the portion of their account value attributable
to their December 31, 1986 TSA account balance, even if retired at age
70 1/2. We will know whether or not you qualify for this exception
because it will only apply to people who establish their Equitable
Accumulator Rollover TSA by direct Revenue Ruling 90-24 transfers. If you
do not give us the amount of your December 31, 1986 account balance that
is being transferred to the Equitable Accumulator Rollover TSA on the form
used to establish the TSA, you do not qualify.
Spousal consent rules
This will only apply to you if you establish your Equitable Accumulator
Rollover TSA by direct Revenue Ruling 90-24 transfer. Your employer will tell
us on the form used to establish the TSA whether or not you need to get spousal
consent for loans, withdrawals, or other distributions. If you do, you will
need such consent if you are married when you request a withdrawal under the
TSA contract. In addition, unless you elect otherwise with the written consent
of your spouse, the retirement benefits payable under the plan must be paid in
the form of a qualified joint and survivor annuity. A qualified joint and
survivor annuity is payable for the life of the annuitant with a survivor
annuity for the life of the spouse in an amount not less than one-half of the
amount payable to the annuitant during his or her lifetime. In addition, if you
are married, the beneficiary must be your spouse, unless your spouse consents
in writing to the designation of another beneficiary.
If you are married and you die before annuity payments have begun, payments
will be made to your surviving spouse in the form of a life annuity unless at
the time of your death a contrary election was in effect. However, your
surviving spouse may elect, before payments begin, to receive payments in any
form permitted under the terms of the TSA contract and the plan of the employer
who provided the funds for the TSA.
Early distribution penalty tax
A penalty tax of 10% of the taxable portion of a distribution applies to
distributions from a TSA before you reach age 59 1/2. This is in addition to
any income tax. There are exceptions to the extra penalty tax. No penalty tax
applies to pre-age 59 1/2 distributions made:
o on or after your death; or
o because you are disabled (special federal income tax definition); or
o to pay for certain extraordinary medical expenses (special federal income
tax definition); or
o if you are separated from service, any form of payout after you are age 55;
or
o only if you are separated from service, a payout in the form of
substantially equal periodic payments made at least annually over your life
(or your life expectancy), or over the joint lives of you and your
beneficiary (or your joint life expectancy) using an IRS-approved
distribution method.
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FEDERAL AND STATE INCOME TAX WITHHOLDING
AND INFORMATION REPORTING
We must withhold federal income tax from distributions from annuity contracts.
You may be able to elect out of this income tax withholding in some cases.
Generally, we do not have to withhold if your distributions are not taxable.
The rate of withholding will depend on the type of distribution and, in certain
cases, the amount of your distribution. Any income tax withheld is a credit
against your income tax liability. If you do not have sufficient income tax
withheld or do not make sufficient estimated income tax payments, you may incur
penalties under the estimated income tax rules.
You must file your request not to withhold in writing before the payment or
distribution is made. Our Processing Office will provide forms for this
purpose. You cannot elect out of withholding unless you provide us with your
correct Taxpayer Identification Number and a United States residence address.
You cannot elect out of withholding if we are sending the payment out of the
United States.
You should note the following special situations:
o We might have to withhold on amounts we pay under a free look or
cancellation.
o We are generally required to withhold on conversion rollovers of traditional
IRAs to Roth IRAs, as it is considered a withdrawal from the traditional IRA
and is taxable.
o We are required to withhold on the gross amount of a distribution from a
Roth IRA unless you elect out of withholding. This may result in tax being
withheld even though the Roth IRA distribution is not taxable in whole or in
part.
Special withholding rules apply to foreign recipients and United States
citizens residing outside the United States. We do not discuss these rules
here. Certain states have indicated that state income tax withholding will also
apply to payments from the contracts made to residents. In some states, you may
elect out of state withholding, even if federal withholding applies. 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.
Federal income tax withholding on periodic annuity payments
We withhold differently on "periodic" and "non-periodic" payments. For a
periodic annuity payment, for example, unless you specify a different number of
withholding exemptions, we withhold assuming that you are married and claiming
three withholding exemptions. If you do not give us your correct Taxpayer
Identification Number, we withhold as if you are single with no exemptions.
Based on the assumption that you are married and claiming three withholding
exemptions, if you receive less than $14,700 in periodic annuity payments in
1999, your payments will generally be exempt from federal income tax
withholding. You could specify a different choice of withholding exemption or
request that tax be withheld. Your withholding election remains effective
unless and until you revoke it. You may revoke or change your withholding
election at any time.
Federal income tax withholding on non-periodic annuity payments (withdrawals)
For a non-periodic distribution (total surrender or partial withdrawal), we
generally withhold at a flat 10% rate. We apply that rate to the taxable amount
in the case of nonqualified contracts, and to the payment amount in the case of
IRAs and Roth IRAs.
You cannot elect out of withholding if the payment is an "eligible rollover
distribution" from a qualified plan or TSA. If a non-periodic distribution from
a qualified plan or TSA is not an "eligible rollover distribution" then the 10%
withholding rate applies.
Mandatory withholding from TSA and qualified plan distributions
Unless you have the distribution go directly to the new plan, eligible rollover
distributions from qualified plans and TSAs are subject to mandatory 20%
withholding. An eligible
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rollover distribution from a TSA can be rolled over to another TSA or a
traditional IRA. An eligible rollover distribution from a qualified plan can be
rolled over to another qualified plan or traditional IRA. All distributions
from a TSA or qualified plan are eligible rollover distributions unless they
are on the following list of exceptions:
o any after-tax contributions you made to the plan; or
o any distributions which are "required minimum distributions" after age
70 1/2 or separation from service; or
o hardship withdrawals; or
o substantially equal periodic payments made at least annually for your life
(or life expectancy) or the joint lives (or joint life expectancy) of you
and your designated beneficiary; or
o substantially equal periodic payments made for a specified period of 10
years or more; or
o corrective distributions which fit specified technical tax rules; or
o loans that are treated as distributions; or
o a death benefit payment to a beneficiary who is not your surviving spouse;
or
o a qualified domestic relations order distribution to a beneficiary who is
not your current spouse or former spouse.
A death benefit payment to your surviving spouse, or a qualified domestic
relations order distribution to your current or former spouse, may be a
distribution subject to mandatory 20% withholding.
IMPACT OF TAXES TO EQUITABLE LIFE
The contracts provide that we may charge Separate Account No. 45 for taxes. We
do not now, but may in the future set up reserves for such taxes.
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ABOUT OUR SEPARATE ACCOUNT NO. 45
Each variable investment option is a subaccount of our Separate Account No. 45.
We established Separate Account No. 45 in 1994 under special provisions of the
New York Insurance Law. These provisions prevent creditors from any other
business we conduct from reaching the assets we hold in our variable investment
options for owners of our variable annuity contracts, including these
contracts. We are the legal owner of all of the assets in Separate Account No.
45 and may withdraw any amounts that exceed our reserves and other liabilities
with respect to variable investment options under our contracts. The results of
Separate Account No. 45's operations are accounted for without regard to
Equitable Life's other operations.
Separate Account No. 45 is registered under the Investment Company Act of 1940
and is classified by that act as a "unit investment trust." The SEC, however,
does not manage or supervise Equitable Life or Separate Account No. 45.
Each subaccount (variable investment option) within Separate Account No. 45
invests solely in class IB shares issued by the corresponding Portfolio of The
Hudson River Trust and EQ Advisors Trust.
We reserve the right subject to compliance with laws that apply:
(1) to add variable investment options to, or to remove variable investment
options from, Separate Account No. 45, or to add other separate accounts;
(2) to combine any two or more variable investment options;
(3) to transfer the assets we determine to be the shares of the class of
contracts to which the contracts belong from any variable investment
option to another variable investment option;
(4) to operate Separate Account No. 45 or any variable investment option as a
management investment company under the Investment Company Act of 1940
(in which case, charges and expenses that otherwise would be assessed
against an underlying mutual fund would be assessed against Separate
Account No. 45 or a variable investment option directly);
(5) to deregister Separate Account No. 45 under the Investment Company Act of
1940;
(6) to restrict or eliminate any voting rights as to Separate Account No. 45;
and
(7) to cause one or more variable investment options to invest some or all of
their assets in one or more other trusts or investment companies.
ABOUT THE HUDSON RIVER TRUST AND EQ ADVISORS TRUST
The Hudson River Trust and EQ Advisors Trust are registered under the
Investment Company Act of 1940. They are classified as "open-end management
investment companies," more commonly called mutual funds. Each trust issues
different shares relating to each Portfolio.
The Hudson River Trust and EQ Advisors Trust do not impose sales charges or
"loads" for buying and selling their shares. All dividends and other
distributions on a trust's shares are reinvested in full. The Board of Trustees
of The Hudson River Trust and EQ Advisors Trust may establish additional
Portfolios or eliminate existing Portfolios at any time. More detailed
information about The Hudson River Trust and EQ Advisors Trust, their
investment objectives, policies, restrictions, risks, expenses, their Rule
12b-1 Plans relating to their Class IB shares, and other aspects of their
operations, appears in their prospectuses, or in their SAIs which are available
upon request.
Proposed substitution of Portfolios. We are asking the SEC to approve the
substitution of 14 newly created Portfolios of the EQ Advisors Trust for The
Hudson River Trust Portfolios currently available under the variable investment
options (the "Substitution"). The EQ Advisors Trust Portfolios will have
substantially identical investment objectives, strategies, and policies as
those of The Hudson River Trust Portfolios they would replace. The assets of
any
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Portfolio of The Hudson River Trust underlying your contract would be
transferred to the substituted EQ Advisors Trust Portfolio.
We believe that this Substitution will be in your best interest because you
would have a single set of variable investment options with similar advisory
structures. You also will have a single EQ Advisors Trust prospectus for all
the Portfolios, rather than the two separate prospectuses you now receive. EQ
Financial Consultants Inc. will be the manager of the new EQ Advisors Trust
Portfolios, and Alliance Capital Management L.P. will continue to provide the
day-to-day advisory services to each of the new Portfolios.
You should note that:
o No action is required on your part. You will not need to vote a proxy, file
a new election, or take any other action if the SEC approves the
Substitution.
o The elections you have on file for allocating your account value and
contributions will remain unchanged until you direct us otherwise.
o We will bear all expenses directly relating to the Substitution transaction.
o The management fees for the new Portfolios will be the same as those for the
corresponding Portfolios of The Hudson River Trust. Certain of the new EQ
Advisors Trust Portfolios may have slightly higher expense ratios.
o On the effective date of the Substitution transaction, your account value
(i.e., the units you own) in the variable investment options will be the
same as before the transaction.
o The Substitution will have no tax consequences for you.
Please review the EQ Advisors Trust prospectus that accompanies this
prospectus. It contains more information about the EQ Advisors Trust, including
its management structure, advisory arrangements, and general fees and expenses
that will be of interest to you.
Subject to SEC approval, we expect the Substitution to be completed in the fall
of 1999. It will affect everyone who has a balance in The Hudson River Trust
Portfolios at that time. Of course, you may transfer your account value among
the investment options, as usual.
We will notify you when we receive SEC approval, and again when the
Substitution is complete.
ABOUT OUR FIXED MATURITY OPTIONS
How we determine the market value adjustment
We use the following procedure to calculate the market value adjustment (up or
down) we make if you withdraw all of your value from a fixed maturity option
before its maturity date.
(1) We determine the market adjusted amount on the date of the withdrawal as
follows:
(a) We determine the fixed maturity amount that would be payable on
the maturity date, using the rate to maturity for the fixed
maturity option.
(b) We determine the period remaining in your fixed maturity option
(based on the withdrawal 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 rate to maturity that applies on the
withdrawal date to new allocations to the same fixed maturity
option.
(d) We determine the present value of the fixed maturity amount
payable at the maturity date, using the period determined in (b)
and the rate determined in (c).
(2) We determine the fixed maturity 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 fixed maturity option, which may be
positive or negative.
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Your market adjusted amount is the present value of the maturity value
discounted at the rate to maturity in effect for new contributions to that same
fixed maturity option on the date of the calculation.
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If you withdraw only a portion of the amount in a fixed maturity option, the
market value adjustment will be a percentage of the market value adjustment
that would have applied if you had withdrawn the entire value in that fixed
maturity option. This percentage is equal to the percentage of the value in the
fixed maturity option that you are withdrawing. Any withdrawal charges that are
deducted from a fixed maturity option will result in a market value adjustment
calculated in the same way. See Appendix III for an example.
For purposes of calculating the rate to maturity for new allocations to a fixed
maturity option (see (1)(c) above), we use the rate we have in effect for new
allocations to that fixed maturity option. We use this rate even if new
allocations to that option would not be accepted at that time. This rate will
not be less than 3%. If we do not have a rate to maturity in effect for a fixed
maturity option to which the "current rate to maturity" in (1)(c) would apply,
we will use the rate at the next closest maturity date. If we are no longer
offering new fixed maturity options, the "current rate to maturity" will be
determined in accordance with our procedures then in effect. We reserve the
right to add up to 0.25% to the current rate in (1)(c) above for purposes of
calculating the market value adjustment only.
Investments under the fixed maturity options
Under New York Insurance Law, the portion of the separate account's assets
equal to the reserves and other contract liabilities relating to the contracts
are not chargeable with liabilities from any other business we may conduct. We
own the assets of the separate account, as well as any favorable investment
performance on those assets. You do not participate in the performance of the
assets held in this separate account. We may, subject to state law that
applies, transfer all assets allocated to the separate account to our general
account. We guarantee all benefits relating to your value in the fixed maturity
options, regardless of whether assets supporting fixed maturity options are
held in a separate account or our general account.
We have no specific formula for establishing the rates to maturity for the
fixed maturity options. We expect the rates to be influenced by, but not
necessarily correspond to, among other things, the yields that we can expect to
realize on the separate account's investments from time to time. Our current
plans are to invest 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 fixed maturity
options.
Although the above generally describes our plans for investing the assets
supporting our obligations under the fixed maturity options under the
contracts, we are not obligated to invest those assets according to any
particular plan except as we may be required to by state insurance laws. We
will not determine the rates to maturity we establish by the performance of the
nonunitized separate account.
ABOUT THE GENERAL ACCOUNT
Our general account supports all of our policy and contract guarantees,
including those that apply to the fixed maturity options and the account for
special dollar cost averaging, as well as our general obligations. Amounts
applied to the life contingent annuity become part of our general account.
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
exemptions and exclusionary provisions that apply, interests in the general
account have not been registered under the Securities Act of 1933, nor is the
general account an investment company under the Investment Company Act of 1940.
However, the market value adjustment interests under the contracts are
registered under the Securities Act of 1933.
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We have been advised that the staff of the SEC has not reviewed the portions of
this prospectus that relate to the general account (other than market value
adjustment interests) and the life contingent annuity. The disclosure with
regard to the general account, however, may be subject to certain provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
ABOUT OTHER METHODS OF PAYMENT
Automatic investment program -- for NQ, Flexible Premium IRA, and Flexible
Premium Roth IRA contracts only
You may use our automatic investment program, or "AIP," to have a specified
amount automatically deducted from a checking account, money market account, or
credit union checking account and contributed as an additional contribution
into an NQ, Flexible Premium IRA or Flexible Premium Roth IRA contract on a
monthly or quarterly basis. AIP is not available for Rollover IRA, Roth
Conversion IRA, QP or Rollover TSA contracts. It is also not available under
the Assured Payment Option or APO Plus.
For NQ contracts, the minimum amounts we will deduct are $100 monthly and $300
quarterly. Under Flexible Premium IRA and Flexible Premium Roth IRA contracts,
the minimum amount is $50. AIP additional contributions may be allocated to any
of the variable investment options and available fixed maturity options, but
not the account for special dollar cost averaging. You choose the day of the
month you wish to have your account debited as long as it is not later than the
28th day of the month.
You may cancel AIP at any time by notifying our Processing Office. We are not
responsible for any debits made to your account before the time written notice
of cancellation is received at our Processing Office.
DATES AND PRICES AT WHICH CONTRACT EVENTS OCCUR
We describe below the general rules for when, and at what prices, events under
your contract will occur. Other portions of this prospectus describe
circumstances that may cause exceptions. We generally do not repeat those
exceptions below.
Business day
Our business day is any day the New York Stock Exchange is open for trading.
Each business day ends at the time trading on the exchange closes (or is
suspended) for the day. We calculate unit values for our variable investment
options as of the end of each business day. This usually is 4:00 p.m., Eastern
Time. Contributions will be applied and any other transaction requests will be
processed when they are received along with all the required information.
o If your contribution, transfer or any other transaction request, containing
all the required information, reaches us on a non-business day or after 4:00
p.m. on a business day, we will use the next business day.
o A loan request under your Rollover TSA contract will be processed on the
first business day of the month following the date on which the properly
completed loan request form is received.
o If your transaction is set to occur on the same day of the month as the
contract date and that date is the 29th, 30th or 31st of the month, then the
transaction will occur on either the 28th day of the month or the 1st day of
the next month, whichever is the closest business day.
o When a charge is to be deducted on a contract date anniversary that is a
non-business day, we will deduct the charge on the next business day.
Contributions and transfers
o Contributions allocated to the variable investment options are invested at
the value next determined after the close of the business day.
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o Contributions allocated to a fixed maturity option will receive the rate to
maturity in effect for that fixed maturity option on that business day.
o Initial contributions allocated to the account for special dollar cost
averaging receive the interest rate in effect on that business day. At
certain times, we may offer the opportunity to lock in the interest rate for
an initial contribution to be received under Section 1035 exchanges and
trustee to trustee transfers. Your registered representative can provide
information or you can call our Processing Office.
o Transfers to or from variable investment options will be made at the value
next determined after the close of the business day.
o Transfers to a fixed maturity option will be based on the rate to maturity
in effect for that fixed maturity option on the business day of the
transfer.
ABOUT YOUR VOTING RIGHTS
As the owner of the shares of The Hudson River Trust and EQ Advisors Trust we
have the right to vote on certain matters involving the Portfolios, such as:
o The election of trustees.
o The formal approval of independent auditors selected for each trust.
o Any other matters described in the prospectuses for the trusts or requiring
a shareholders' vote under the Investment Company Act of 1940.
We will give contract owners the opportunity to instruct us how to vote the
number of shares attributable to their contracts if a shareholder vote is
taken. If we do not receive instructions in time from all contract 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 a Portfolio in the same
proportions that contract owners vote.
Voting rights of others
Currently, we control each trust. EQ Advisors Trust shares are sold only to our
separate accounts and an affiliated qualified plan trust. The Hudson River
Trust shares are held by other separate accounts of ours and by separate
accounts of insurance companies unaffiliated with us. Shares held by these
separate accounts will probably be voted according to the instructions of the
owners of insurance policies and contracts issued by those insurance companies.
While this will dilute the effect of the voting instructions of the contract
owners, we currently do not foresee any disadvantages because of this. The
Hudson River Trust Board of Trustees intends to monitor events in order to
identify any material irreconcilable conflicts that may arise and to determine
what action, if any, should be taken in response. If we believe that a response
to any of those events insufficiently protects our contract owners, we will see
to it that appropriate action is taken.
Separate Account No. 45 voting rights
If actions relating to Separate Account No. 45 require contract owner approval,
contract owners will be entitled to one vote for each unit they have in the
variable investment options. Each contract owner who has elected a variable
annuity payout option may cast the number of votes equal to the dollar amount
of reserves we are holding for that annuity in a variable investment option
divided by the annuity unit value for that option. We will cast votes
attributable to any amounts we have in the variable investment options in the
same proportion as votes cast by contract 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
published 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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ABOUT OUR YEAR 2000 PROGRESS
Equitable Life relies upon various computer systems in order to administer your
contract and operate the investment options. Some of these systems belong to
service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000, and
Equitable Life has identified those of its systems critical to business
operations that were not year 2000 compliant. By year end 1998, the work of
modifying or replacing non-compliant systems was substantially completed.
Equitable Life has begun comprehensive testing of its year 2000 compliance and
expects that the testing will be substantially completed by June 30, 1999.
Equitable Life has contacted third-party service providers to seek confirmation
that they are acting to address the year 2000 issue with the goal of avoiding
any material adverse effect on services provided to contract owners and on
operations of the investment options. Most third-party service providers have
provided Equitable Life confirmation of their year 2000 compliance. Equitable
Life believes it is on schedule for substantially all such systems and
services, including those considered to be mission- critical, to be confirmed
as year 2000 compliant, renovated, replaced or the subject of contingency
plans, by June 30, 1999, except for one investment accounting system that is
scheduled to be replaced by August 31, 1999 and confirmed as year 2000
compliant by September 30, 1999. Additionally, Equitable Life will be
supplementing its existing business continuity and disaster recovery plans to
cover certain categories of contingencies that could arise as a result of year
2000 related failures. Year 2000 specific contingency plans are anticipated to
be in place by June 30, 1999.
There are many risks associated with year 2000 issues, including the risk that
Equitable Life's computer systems will not operate as intended. Additionally,
there can be no assurance that the systems of third parties will be year 2000
compliant. Any significant unresolved difficulty related to the year 2000
compliance initiatives could result in an interruption in, or a failure of,
normal business operations and, accordingly, could have a material adverse
effect on our ability to administer your contract and operate the investment
options.
To the fullest extent permitted by law, the foregoing year 2000 discussion is
a "Year 2000 Readiness Disclosure" within the meaning of The Year 2000
Information and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
ABOUT LEGAL PROCEEDINGS
Equitable Life and its affiliates are parties to various legal proceedings. In
our view, none of these proceedings is likely to have a material adverse effect
upon Separate Account No. 45, our ability to meet our obligations under the
contracts, or the distribution of the contracts.
ABOUT OUR INDEPENDENT ACCOUNTANTS
The financial statements of Equitable Life incorporated in this prospectus by
reference to the Annual Report on Form 10-K at December 31, 1998 and 1997, and
for the three years ended December 31, 1998, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
TRANSFERS OF OWNERSHIP, COLLATERAL ASSIGNMENTS, LOANS, AND BORROWING
You can transfer ownership of an NQ contract at any time before annuity
payments begin. We will continue to treat you as the owner until we receive
notification of any change at our Processing Office. You cannot assign your NQ
contract as collateral or security for a loan. Loans are also not available
under your NQ contract. In some cases, an assignment or change of ownership may
have adverse tax consequences. See "Tax information."
You cannot assign or transfer ownership of an IRA, QP or Rollover TSA contract
except by surrender to us. Loans are not available and you cannot assign IRA
and QP contracts as security for a loan or other obligation. If the employer
that
<PAGE>
- --------------------------------------------------------------------------------
More information 79
- --------------------------------------------------------------------------------
provided the funds does not restrict them, loans are available under a Rollover
TSA contract.
For limited transfers of ownership after the owner's death see "Payment of
death benefit" and "Beneficiary continuation option for Rollover IRA and
Flexible Premium IRA contracts." You may direct the transfer of the values
under your IRA, QP or Rollover TSA contract to another similar arrangement.
Under federal income tax rules, in the case of such a transfer, we will impose
a withdrawal charge, if one applies.
DISTRIBUTION OF THE CONTRACTS
EQ Financial Consultants, Inc. ("EQF"), an indirect, wholly owned subsidiary of
Equitable Life, is the distributor of the contracts and has responsibility for
sales and marketing functions for Separate Account No. 45. During 1999, EQF
plans to change its name to AXA Advisors, Inc. EQF serves as the principal
underwriter of Separate Account No. 45. EQF is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc. EQF's principal business address is 1290 Avenue of the Americas,
New York, New York 10104. Pursuant to a Distribution and Servicing Agreement
between EQF, Equitable Life, and certain of Equitable Life's separate accounts,
including Separate Account No. 45, Equitable Life paid EQF distribution fees of
$325,380 for 1998, as the distributor of certain contracts and as the principal
underwriter of certain separate accounts including Separate Account No. 45.
Before May 1, 1998, Equitable Distributors, Inc. ("EDI"), also an indirect,
wholly owned subsidiary of Equitable Life, served as the distributor of the
contracts and the principal underwriter of Separate Account No. 45. Pursuant to
a Distribution Agreement between Equitable Life, certain of Equitable Life's
separate accounts, including Separate Account No. 45, and EDI, Equitable Life
paid EDI distribution fees of $9,444,621 for 1997 and $888,486 for 1996 as the
distributor of certain contracts and as the principal underwriter of certain
separate accounts including Separate Account No. 45.
The contracts will be sold by registered representatives of EQF and its
affiliates, who are also our licensed insurance agents. EQF may also receive
compensation and reimbursement for its marketing services under the terms of
its distribution agreement with Equitable Life. The offering of the contracts
is intended to be continuous.
<PAGE>
- --------------------------------------------------------------------------------
80 Investment performance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9
Investment performance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We provide the following tables to show five different measurements of the
investment performance of the variable investment options and/or the Portfolios
in which they invest. We include these tables because they may be of general
interest to you. The results shown reflect past performance. They do not
indicate how the variable investment options may perform in the future. They
also do not represent the results earned by any particular investor. Your
results will differ.
Table 1 shows the average annual total return of the variable investment
options. Average annual total return is the annual rate of growth that would be
necessary to achieve the ending value of a contribution invested in the
variable investment options for the periods shown.
Table 2 shows the growth of a hypothetical $1,000 investment in the variable
investment options over the periods shown. Both Tables 1 and 2 take into
account all fees and charges under the contract, including the withdrawal
charge, the optional baseBUILDER benefits charge, the annual administrative
charge under Flexible Premium IRA and Flexible Premium Roth IRA contracts, but
do not take the charges for any applicable taxes such as premium taxes or any
applicable annuity administrative fee into account.
Tables 3, 4, and 5 show the rates of return of the variable investment options
on an annualized, cumulative, and year-by-year basis. These tables take into
account all fees and charges under the contract, but do not reflect the
withdrawal charge, the optional baseBUILDER benefits charge, the annual
administrative charge or the charges for any applicable taxes such as premium
taxes or any applicable annuity administrative fee. If the charges were
reflected they would effectively reduce the rates of return shown.
In all cases the results shown are based on the actual historical investment
experience of the Portfolios in which the variable investment options invest.
In some cases, the results shown relate to periods when the variable investment
options and/or the contracts were not available. In those cases, we adjusted
the results of the Portfolios to reflect the charges under the contracts that
would have applied had the investment options and/or contracts been available.
The contracts were first offered on May 1, 1998.
In addition, we have adjusted the results prior to October 1996, when The
Hudson River Trust Class IB shares were not available, to reflect the 12b-1
fees currently imposed. Finally, the results shown for the Alliance Money
Market and Alliance Common Stock options for periods before March 22, 1985
reflect the results of the variable investment options that preceded them. The
"Since inception" figures for these options are based on the date of inception
of the preceding variable investment options. We have adjusted these results to
reflect the maximum investment advisory fee payable for the Portfolios, as well
as an assumed charge of 0.06% for direct operating expenses.
EQ Advisors Trust commenced operations on May 1, 1997.
All rates of return presented are time-weighted and include reinvestment of
investment income, including interest and dividends.
BENCHMARKS
Tables 3 and 4 compare the performance of variable investment options to market
indices that serve as 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. Also, they do not reflect other
contract charges such as the mortality and expense risks charge, administrative
charges, or any withdrawal or optional benefit charge. Comparisons with these
benchmarks, therefore, may be 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. The benchmarks include:
<PAGE>
- --------------------------------------------------------------------------------
Investment performance 81
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK: 50% Russell 2000 Small Stock Index and 50% Standard
& Poor's Mid-Cap Total Return Index.
ALLIANCE COMMON STOCK: Standard & Poor's 500 Index.
ALLIANCE CONSERVATIVE INVESTORS: 70% Lehman Treasury Bond Composite Index and
30% Standard & Poor's 500 Index.
ALLIANCE EQUITY INDEX: Standard & Poor's 500 Index.
ALLIANCE GLOBAL: Morgan Stanley Capital International World Index.
ALLIANCE GROWTH & INCOME: 75% Standard & Poor's 500 Index and 25% Value Line
Convertibles Index.
ALLIANCE GROWTH INVESTORS: 70% Standard & Poor's 500 Index and 30% Lehman
Government/Corporate Bond Index.
ALLIANCE HIGH YIELD: Merrill Lynch High Yield Master Index.
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES: Lehman Intermediate Government
Bond Index.
ALLIANCE INTERNATIONAL: Morgan Stanley Capital International Europe, Australia,
Far East Index.
ALLIANCE MONEY MARKET: Salomon Brothers Three-Month T-Bill Index.
ALLIANCE SMALL CAP GROWTH: Russell 2000 Growth Index.
EQ/ALLIANCE PREMIER GROWTH: Standard & Poor's 500 Index.
BT EQUITY 500 INDEX: Standard & Poor's 500 Index.
BT INTERNATIONAL EQUITY INDEX: Morgan Stanley Capital International Europe,
Australia, Far East Index.
BT SMALL COMPANY INDEX: Russell 2000 Index.
CAPITAL GUARDIAN RESEARCH: Standard & Poor's 500 Index.
CAPITAL GUARDIAN U.S. EQUITY: Standard & Poor's 500 Index.
EQ/EVERGREEN: Russell 2000 Index.
EQ/EVERGREEN FOUNDATION: 60% Standard & Poor's 500 Index/40% Lehman Brothers
Aggregate Bond Index.
MFS EMERGING GROWTH COMPANIES: Russell 2000 Index.
MFS GROWTH WITH INCOME: Standard & Poor's 500 Index.
MFS RESEARCH: Standard & Poor's 500 Index.
MERRILL LYNCH BASIC VALUE EQUITY: Standard & Poor's 500 Index.
MERRILL LYNCH WORLD STRATEGY: 36% Standard & Poor's 500 Index/24% Morgan
Stanley Capital International Europe, Australia, Far East Index/21% Salomon
Brothers U.S. Treasury Bond 1 Year+ 14% Salomon Brothers World Government
Bond (excluding U.S.)/and 5% Three-Month U.S. Treasury Bill.
MORGAN STANLEY EMERGING MARKETS EQUITY: Morgan Stanley Capital International
Emerging Markets Free Price Return Index.
EQ/PUTNAM BALANCED: 60% Standard & Poor's 500 Index and 40% Lehman Government/
Corporate Bond Index.
EQ/PUTNAM GROWTH & INCOME VALUE: Standard & Poor's 500 Index.
- --------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME: Standard & Poor's 500 Index.
T. ROWE PRICE INTERNATIONAL STOCK: Morgan Stanley Capital International Europe,
Australia, Far East Index.
WARBURG PINCUS SMALL COMPANY VALUE: Russell 2000 Index.
LIPPER SURVEY. The Lipper Variable Insurance Products Performance Analysis
Survey (Lipper Survey) records the performance of a large group of variable
annuity products, including managed separate accounts of insurance companies.
According to Lipper Analytical Services, Inc., the data are presented net of
investment management fees, direct operating expenses and asset-based charges
applicable under annuity contracts. Lipper data provide a more accurate picture
than market benchmarks of the Equitable Accumulator performance relative to
other variable annuity products.
<PAGE>
- --------------------------------------------------------------------------------
82 Investment performance
- --------------------------------------------------------------------------------
TABLE 1
AVERAGE ANNUAL TOTAL RETURN UNDER A CONTRACT SURRENDERED ON DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
----------------------------------
1 3 5
VARIABLE INVESTMENT OPTIONS YEAR YEARS YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Alliance Aggressive Stock (8.60)% 7.09% 8.76%
- --------------------------------------------------------------------------------
Alliance Common Stock 20.02% 24.05% 19.18%
- --------------------------------------------------------------------------------
Alliance Conservative Investors 4.77% 7.00% 6.64%
- --------------------------------------------------------------------------------
Alliance Equity Index 18.73% 24.05% -
- --------------------------------------------------------------------------------
Alliance Global 12.56% 12.27% 11.55%
- --------------------------------------------------------------------------------
Alliance Growth & Income 11.64% 18.96% 15.09%
- --------------------------------------------------------------------------------
Alliance Growth Investors 9.93% 12.51% 11.18%
- --------------------------------------------------------------------------------
Alliance High Yield (13.96)% 7.72% 7.28%
- --------------------------------------------------------------------------------
Alliance Intermediate Government Securities (1.27)% 2.49% 2.60%
- --------------------------------------------------------------------------------
Alliance International 1.51% 1.81% -
- --------------------------------------------------------------------------------
Alliance Money Market (3.64)% 1.59% 2.40%
- --------------------------------------------------------------------------------
Alliance Small Cap Growth (13.03)% - -
- --------------------------------------------------------------------------------
BT Equity 500 Index 16.14% - -
- --------------------------------------------------------------------------------
BT International Equity Index 11.17% - -
- --------------------------------------------------------------------------------
BT Small Company Index (10.93)% - -
- --------------------------------------------------------------------------------
MFS Emerging Growth Companies 25.40% - -
- --------------------------------------------------------------------------------
MFS Research 15.13% - -
- --------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity 2.78% - -
- --------------------------------------------------------------------------------
Merrill Lynch World Strategy (1.92)% - -
- --------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity (35.31)% - -
- --------------------------------------------------------------------------------
EQ/Putnam Balanced 3.00% - -
- --------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value 4.00% - -
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income 0.30% - -
- --------------------------------------------------------------------------------
T. Rowe Price International Stock 4.86% - -
- --------------------------------------------------------------------------------
Warburg Pincus Small Company Value (18.52)% - -
- --------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
--------------------------------------------------
SINCE SINCE PORTFOLIO
10 OPTION PORTFOLIO INCEPTION
VARIABLE INVESTMENT OPTIONS YEARS INCEPTION* INCEPTION DATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Alliance Aggressive Stock 16.79% - - 1/27/86
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Alliance Common Stock 16.35% - - 1/13/76
- ---------------------------------------------------------------------------------------------------
Alliance Conservative Investors - 8.58% 7.08% 10/2/89
- ---------------------------------------------------------------------------------------------------
Alliance Equity Index - 23.15% 20.82% 3/1/94
- ---------------------------------------------------------------------------------------------------
Alliance Global 12.58% 12.90% 9.65% 8/27/97
- ---------------------------------------------------------------------------------------------------
Alliance Growth & Income - 18.15% 12.26% 10/1/93
- ---------------------------------------------------------------------------------------------------
Alliance Growth Investors - 13.87% 12.68% 10/2/89
- ---------------------------------------------------------------------------------------------------
Alliance High Yield 8.93% - - 1/2/87
- ---------------------------------------------------------------------------------------------------
Alliance Intermediate Government Securities - 3.78% 4.71% 4/1/91
- ---------------------------------------------------------------------------------------------------
Alliance International - 3.67% 4.00% 4/3/95
- ---------------------------------------------------------------------------------------------------
Alliance Money Market 3.35% - - 7/13/81
- ---------------------------------------------------------------------------------------------------
Alliance Small Cap Growth - 5.51% 5.51% 5/1/97
- ---------------------------------------------------------------------------------------------------
BT Equity 500 Index - 16.14% 16.14% 12/31/97
- ---------------------------------------------------------------------------------------------------
BT International Equity Index - 11.17% 11.17% 12/31/97
- ---------------------------------------------------------------------------------------------------
BT Small Company Index - (10.93)% (10.93)% 12/31/97
- ---------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies - 24.05% 24.05% 5/1/97
- ---------------------------------------------------------------------------------------------------
MFS Research - 15.64% 15.64% 5/1/97
- ---------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity - 9.86% 9.86% 5/1/97
- ---------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy - 1.19% 1.19% 5/1/97
- ---------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity - (35.31)% (28.99)% 8/20/97
- ---------------------------------------------------------------------------------------------------
EQ/Putnam Balanced - 8.69% 8.69% 5/1/97
- ---------------------------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value - 10.08% 10.08% 5/1/97
- ---------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income - 11.02% 11.02% 5/1/97
- ---------------------------------------------------------------------------------------------------
T. Rowe Price International Stock - 1.23% 1.23% 5/1/97
- ---------------------------------------------------------------------------------------------------
Warburg Pincus Small Company Value - (1.03)% (1.03)% 5/1/97
- ---------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* The since inception dates for the variable investment options are as
follows: Alliance Aggressive Stock, Alliance Common Stock, Alliance
Conservative Investors, Alliance Equity Index, Alliance Global, Alliance
Growth & Income, Alliance Growth Investors, Alliance High Yield, Alliance
Intermediate Government Securities, Alliance International, Alliance Money
Market, Alliance Small Cap Growth, BT Equity 500 Index, BT International
Equity Index, BT Small Company Index, EQ/Putnam Balanced, EQ/Putnam Growth
& Income Value, MFS Emerging Growth Companies, MFS Research, Merrill Lynch
Basic Value Equity, Merrill Lynch World Strategy, Morgan Stanley Emerging
Markets Equity, T. Rowe Price Equity Income, T. Rowe Price International
Stock, and Warburg Pincus Small Company Value (May 1, 1998).
The inception dates for the Portfolios that became available on or after
December 31, 1998 and are therefore not shown in the tables are:
EQ/Evergreen, EQ/Evergreen Foundation, and MFS Growth with Income (December
31, 1998); EQ/Alliance Premier Growth, Capital Guardian Research, and
Capital Guardian U.S. Equity (May 1, 1999).
<PAGE>
- --------------------------------------------------------------------------------
Investment performance 83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 2
GROWTH OF $1,000 UNDER A CONTRACT SURRENDERED ON DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
LENGTH OF INVESTMENT PERIOD
-------------------------------------------------------------------------
SINCE
1 3 5 10 PORTFOLIO
VARIABLE INVESTMENT OPTIONS YEAR YEARS YEARS YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Aggressive Stock $ 914.00 $1,228.21 $1,521.63 $4,719.54 -
- ----------------------------------------------------------------------------------------------------------------------
Alliance Common Stock $1,200.20 $1,908.73 $2,404.59 $4,547.90 -
- ----------------------------------------------------------------------------------------------------------------------
Alliance Conservative Investors $1,047.70 $1,225.00 $1,379.44 - $1,982.04
- ---------------------------------------------------------------------------------------------------------------------
Alliance Equity Index $1,187.30 $1,908.72 - - $2,574.27
- ---------------------------------------------------------------------------------------------------------------------
Alliance Global $1,125.60 $1,414.94 $1,726.85 $3,269.70 $3,019.33
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth & Income $1,116.40 $1,683.32 $2,019.39 - $2,001.59
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth Investors $1,099.30 $1,424.03 $1,698.74 - $3,300.32
- ---------------------------------------------------------------------------------------------------------------------
Alliance High Yield $ 860.40 $1,250.11 $1,421.32 $2,352.06 -
- ---------------------------------------------------------------------------------------------------------------------
Alliance Intermediate Government Securities $ 987.30 $1,076.51 $1,137.21 - $1,444.69
- ---------------------------------------------------------------------------------------------------------------------
Alliance International $1,015.10 $1,055.26 - - $1,169.83
- ----------------------------------------------------------------------------------------------------------------------
Alliance Money Market $ 963.60 $1,048.36 $1,126.12 $1,390.07 -
- ----------------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth $ 869.70 - - - $1,113.16
- ----------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index $1,161.40 - - - $1,161.40
- ----------------------------------------------------------------------------------------------------------------------
BT International Equity Index $1,111.70 - - - $1,111.70
- ----------------------------------------------------------------------------------------------------------------------
BT Small Company Index $ 890.70 - - - $ 890.70
- ----------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies $1,254.00 - - - $1,538.76
- ----------------------------------------------------------------------------------------------------------------------
MFS Research $1,151.30 - - - $1,337.29
- ----------------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity $1,027.80 - - - $1,206.83
- ----------------------------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy $ 980.80 - - - $1,023.94
- ----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity $ 646.90 - - - $ 504.25
- ----------------------------------------------------------------------------------------------------------------------
EQ/Putnam Balanced $1,030.00 - - - $1,181.35
- ----------------------------------------------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value $1,040.00 - - - $1,211.78
- ---------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income $1,003.00 - - - $1,232.45
- ---------------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock $1,048.60 - - - $1,024.67
- ---------------------------------------------------------------------------------------------------------------------
Warburg Pincus Small Company Value $ 814.80 - - - $ 979.50
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
84 Investment performance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 3
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- -----------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK (1.30)% 8.97% 9.67% 16.99% - 15.88%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap Growth 12.16% 16.33% 14.87% 15.44% - 13.69%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 8.28% 17.77% 15.56% 16.49% - 14.78%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK 27.32% 25.56% 19.97% 16.74% 16.71% 14.53%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Growth 22.86% 22.23% 18.63% 16.72% 16.30% 16.01%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% 28.23% 24.06% 19.21% 17.76% 15.98%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE CONSERVATIVE INVESTORS 12.07% 8.93% 7.65% - - 8.24%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Flexible Portfolio 14.20% 15.62% 14.31% - - 12.55%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 15.59% 14.45% 13.37% - - 12.08%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE EQUITY INDEX 26.03% 25.56% - - - 22.35%
- -----------------------------------------------------------------------------------------------------------------------
Lipper S&P 500 Index 28.05% 27.67% - - - 24.31%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% 28.23% - - - 24.79%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE GLOBAL 19.86% 14.05% 12.43% 12.97% - 10.76%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Global 14.34% 14.67% 11.98% 11.21% - 9.64%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 24.34% 17.77% 15.68% 10.66% - 9.55%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH & INCOME 18.94% 20.57% 15.93% - - 14.97%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Growth & Income 15.61% 21.25% 18.35% - - 17.89%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 20.10% 23.99% 21.07% - - 20.48%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS 17.23% 14.28% 12.08% - - 14.21%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Flexible Portfolio 14.20% 15.62% 14.31% - - 12.55%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 22.85% 22.69% 19.96% - - 15.55%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD (6.66)% 9.57% 8.23% 9.39% - 8.73%
- -----------------------------------------------------------------------------------------------------------------------
Lipper High Current Yield (0.44)% 8.21% 7.37% 9.34% - 8.97%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 3.66% 9.11% 9.01% 11.08% - 10.72%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOVERNMENT
SECURITIES 6.03% 4.56% 3.71% - - 5.41%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Intermediate Government 7.68% 6.21% 5.91% - - 7.25%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 8.49% 6.74% 6.45% - - 7.60%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE INTERNATIONAL 8.81% 3.90% - - - 5.76%
- -----------------------------------------------------------------------------------------------------------------------
Lipper International 13.02% 9.94% - - - 10.74%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 20.00% 9.00% - - - 9.68%
- -----------------------------------------------------------------------------------------------------------------------
ALLIANCE MONEY MARKET 3.66% 3.68% 3.49% 3.90% - 5.38%
- -----------------------------------------------------------------------------------------------------------------------
Lipper Money Market 4.84% 4.87% 4.77% 5.20% - 6.77%
- -----------------------------------------------------------------------------------------------------------------------
Benchmark 5.05% 5.18% 5.11% 5.44% - 6.76%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Investment performance 85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 3 (CONTINUED)
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- --------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH (5.73)% - - - - 10.53%
- --------------------------------------------------------------------------------------------------------------------
Lipper Small Company Growth (0.33)% - - - - 16.72%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 1.23% - - - - 16.58%
- --------------------------------------------------------------------------------------------------------------------
BT EQUITY 500 INDEX 23.44% - - - - 23.44%
- --------------------------------------------------------------------------------------------------------------------
Lipper S&P 500 Index 26.78% - - - - 26.78%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 28.58%
- --------------------------------------------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX 18.47% - - - - 18.47%
- --------------------------------------------------------------------------------------------------------------------
Lipper International 12.17% - - - - 12.17%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 20.00% - - - - 20.00%
- --------------------------------------------------------------------------------------------------------------------
BT SMALL COMPANY INDEX (3.63)% - - - - (3.63)%
- --------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% - - - - 1.53%
- --------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% - - - - (2.54)%
- --------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES 32.70% - - - - 33.03%
- --------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap 15.97% - - - - 22.72%
- --------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% - - - - 14.53%
- --------------------------------------------------------------------------------------------------------------------
MFS RESEARCH 22.43% - - - - 22.75%
- --------------------------------------------------------------------------------------------------------------------
Lipper Growth 25.82% - - - - 28.73%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 31.63%
- --------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH BASIC VALUE EQUITY 10.08% - - - - 15.76%
- --------------------------------------------------------------------------------------------------------------------
Lipper Growth & Income 15.54% - - - - 21.32%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 31.63%
- --------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH WORLD STRATEGY 5.38% - - - - 5.50%
- --------------------------------------------------------------------------------------------------------------------
Lipper Global Flexible Portfolio 9.34% - - - - 11.15%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 19.55% - - - - 20.00%
- --------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS
EQUITY (28.01)% - - - - (33.62)%
- --------------------------------------------------------------------------------------------------------------------
Lipper Emerging Markets (30.50)% - - - - (36.28)%
- --------------------------------------------------------------------------------------------------------------------
Benchmark (25.34)% - - - - (28.92)%
- --------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM BALANCED 10.30% - - - - 14.38%
- --------------------------------------------------------------------------------------------------------------------
Lipper Balanced 14.61% - - - - 17.83%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 21.36% - - - - 23.48%
- --------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE 11.30% - - - - 16.03%
- --------------------------------------------------------------------------------------------------------------------
Lipper Growth & Income 15.54% - - - - 21.32%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 31.63%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
86 Investment performance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 3 (CONTINUED)
ANNUALIZED RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- --------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
T. ROWE PRICE EQUITY INCOME 7.60% - - - - 17.14%
- --------------------------------------------------------------------------------------------------------------------
Lipper Equity Income 10.76% - - - - 19.07%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 31.63%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK 12.16% - - - - 5.57%
- --------------------------------------------------------------------------------------------------------------------
Lipper International 12.17% - - - - 9.06%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 20.00% - - - - 13.43%
- --------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE (11.22)% - - - - 2.84%
- --------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% - - - - 16.77%
- --------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% - - - - 14.53%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
Investment performance 87
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 4
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- -----------------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE AGGRESSIVE STOCK (1.30)% 29.40% 58.67% 380.08% - 572.32%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap Growth 12.16% 58.64% 102.73% 334.88% - 448.32%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 8.28% 63.35% 106.12% 360.30% - 494.67%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE COMMON STOCK 27.32% 97.96% 148.48% 370.07% 2,099.77% 2,154.10%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper Growth 22.86% 84.52% 138.97% 388.00% 2,185.68% 3,490.04%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% 110.85% 193.91% 479.62% 2,530.43% 2,919.92%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE CONSERVATIVE INVESTORS 12.07% 29.27% 44.55% - - 107.87%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper Flexible Portfolio 14.20% 55.28% 97.15% - - 202.48%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 15.59% 49.92% 87.28% - - 187.40%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE EQUITY INDEX 26.03% 97.97% - - - 165.205
- -----------------------------------------------------------------------------------------------------------------------------
Lipper S&P 500 Index 28.05% 108.12% - - - 186.34%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% 110.85% - - - 192.17%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE GLOBAL 19.86% 48.36% 79.63% 238.62% - 218.67%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper Global 14.34% 51.58% 77.94% 194.96% - 188.08%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 24.34% 63.34% 107.19% 175.31% - 181.57%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH & INCOME 18.94% 75.29% 109.41% - - 108.03%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper Growth & Income 15.61% 79.05% 133.95% - - 139.10%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 20.10% 90.62% 160.09% - - 166.00%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS 17.23% 49.26% 76.90% - - 241.78%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper Flexible Portfolio 14.20% 55.28% 97.15% - - 202.48%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 22.85% 84.68% 148.41% - - 280.88%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE HIGH YIELD (6.66)% 31.56% 48.53% 145.25% - 172.86%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper High Current Yield (0.44)% 26.80% 43.00% 145.62% - 182.21%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 3.66% 29.90% 53.96% 186.01% - 239.69%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES 6.03% 14.30% 19.96% - - 50.39%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper Intermediate Government 7.68% 19.84% 33.36% - - 72.35%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 8.49% 21.61% 36.71% - - 76.55%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE INTERNATIONAL 8.81% 12.15% - - - 23.33%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper International 13.02% 33.62% - - - 47.74%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 20.00% 29.52% - - - 41.40%
- -----------------------------------------------------------------------------------------------------------------------------
ALLIANCE MONEY MARKET 3.66% 11.45% 18.71% 46.56% - 149.59%
- -----------------------------------------------------------------------------------------------------------------------------
Lipper Money Market 4.84% 15.34% 26.25% 66.09% - 214.68%
- -----------------------------------------------------------------------------------------------------------------------------
Benchmark 5.05% 16.35% 28.27% 69.88% - 214.45%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
88 Investment performance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 4 (CONTINUED)
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- --------------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE SMALL CAP GROWTH (5.73)% - - - - 18.19%
- --------------------------------------------------------------------------------------------------------------------
Lipper Small Company Growth (0.33)% - - - - 28.98%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 1.23% - - - - 29.23%
- --------------------------------------------------------------------------------------------------------------------
BT EQUITY 500 INDEX 23.44% - - - - 23.44%
- -------------------------------------------------------------------------------------------------------------------
Lipper S&P 500 Index 26.78% - - - - 26.78%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 28.58%
- --------------------------------------------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX 18.47% - - - - 18.47%
- --------------------------------------------------------------------------------------------------------------------
Lipper International 12.17% - - - - 12.23%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 20.00% - - - - 20.00%
- --------------------------------------------------------------------------------------------------------------------
BT SMALL COMPANY INDEX (3.63)% - - - - (3.63)%
- --------------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% - - - - 1.49%
- --------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% - - - - (2.54)%
- --------------------------------------------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES 32.70% - - - - 60.99%
- --------------------------------------------------------------------------------------------------------------------
Lipper Mid-Cap 15.97% - - - - 42.16%
- --------------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% - - - - 25.40%
- --------------------------------------------------------------------------------------------------------------------
MFS RESEARCH 22.43% - - - - 40.79%
- --------------------------------------------------------------------------------------------------------------------
Lipper Growth 25.82% - - - - 52.86%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 57.60%
- --------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH BASIC VALUE EQUITY 10.08% - - - - 27.65%
- --------------------------------------------------------------------------------------------------------------------
Lipper Growth & Income 15.54% - - - - 15.59%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 57.60%
- --------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH WORLD STRATEGY 5.38% - - - - 9.34%
- --------------------------------------------------------------------------------------------------------------------
Lipper Global Flexible Portfolio 9.34% - - - - 19.41%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 19.55% - - - - 33.33%
- --------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY EMERGING
MARKETS EQUITY (28.01)% - - - - (42.83)%
- --------------------------------------------------------------------------------------------------------------------
Lipper Emerging Markets (30.50)% - - - - (45.67)%
- --------------------------------------------------------------------------------------------------------------------
Benchmark (25.34)% - - - - (36.71)%
- --------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM BALANCED 10.30% - - - - 25.12%
- --------------------------------------------------------------------------------------------------------------------
Lipper Balanced 14.61% - - - - 31.59%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 21.36% - - - - 42.22%
- --------------------------------------------------------------------------------------------------------------------
EQ/PUTNAM GROWTH & INCOME
VALUE 11.30% - - - - 28.16%
- --------------------------------------------------------------------------------------------------------------------
Lipper Growth & Income 15.54% - - - - 38.49%
- --------------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 57.60%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Investment performance 89
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 4 (CONTINUED)
CUMULATIVE RATES OF RETURN FOR PERIODS ENDED DECEMBER 31, 1998:
- --------------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS INCEPTION*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
T. ROWE PRICE EQUITY INCOME 7.60% - - - - 30.21%
- --------------------------------------------------------------------------------------------------------------
Lipper Equity Income 10.76% - - - - 33.92%
- --------------------------------------------------------------------------------------------------------------
Benchmark 28.58% - - - - 57.60%
- --------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
STOCK 12.16% - - - - 9.46%
- --------------------------------------------------------------------------------------------------------------
Lipper International 12.17% - - - - 15.88%
- --------------------------------------------------------------------------------------------------------------
Benchmark 20.00% - - - - 23.42%
- --------------------------------------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY
VALUE (11.22)% - - - - 4.79%
- --------------------------------------------------------------------------------------------------------------
Lipper Small Cap 1.53% - - - - 29.95%
- --------------------------------------------------------------------------------------------------------------
Benchmark (2.54)% - - - - 25.40%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Portfolio inception dates are shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
90 Investment performance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE 5
YEAR-BY-YEAR RATES OF RETURN
- --------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock 41.22% 6.43% 83.89% (4.71)% 14.89%
- --------------------------------------------------------------------------------------------------------------
Alliance Common Stock 23.60% (9.59)% 35.69% 1.57% 22.83%
- --------------------------------------------------------------------------------------------------------------
Alliance Conservative Investors 2.67% 4.66% 17.97% 4.03% 9.04%
- --------------------------------------------------------------------------------------------------------------
Alliance Equity Index - - - - -
- --------------------------------------------------------------------------------------------------------------
Alliance Global 24.72% (7.58)% 28.47% (2.10)% 30.01%
- --------------------------------------------------------------------------------------------------------------
Alliance Growth & Income - - - - (0.66)%
- --------------------------------------------------------------------------------------------------------------
Alliance Growth Investors 3.42% 8.89% 46.53% 3.22% 13.43%
- --------------------------------------------------------------------------------------------------------------
Alliance High Yield 3.46% (2.70)% 22.48% 10.51% 21.19%
- --------------------------------------------------------------------------------------------------------------
Alliance Intermediate Government Securities - - 10.92% 3.90% 8.78%
- --------------------------------------------------------------------------------------------------------------
Alliance International - - - - -
- --------------------------------------------------------------------------------------------------------------
Alliance Money Market 7.45% 6.50% 4.49% 1.91% 1.32%
- --------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth - - - - -
- --------------------------------------------------------------------------------------------------------------
BT Equity 500 Index - - - - -
- --------------------------------------------------------------------------------------------------------------
BT International Equity Index - - - - -
- --------------------------------------------------------------------------------------------------------------
BT Small Company Index - - - - -
- --------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies - - - - -
- --------------------------------------------------------------------------------------------------------------
MFS Research - - - - -
- --------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity - - - - -
- --------------------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy - - - - -
- --------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity - - - - -
- --------------------------------------------------------------------------------------------------------------
EQ/Putnam Balanced - - - - -
- --------------------------------------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value - - - - -
- --------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income - - - - -
- --------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock - - - - -
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Small Company Value - - - - -
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Alliance Aggressive Stock (5.35)% 29.54% 20.24% 9.04% (1.30)%
- --------------------------------------------------------------------------------------------------------------
Alliance Common Stock (3.70)% 30.34% 22.28% 27.16% 27.32%
- --------------------------------------------------------------------------------------------------------------
Alliance Conservative Investors (5.63)% 18.49% 3.52% 11.43% 12.07%
- --------------------------------------------------------------------------------------------------------------
Alliance Equity Index (0.26)% 34.31% 20.42% 30.45% 26.03%
- --------------------------------------------------------------------------------------------------------------
Alliance Global 3.56% 16.92% 12.76% 9.77% 19.86%
- --------------------------------------------------------------------------------------------------------------
Alliance Growth & Income (2.16)% 22.10% 18.16% 24.73% 18.94%
- --------------------------------------------------------------------------------------------------------------
Alliance Growth Investors (4.70)% 24.36% 10.80% 14.92% 17.23%
- --------------------------------------------------------------------------------------------------------------
Alliance High Yield (4.33)% 18.01% 20.91% 16.58% (6.66)%
- --------------------------------------------------------------------------------------------------------------
Alliance Intermediate Government Securities (5.90)% 11.52% 2.11% 5.58% 6.03%
- --------------------------------------------------------------------------------------------------------------
Alliance International - 9.97% 8.04% (4.60)% 8.81%
- --------------------------------------------------------------------------------------------------------------
Alliance Money Market 2.36% 4.06% 3.64% 3.74% 3.66%
- --------------------------------------------------------------------------------------------------------------
Alliance Small Cap Growth - - - 25.38%+ (5.73)%
- --------------------------------------------------------------------------------------------------------------
BT Equity 500 Index - - - - 23.44%
- --------------------------------------------------------------------------------------------------------------
BT International Equity Index - - - - 18.47%
- --------------------------------------------------------------------------------------------------------------
BT Small Company Index - - - - (3.63)%
- --------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Companies - - - 21.32%+ 32.70%
- --------------------------------------------------------------------------------------------------------------
MFS Research - - - 14.99%+ 22.43%
- --------------------------------------------------------------------------------------------------------------
Merrill Lynch Basic Value Equity - - - 15.97%+ 10.08%
- --------------------------------------------------------------------------------------------------------------
Merrill Lynch World Strategy - - - 3.76%+ 5.38%
- --------------------------------------------------------------------------------------------------------------
Morgan Stanley Emerging Markets Equity - - - (20.59)%+ (28.01)%
- --------------------------------------------------------------------------------------------------------------
EQ/Putnam Balanced - - - 13.43%+ 10.30%
- --------------------------------------------------------------------------------------------------------------
EQ/Putnam Growth & Income Value - - - 15.15%+ 11.30%
- --------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income - - - 21.01%+ 7.60%
- --------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock - - - (2.41)%+ 12.16%
- --------------------------------------------------------------------------------------------------------------
Warburg Pincus Small Company Value - - - 18.04%+ (11.22)%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
+ Returns for these Portfolios represent less than 12 months of performance. The
returns are as of each Portfolio inception date as shown in Table 1.
<PAGE>
- --------------------------------------------------------------------------------
Investment performance 91
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMUNICATING PERFORMANCE DATA
In reports or other communications to contract owners or in advertising
material, we may describe general economic and market conditions affecting our
variable investment options, and the Portfolios and may compare the performance
or ranking of those options and the Portfolios with:
o those of other insurance company separate accounts or mutual funds included
in the rankings prepared by Lipper Analytical Services, Inc., Morningstar,
Inc., VARDS, or similar investment services that monitor the performance of
insurance company separate accounts or mutual funds;
o other appropriate indices of investment securities and averages for peer
universes of mutual funds; or
o data developed by us derived from such indices or averages.
We also may furnish to present or prospective contract owners advertisements or
other communications that include evaluations of a variable investment option or
Portfolio by nationally recognized financial publications. Examples of such
publications are:
Barron's Money Management Letter
Morningstar's Variable Annuity Sourcebook Investment Dealers Digest
Business Week National Underwriter
Forbes Pension & Investments
Fortune USA Today
Institutional Investor Investor's Business Daily
Money The New York Times
Kiplinger's Personal Finance The Wall Street Journal
Financial Planning The Los Angeles Times
Investment Adviser The Chicago Tribune
Investment Management Weekly
Lipper Analytical Services, Inc. (Lipper) compiles performance data for peer
universes of funds with similar investment objectives in its Lipper Survey.
Morningstar, Inc. compiles similar data in the Morningstar Variable Annuity/Life
Report (Morningstar Report).
The Lipper Survey records performance data as reported to it by over 800 mutual
funds underlying variable annuity and life insurance products. It divides these
actively managed portfolios into 25 categories by portfolio objectives. The
Lipper Survey contains two different universes, which reflect different types of
fees in performance data:
o The "separate account" universe reports performance data net of investment
management fees, direct operating expenses and asset-based charges
applicable under variable insurance and annuity contracts; and
o The "mutual fund" universe reports performance net only of investment
management fees and direct operating expenses, and therefore reflects only
charges that relate to the underlying mutual fund.
The Morningstar 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 level charges.
VARDS is a monthly reporting service that monitors approximately 2,500 variable
life and variable annuity funds on performance and account information.
Yield information
Current yield for the Alliance Money Market option will be based on net changes
in a hypothetical investment over a given seven-day period, exclusive of
capital changes, and then "annualized" (assuming that the same seven-day result
would occur each week for 52 weeks). Current yield for the Alliance High Yield
option and Alliance Intermediate Government Securities option 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 similar manner, but when annualized, any
income earned by the investment is assumed to be reinvested. The "effective
yield" will be slightly higher than the "current yield" because any earnings
are compounded weekly for the Alliance Money Market option. The yields and
effective yields assume the deduction of all contract charges and expenses
other than the withdrawal charge, the optional baseBUILDER benefits charge, the
annual administrative charge, and any charge for taxes such
<PAGE>
- --------------------------------------------------------------------------------
92 Investment performance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
as premium tax. The yields and effective yields for the Alliance Money Market
option, when used for the special dollar cost averaging program, assume that no
contract charges are deducted. For more information, see "Yield Information for
the Alliance Money Market Option, Alliance High Yield Option, and Alliance
Intermediate Government Securities Option" in the SAI.
<PAGE>
- --------------------------------------------------------------------------------
Incorporation of certain documents by reference 93
- --------------------------------------------------------------------------------
10
Incorporation of certain documents by reference
- --------------------------------------------------------------------------------
Equitable Life's annual report on Form 10-K for the year ended December
31, 1998 and a current report on Form 8-K dated April 9, 1999, are considered to
be a part of this prospectus because they are incorporated by reference.
After the date of this prospectus and before we terminate the offering of
the securities under this prospectus, all documents or reports we file with the
SEC under the Securities Exchange Act of 1934 ("Exchange Act") will be
considered to become part of this prospectus because they are incorporated by
reference.
Any statement contained in a document that is or becomes part of this
prospectus, will be considered changed or replaced for purposes of this
prospectus if a statement contained in this prospectus changes or is replaced.
Any statement that is considered to be a part of this prospectus because of its
incorporation will be considered changed or replaced for the purpose of this
prospectus if a statement contained in any other subsequently filed document
that is considered to be part of this prospectus changes or replaces that
statement. After that, only the statement that is changed or replaced will be
considered to be part of this prospectus.
We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K and Form 10-Q, electronically according to EDGAR
under CIK No. 0000727920. The SEC maintains a website 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.
Upon written or oral request, we will provide, free of charge, to each
person to whom this prospectus is delivered, a copy of any or all of the
documents considered to be part of this prospectus because they are incorporated
herein. This does not include exhibits not specifically incorporated by
reference into the text of such documents. Requests for 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).
<PAGE>
- --------------------------------------------------------------------------------
Appendix I: Condensed financial information A-1
- --------------------------------------------------------------------------------
Appendix I: Condensed financial information
- --------------------------------------------------------------------------------
UNIT VALUES AND NUMBER OF UNITS OUTSTANDING AT YEAR END FOR EACH VARIABLE
INVESTMENT OPTION
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------
THE HUDSON RIVER TRUST OPTIONS
- ------------------------------------------------------------------------------
ALLIANCE AGGRESSIVE STOCK
- ------------------------------------------------------------------------------
Unit value $69.37
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 293
- ------------------------------------------------------------------------------
ALLIANCE COMMON STOCK
- ------------------------------------------------------------------------------
Unit value $37.18
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 550
- ------------------------------------------------------------------------------
ALLIANCE CONSERVATIVE INVESTORS
- ------------------------------------------------------------------------------
Unit value $21.20
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 659
- ------------------------------------------------------------------------------
ALLIANCE EQUITY INDEX
- ------------------------------------------------------------------------------
Unit value $26.73
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 2
- ------------------------------------------------------------------------------
ALLIANCE GLOBAL
- ------------------------------------------------------------------------------
Unit value $32.58
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 354
- ------------------------------------------------------------------------------
ALLIANCE GROWTH & INCOME
- ------------------------------------------------------------------------------
Unit value $20.99
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 1,853
- ------------------------------------------------------------------------------
ALLIANCE GROWTH INVESTORS
- ------------------------------------------------------------------------------
Unit value $34.84
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 694
- ------------------------------------------------------------------------------
ALLIANCE HIGH YIELD
- ------------------------------------------------------------------------------
Unit value $27.96
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 801
- ------------------------------------------------------------------------------
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES
- ------------------------------------------------------------------------------
Unit value $15.25
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 929
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
A-2 Appendix I: Condensed financial information
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------
ALLIANCE INTERNATIONAL
- ------------------------------------------------------------------------------
Unit value $12.40
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 166
- ------------------------------------------------------------------------------
ALLIANCE MONEY MARKET
- ------------------------------------------------------------------------------
Unit value $25.92
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 1,566
- ------------------------------------------------------------------------------
ALLIANCE SMALL CAP GROWTH
- ------------------------------------------------------------------------------
Unit value $11.82
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 775
- ------------------------------------------------------------------------------
EQ ADVISORS TRUST OPTIONS
- ------------------------------------------------------------------------------
BT EQUITY 500 INDEX
- ------------------------------------------------------------------------------
Unit value $12.34
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 2,426
- ------------------------------------------------------------------------------
BT INTERNATIONAL EQUITY INDEX
- ------------------------------------------------------------------------------
Unit value $11.85
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 242
- ------------------------------------------------------------------------------
BT SMALL COMPANY INDEX
- ------------------------------------------------------------------------------
Unit value $ 9.64
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 284
- ------------------------------------------------------------------------------
MFS EMERGING GROWTH COMPANIES
- ------------------------------------------------------------------------------
Unit value $16.10
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 1,942
- ------------------------------------------------------------------------------
MFS RESEARCH
- ------------------------------------------------------------------------------
Unit value $14.08
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 1,479
- ------------------------------------------------------------------------------
MERRILL LYNCH BASIC VALUE EQUITY
- ------------------------------------------------------------------------------
Unit value $12.76
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 1,009
- ------------------------------------------------------------------------------
MERRILL LYNCH WORLD STRATEGY
- ------------------------------------------------------------------------------
Unit value $10.94
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 140
- ------------------------------------------------------------------------------
MORGAN STANLEY EMERGING MARKETS EQUITY
- ------------------------------------------------------------------------------
Unit value $ 5.72
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 177
- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix I: Condensed financial information A-3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------
EQ/PUTNAM BALANCED
- ------------------------------------------------------------------------------
Unit value $12.51
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 1,136
- ------------------------------------------------------------------------------
EQ/PUTNAM GROWTH & INCOME VALUE
- ------------------------------------------------------------------------------
Unit value $12.82
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 867
- ------------------------------------------------------------------------------
T. ROWE PRICE EQUITY INCOME
- ------------------------------------------------------------------------------
Unit value $13.02
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 1,059
- ------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK
- ------------------------------------------------------------------------------
Unit value $10.95
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 705
- ------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE
- ------------------------------------------------------------------------------
Unit value $10.48
- ------------------------------------------------------------------------------
Number of units outstanding (000s) 560
- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix II: Purchase considerations for QP contracts B-1
- --------------------------------------------------------------------------------
Appendix II: Purchase considerations for QP contracts
- --------------------------------------------------------------------------------
Trustees who are considering the purchase of an Equitable Accumulator QP
contract should discuss with their tax advisers whether this is an appropriate
investment vehicle for the employer's plan. Trustees should consider whether the
plan provisions permit the investment of plan assets in the QP contract, the
distribution of such an annuity, the purchase of the guaranteed minimum income
benefit, and the payment of death benefits in accordance with the requirements
of the federal income tax rules. The QP contract and this prospectus should be
reviewed in full, and the following factors, among others, should be noted.
Assuming continued plan qualification and operation, earnings on qualified plan
assets will accumulate value on a tax-deferred basis even if the plan is not
funded by the Equitable Accumulator QP contract or another annuity. Therefore,
you should purchase an Equitable Accumulator QP Contract to fund a plan for the
contract's features and benefits other than tax deferral. This QP contract
accepts transfer contributions only and not regular, ongoing payroll
contributions. For 401(k) plans under defined contribution plans, no employee
after-tax contributions are accepted.
Under defined benefit plans, we will not accept rollovers from a defined
contribution plan to a defined benefit plan. We will only accept transfers from
a defined benefit plan or a change of investment vehicles in the plan. For
defined benefit plans, the maximum percentage of actuarial value of the plan
participant/employee's "normal retirement benefit" that can be funded by a QP
contract is 80%. The account value under a QP contract may at any time be more
or less than the lump sum actuarial equivalent of the "accrued benefit" for a
defined benefit plan participant/employee. Equitable Life does not guarantee
that the account value under a QP contract will at any time equal the actuarial
value of 80% of a participant/employee's accrued benefit. If overfunding of a
plan occurs, withdrawals from the QP contract may be required. A withdrawal
charge and/or market value adjustment may apply.
Further, Equitable Life will not perform or provide any plan recordkeeping
services with respect to the QP contracts. The plan's administrator will be
solely responsible for performing or providing for all such services. There is
no loan feature offered under the QP contracts, so if the plan provides for
loans and a participant/employee takes a loan from the plan, other plan assets
must be used as the source of the loan and any loan repayments must be credited
to other investment vehicles and/or accounts available under the plan. Given
that required minimum distributions must commence from the plan for annuitants
after age 70 1/2 (unless the annuitant is not a 5% owner who provided the plan
funds) trustees should consider whether the QP contract is an appropriate
purchase for annuitants approaching or over age 70 1/2.
Finally, because the method of purchasing the QP contract and the features of
the QP contract may appeal more to plan participants/employees who are older and
tend to be highly paid, and because certain features of the QP contract are
available only to plan participants/employees who meet certain minimum and/or
maximum age requirements, plan trustees should discuss with their advisers
whether the purchase of the QP contract would cause the plan to engage in
prohibited discrimination in contributions, benefits or otherwise.
<PAGE>
- --------------------------------------------------------------------------------
Appendix III: Market value adjustment example C-1
- --------------------------------------------------------------------------------
Appendix III: 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, 2000 to a fixed maturity option with a maturity date of February
15, 2009 (nine years later) at a rate to maturity of 7.00%, resulting in a
maturity value at the maturity date of $183,846. We further assume that a
withdrawal of $50,000 is made four years later on February 15, 2004.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
ASSUMED RATE TO MATURITY ON FEBRUARY 15, 2004
---------------------------------------------
5.00% 9.00%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
AS OF FEBRUARY 15, 2004 (BEFORE WITHDRAWAL)
- -----------------------------------------------------------------------------------------------
(1) Market adjusted amount $144,048 $119,487
- -----------------------------------------------------------------------------------------------
(2) Fixed maturity amount $131,080 $131,080
- -----------------------------------------------------------------------------------------------
(3) Market value adjustment:
(1) - (2) $ 12,968 $(11,593)
- -----------------------------------------------------------------------------------------------
ON FEBRUARY 15, 2004 (AFTER WITHDRAWAL)
- -----------------------------------------------------------------------------------------------
(4) Portion of market value adjustment associated with withdrawal:
(3) x [$50,000/(1)] $ 4,501 $ (4,851)
- -----------------------------------------------------------------------------------------------
(5) Reduction in fixed maturity amount:
[$50,000 - (4)] $ 45,499 $ 54,851
- -----------------------------------------------------------------------------------------------
(6) Fixed maturity amount: (2) - (5) $ 85,581 $ 76,229
- -----------------------------------------------------------------------------------------------
(7) Maturity value $120,032 $106,915
- -----------------------------------------------------------------------------------------------
(8) Market adjusted amount of (7) $ 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% (right column), 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% (left column), a portion of a positive
market value adjustment is realized.
<PAGE>
- --------------------------------------------------------------------------------
Appendix IV: Guaranteed minimum death benefit example D-1
- --------------------------------------------------------------------------------
Appendix IV: Guaranteed minimum death benefit example
- --------------------------------------------------------------------------------
The death benefit under the contracts is equal to the account value or, if
greater, the guaranteed minimum death benefit.
The following illustrates the guaranteed minimum death benefit calculation.
Assuming $100,000 is allocated to the variable investment options (with no
allocation to the Alliance Money Market option, Alliance Intermediate Government
Securities option or the fixed maturity options), no additional contributions,
no transfers and no withdrawals, and no loans under a Rollover TSA contract, the
guaranteed minimum death benefit for an annuitant age 45 would be calculated
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
5% ROLL UP TO
END OF AGE 80 ANNUAL RATCHET TO AGE 80 GUARANTEED
CONTRACT GUARANTEED MINIMUM MINIMUM
YEAR ACCOUNT VALUE DEATH BENEFIT(1) DEATH BENEFIT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $105,000 $105,000(1) $105,000(3)
- ------------------------------------------------------------------------------------------
2 $115,500 $110,250(2) $115,500(3)
- ------------------------------------------------------------------------------------------
3 $129,360 $115,763(2) $129,360(3)
- ------------------------------------------------------------------------------------------
4 $103,488 $121,551(1) $129,360(4)
- ------------------------------------------------------------------------------------------
5 $113,837 $127,628(1) $129,360(4)
- ------------------------------------------------------------------------------------------
6 $127,497 $134,010(1) $129,360(4)
- ------------------------------------------------------------------------------------------
7 $127,497 $140,710(1) $129,360(4)
- ------------------------------------------------------------------------------------------
</TABLE>
The account values for contract years 1 through 7 are based on hypothetical
rates of return of 5.00%, 10.00%, 12.00%, (20.00)%, 10.00%, 12.00% and 0.00%. We
are using these rates solely to illustrate how the benefit is determined. The
return rates bear no relationship to past or future investment results.
5% ROLL UP TO AGE 80
(1) At the end of contract year 1, and again at the end of contract years 4
through 7, the death benefit will be equal to the guaranteed minimum death
benefit.
(2) At the end of contract years 2 and 3, the death benefit will be equal to
the current account value since it is higher than the current guaranteed
minimum death benefit.
ANNUAL RATCHET TO AGE 80
(3) At the end of contract years 1 through 3, the guaranteed minimum death
benefit is equal to the current account value.
(4) At the end of contract years 4 through 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 account
value.
<PAGE>
- --------------------------------------------------------------------------------
Appendix V: Example of payments under the Assured Payment
Option and APO Plus E-1
- --------------------------------------------------------------------------------
Appendix V: 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 the rates to maturity for the fixed maturity options 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 the rates to maturity as of February 14, 1997 for fixed maturity options
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 option based on the rates to maturity for the fixed
maturity options 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 variable
investment options. Any future increase in payments under APO Plus will depend
on the investment performance in the Alliance Common Stock option.
Assuming hypothetical average annual rates of return of 0% and 8% (after
deduction of charges) for the variable investment option, the value in the
variable investment option 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
variable investment option 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 the
rates to maturity for the fixed maturity options 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 you are living payments increase annually after the
16th year under the life contingent annuity based on the increase, if any, in
the Consumer Price Index, but in no event greater than 3% per year.
ANNUAL PAYMENTS
- -----------------------------------------------------------------------------
GUARANTEED INCREASING ILLUSTRATIVE ILLUSTRATIVE
PAYMENTS PAYMENTS PAYMENTS
UNDER THE UNDER UNDER
YEARS ASSURED PAYMENT OPTION APO PLUS AT 0% APO PLUS AT 8%
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
E2 Appendix V: Example of payments under the Assured Payment
Option and APO Plus
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 fixed maturity options under the former than the latter. In
this illustration, $80,458.33 is allocated under the Assured Payment Option to
the fixed maturity options and under APO Plus, $68,020.34 is allocated to the
fixed maturity options. In addition, under APO Plus $21,050.87 is allocated to
the variable investment option. 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 the rates to maturity and
life contingent annuity purchase rates in effect on the day the contribution is
applied. It is assumed that no lump sum withdrawals are taken.
<PAGE>
- --------------------------------------------------------------------------------
Appendix VI: Assured Payment Option and APO Plus contracts
issued in the state of Maryland F-1
- --------------------------------------------------------------------------------
Appendix VI: Assured Payment Option and APO Plus contracts issued in the state
of Maryland
- --------------------------------------------------------------------------------
THE FOLLOWING INFORMATION SPECIFIES THE VARIATIONS THAT RELATE TO THE ASSURED
PAYMENT OPTION AND APO PLUS CONTRACTS ISSUED IN MARYLAND.
The Assured Payment Option and APO Plus (available only as traditional IRAs) are
issued as separate contracts rather than as a distribution option under a
Rollover IRA or Flexible Premium IRA contract.
You may purchase an Assured Payment Option of APO Plus contract with a minimum
single contribution of $10,000. You may also choose to apply the account value
from a Flexible Premium IRA or Rollover IRA contract to purchase an Assured
Payment Option or APO Plus contract. Your account value will be applied as a
single contribution.
We will allocate your single contribution in the same manner as described under
"Assured Payment Option and APO Plus" earlier in this prospectus. You are not
permitted to make additional contributions under the Assured Payment Option and
APO Plus.
PAYMENTS. Your payments must begin within 13 months after the contract date.
You may not elect to defer your payments.
DEATH BENEFIT. If you die during the fixed period, we will continue payments to
your designated beneficiary. Your beneficiary may choose to discontinue the
payments and receive a lump sum amount. If the lump sum is elected within one
year of your death, the amount will be equal the death benefit payable under the
Assured Payment Option and APO Plus.
TERMINATING THE CONTRACT. You may choose to terminate the contract by
surrendering the contract as described under "Surrendering your contract to
receive its cash value." We will return the contract to you with a notation that
the life contingent annuity is still in effect. The date payments are to start
under the life contingent annuity will be moved forward.
TAX INFORMATION. The Assured Payment Option and APO Plus contracts have not been
submitted to the IRS for approval as to form for use as a traditional IRA.
<PAGE>
- --------------------------------------------------------------------------------
Statement of additional information
- --------------------------------------------------------------------------------
Statement of additional
information
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Unit Values 2
Annuity Unit Values 2
Custodian and Independent Accountants 3
Yield Information for the Alliance Money Market Option, Alliance High Yield Option,
and Alliance Intermediate Government Securities Option 3
Long-Term Market Trends 4
Key Factors in Retirement Planning 6
Financial Statements 9
</TABLE>
HOW TO OBTAIN AN EQUITABLE ACCUMULATOR STATEMENT OF ADDITIONAL INFORMATION FOR
SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Accumulator
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Equitable Accumulator SAI for Separate Account No. 45 dated
May 1, 1999.
- ------------------------------------------------------------------------------
Name:
- ------------------------------------------------------------------------------
Address:
- ------------------------------------------------------------------------------
City State Zip
(AGENTSAI)
<PAGE>
EQUITABLE ACCUMULATOR(SM)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CONTRACTS
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
1290 AVENUE OF THE AMERICAS, NEW YORK, NY 10104
- --------------------------------------------------------------------------------
This statement of additional information ("SAI") is not a prospectus. It should
be read in conjunction with the related Equitable Accumulator prospectus, dated
May 1, 1999. That prospectus provides detailed information concerning the
contracts and the variable investment options, as well as the fixed maturity
options, that fund the contracts. Each variable investment option is a
subaccount of Equitable Life's Separate Account No. 45. The fixed maturity
options are part of Equitable Life's general account. 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 (Post Office Box 1547, Secaucus, NJ 07096-1547), by calling
1-800-789-7771 toll-free, or by contacting your Equitable associate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------------------------------
PAGE
<S> <C>
Unit Values 2
- -------------------------------------------------------------------------------------------------------------------------------
Annuity Unit Values 2
- -------------------------------------------------------------------------------------------------------------------------------
Custodian and Independent Accountants 3
- -------------------------------------------------------------------------------------------------------------------------------
Yield Information for the Alliance Money Market Option, Alliance High Yield Option, and Alliance
Intermediate Government Securities Option 3
- -------------------------------------------------------------------------------------------------------------------------------
Long-Term Market Trends 4
- -------------------------------------------------------------------------------------------------------------------------------
Key Factors in Retirement Planning 6
- -------------------------------------------------------------------------------------------------------------------------------
Financial Statements 9
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Copyright 1999 The Equitable Life Assurance Society of the United States.
All rights reserved. Accumulator is a service mark of
The Equitable Life Assurance Society of the United States.
(AGTSAI 5/99)
<PAGE>
- --------------------------------------------------------------------------------
UNIT VALUES
Unit values are determined at the end of each valuation period for each of the
variable investment options. We may offer other annuity contracts and
certificates which will have their own unit values for the variable investment
options. They may be different from the unit values for the Equitable
Accumulator.
The unit value for a variable investment option for any valuation period is
equal to: (1) the unit value for the preceding valuation period multiplied by
(ii) the net investment factor for that option for that valuation period. A
valuation period is each business day together with any preceding non-business
days. The net investment factor is:
(a/b)-c
where:
(a) is the value of the variable investment option's shares of the
corresponding Portfolio at the end of the valuation period. Any amounts
allocated to or withdrawn from the option for the valuation period are not
taken into account. For this purpose, we use the share value reported to us
by The Hudson River Trust or EQ Advisors Trust.
(b) is the value of the variable investment option's shares of the
corresponding Portfolio at the end of the preceding valuation period. (Any
amounts allocated or withdrawn for that valuation period are taken into
account.)
(c) is the daily mortality and expense risks charge and administrative charge
relating to the contracts, times the number of calendar days in the
valuation period. These daily charges are at an effective annual rate not
to exceed a total of 1.35%.
- --------------------------------------------------------------------------------
ANNUITY UNIT VALUES
The annuity unit value for each variable investment option was fixed at $1.00 on
each option's respective effective date (as shown in the prospectus) for
contracts 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 contract. 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 contracts have a 5% assumed base rate of net investment return, except in
states where that rate is not permitted. Annuity payments under contracts with
an assumed base rate of 3 1/2% will at first be smaller than those under
contracts with a 5% assumed base rate. Payments under the 3 1/2% contracts,
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% contracts.
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 you specify. The payments 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 your contract.
The first three payments depend on the assumed base rate of net investment
return and the form of annuity chosen (and any fixed period or period certain).
If the annuity involved is 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 variable investment options. We calculate each
monthly payment 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. We calculate the number of units by dividing the
first monthly payment by the annuity unit value for the valuation period. This
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 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 account value on the date annuity payments are to begin is enough to
fund an annuity with a monthly payment of $363. Also assume 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
2
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for the shares of The Hudson River Trust and EQ
Advisors Trust owned by the variable annuity options.
The financial statements of Separate Account No. 45 as at December 31, 1998 and
for the periods ended December 31, 1998 and 1997, and the consolidated financial
statements of Equitable Life as at December 31, 1998 and 1997 and for each of
the three years ended December 31, 1998 included in this SAI have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
- --------------------------------------------------------------------------------
YIELD INFORMATION FOR THE ALLIANCE MONEY MARKET OPTION, ALLIANCE HIGH YIELD
OPTION, AND ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES OPTION
ALLIANCE MONEY MARKET OPTION
The Alliance Money Market option calculates yield information for seven-day
periods. The seven-day current yield calculation is based on a hypothetical
contract with one unit at the beginning of the period. To determine the
seven-day rate of return, the net change in the unit value is computed by
subtracting the unit value at the beginning of the period from a unit value,
exclusive of capital changes, at the end of the period.
Unit values reflect all other accrued expenses of the Alliance Money Market
option but do not reflect any withdrawal charges, the optional benefit charge,
or charges for applicable taxes such as state or local premium taxes. Under the
Alliance Money Market special dollar cost averaging program, unit values also do
not reflect the mortality and expense risks charge and the administrative
charge.
The adjusted net change is divided by the unit value at the beginning of the
period to obtain what is called 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 take into
account the compounding nature of the Alliance Money Market option'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
option yields will fluctuate daily. Accordingly, yields for any given period do
not necessarily represent future results. In addition, the value of units of the
Alliance Money Market option will fluctuate and not remain constant.
ALLIANCE HIGH YIELD OPTION AND ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES
OPTION
The Alliance High Yield option and Alliance Intermediate Government Securities
option calculate yield information for 30-day periods. The 30-day current yield
calculation is based on a hypothetical contract with one unit at the beginning
of the period. To determine the 30-day rate of return, the net change in the
unit value is computed by subtracting the unit value at the beginning of the
period from a unit value, exclusive of capital changes, at the end of the
period.
Unit values reflect all other accrued expenses of the Alliance High Yield option
and Alliance Intermediate Government Securities option but do not reflect any
withdrawal charges, the optional benefit charge or charges for applicable taxes
such as state or local premium taxes.
The adjusted net change is divided by the 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.
Yields for the Alliance High Yield option and Alliance Intermediate Government
Securities option will fluctuate daily. Accordingly, yields for any given period
do not necessarily represent future results. In addition, the value of units of
the Alliance High Yield option and Alliance Intermediate Government Securities
option will fluctuate and not remain constant.
YIELD INFORMATION FOR THE ALLIANCE MONEY MARKET OPTION, ALLIANCE HIGH YIELD
OPTION, AND ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES OPTION
The yields for the Alliance Money Market option, Alliance High Yield option, and
Alliance Intermediate Government Securities option reflect charges that are not
normally reflected in the yields of other investments. Therefore, they may be
lower when compared with yields of other investments. The yields for the options
should not be compared to the return on fixed rate investments which guarantee
rates of interest for specified periods, such as the fixed maturity options. Nor
should the yields be compared to the yields of
3
<PAGE>
money market options made available to the general public.
The seven-day current yield for the Alliance Money Market option was 4.19% for
the period ended December 31, 1998. The effective yield for that period was
4.28%.
The 30-day current yield for the Alliance High Yield option was 12.89% for the
period ended December 31, 1998.
The 30-day current yield for the Alliance Intermediate Government Securities
option was 3.15% for the period ended December 31, 1998.
Because the above yields reflect the deduction of variable investment option
expenses, they are lower than the corresponding yield figures for the Alliance
Money Market, Alliance High Yield, and Alliance Intermediate Government
Securities Portfolios which reflect only the deduction of The Hudson River
Trust-level expenses. The Flexible Premium IRA and Flexible Premium Roth IRA
contracts were not offered before the date of the prospectus and SAI, therefore
the above yields do not reflect the annual administrative charge which would
apply under these contracts.
- --------------------------------------------------------------------------------
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 variable investment options, 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 (for example, 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 variable investment options.
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 account value to those variable
investment options that invest in stocks.
Growth of $1 Invested on January 1, 1958
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED AREA GRAPH IN THE PRINTED DOCUMENT:]
Common Stock Inflation
1958 1.00 1.00
1959 1.12 1.01
1960 1.12 1.03
1961 1.43 1.04
1962 1.30 1.05
1963 1.60 1.07
1964 1.86 1.08
1965 2.10 1.10
1966 1.88 1.14
1967 2.34 1.17
1968 2.59 1.23
1969 2.37 1.30
1970 2.47 1.37
1971 2.82 1.42
1972 3.36 1.47
1973 2.87 1.60
1974 2.11 1.79
1975 2.89 1.92
1976 3.58 2.01
1977 3.32 2.15
1978 3.54 2.34
1979 4.19 2.65
1980 5.55 2.98
1981 5.28 3.25
1982 6.41 3.37
1983 7.86 3.50
1984 8.35 3.64
1985 11.03 3.78
1986 13.07 3.82
1987 13.75 3.99
1988 16.07 4.16
1989 21.13 4.36
1990 20.46 4.62
1991 26.74 4.76
1992 28.75 4.90
1993 31.63 5.04
1994 32.04 5.17
1995 44.03 5.30
1996 54.19 5.48
1997 72.27 5.57
1998 92.93 5.67
[LIGHT SHADED AREA = COMMON STOCK]
[DARK SHADED AREA = INFLATION]
[END OF GRAPHICALLY REPRESENTED DATA]]
Source: Ibbotson Associates, Inc. See discussion and information preceding and
following chart on next page.
Over shorter periods of time, however, common stocks tend to be subject to more
dramatic changes in value than fixed-income (debt) securities. Investors who are
nearing retirement age, or who have a need to limit short-term risk, may find it
preferable to allocate a smaller percentage of their account value to those
variable investment options 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 1998.
Growth of $1 Invested on January 1, 1990
(Values are as of last business day)
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK AND WHITE LINE GRAPH
IN THE PRINTED DOCUMENT:]
Intermediate-Term
Govt. Bonds Common Stocks
1/1/90 1.00 1.00
Jan. 0.99 0.93
Feb. 0.99 0.94
Mar. 0.99 0.97
Apr. 0.98 0.95
May 1.01 1.04
June 1.02 1.03
July 1.04 1.03
Aug. 1.03 0.93
Sep. 1.04 0.89
Oct. 1.06 0.89
Nov. 1.08 0.94
Dec. 1.10 0.97
[END OF GRAPHICALLY REPRESENTED DATA]
Source: Ibbotson Associates, Inc. See discussion and information preceding and
following chart on next page.
The following chart illustrates average annual rates of return over selected
time periods between December 31, 1926 and December 31, 1998 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
4
<PAGE>
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. Investment management fees or
expenses and charges typically associated with deferred annuity products, are
not 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 variable
investment options. In addition, there is no assurance that the performance of
the variable investment options will correspond to rates of return such as those
illustrated in the chart.
For a comparative illustration of performance results of the variable investment
options (which reflect the trusts and variable investment options charges), see
"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 12/31/98: STOCKS GOVT. BONDS BONDS GOVT. BONDS BILLS PRICE INDEX
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 28.58% 13.06% 10.76% 10.21% 4.86% 1.80%
3 Years 28.27 9.07 8.25 6.84 5.11 2.27
5 Years 24.06 9.52 8.74 6.20 4.96 2.41
10 Years 19.19 11.66 10.85 8.74 5.29 3.14
20 Years 17.75 11.14 10.86 9.85 7.17 4.53
30 Years 12.67 9.09 9.14 8.71 6.76 5.24
40 Years 12.00 7.20 7.43 7.39 5.94 4.44
50 Years 13.56 5.89 6.20 6.21 5.07 3.92
60 Years 12.49 5.43 5.62 5.50 4.26 4.19
Since 12/31/26 11.21 5.29 5.78 5.32 3.78 3.15
Inflation adjusted since 1926 7.82 2.08 2.55 2.11 0.62 0.00
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills, and
Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook,(TM) Ibbotson Associates, Inc., Chicago. All rights reserved.
COMMON STOCKS (S&P 500) -- Standard and Poor's Composite Index, an unmanaged
weighted index of the stock performance of 500 industrial, transportation,
utility and financial companies.
LONG-TERM GOVERNMENT BONDS -- Measured using a one-bond
portfolio constructed each year containing a bond with approximately a
twenty-year maturity and a reasonably current coupon.
LONG-TERM CORPORATE BONDS -- For the period 1969-1998, represented by the
Salomon Brothers Long-Term, High-Grade Corporate Bond Index; for the period
1946-1968, the Salomon Brothers Index was backdated using Salomon Brothers
monthly yield data and a methodology similar to that used by Salomon Brothers
for 1969-1998; 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>
- --------------------------------------------------------------------------------
KEY FACTORS IN RETIREMENT PLANNING
INTRODUCTION
The Equitable Accumulator is available to help meet the retirement income and
investment needs of individuals. In assessing these retirement needs, some key
factors need to be addressed: (1) the impact of inflation on fixed retirement
incomes; (2) the importance of planning early for retirement; (3) the benefits
of tax deferral; (4) the selection of an appropriate investment strategy; and
(5) the benefit of receiving annuity payments. 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 type of investment.
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 "Tax information" in the prospectus. Where taxes are taken into
consideration in these presentations, a 28% tax rate is assumed.
The source of the data used by us to compile the charts which appear in this
section (other than charts 1, 2, 3, 4 and 7) is Ibbotson Associates, Inc.,
Chicago, Stocks, Bonds, Bills and Inflation [1998] Yearbook.(TM) All rights
reserved.
In reports or other communications or in advertising material, we may make use
of these or other graphic or numerical illustrations that we prepare showing the
impact of inflation, planning early for retirement, tax deferral,
diversification and other concepts important to retirement planning.
INFLATION
Inflation erodes purchasing power. This means that, in an inflationary period,
the dollar is worth less as time passes. Because many people live on a fixed
income during retirement, inflation is of particular concern to them. The charts
that follow illustrate the harmful impact of inflation over an extended period
of time. Between 1968 and 1998, the average annual inflation rate was 5.24%. As
demonstrated in Chart 1, this 5.24% annual rate of inflation would cause the
purchasing power of $35,000 to decrease to only $7,562 after 30 years.
CHART 1
[THE FOLLOWING DATA WAS REPRESENTED AS A
SHADED VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
(Income)
Today 35,000
10 Years 21,002
20 Years 12,602
30 Years 7,562
[END OF GRAPHICALLY REPRESENTED DATA]
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 1968-1998
historical inflation rate of 5.24% is used. In this case, an additional $126,992
would be required to maintain the purchasing power of $35,000 after 30 years.
6
<PAGE>
CHART 2
[THE FOLLOWING DATA WAS REPRESENTED AS A SHADED
VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
Annual
Income Increase
Needed Needed
Today 35,000 -
10 Years 58,328 23,325
20 Years 97,204 62,204
30 Years 161,992 126,992
[END OF GRAPHICALLY REPRESENTED DATA]
STARTING EARLY
The impact of inflation highlights the need to begin a retirement program early.
The value of starting early is illustrated in the following charts.
As shown in Chart 3, if an individual makes annual contributions of $2,500 to
his or her retirement program beginning at age 30, he or she would accumulate
$414,551 by age 65 under the assumptions described earlier. If that individual
waited until age 50, he or she would only accumulate $70,193 by age 65 under the
same assumptions.
CHART 3
[THE FOLLOWING DATA WAS REPRESENTED AS A SHADED
AREA GRAPH IN THE PRINTED DOCUMENT:]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[BLACK:] Age 50 $0 $0 $0 $0 $0 $15,610 $38,020 $70,193
[WHITE:] Age 40 $0 $0 $0 $15,610 $38,020 $70,193 $116,381 $182,691
[GRAY:] Age 30 $0 $15,610 $38,020 $70,193 $116,381 $182,691 $277,886 $414,551
</TABLE>
[END OF GRAPHICALLY REPRESENTED DATA]
In Table 1, the impact of starting early is demonstrated in another format. For
example, if an individual invests $300 monthly, he or she would accumulate
$387,193 in thirty years under our assumptions. In contrast, if that individual
invested the same $300 per month for 15 years, he or she would accumulate only
$97,804 under our assumptions.
TABLE 1
- -------------------------------------------------------------
MONTHLY
CONTRI- YEAR YEAR YEAR YEAR YEAR
BUTION 10 15 20 25 30
$ 20 $ 3,532 $ 6,520 $ 10,811 $ 16,970 $ 25,813
50 8,829 16,301 27,027 42,425 64,532
100 17,659 32,601 54,053 84,851 129,064
200 35,317 65,202 108,107 169,701 258,129
300 52,976 97,804 162,160 254,552 387,193
- -------------------------------------------------------------
Chart 4 presents an additional way to demonstrate the significant impact of
starting to make contributions to a retirement program earlier rather than
later. It assumes that an individual had a goal to accumulate $250,000 (pretax)
by age 65. If he or she starts at age 30, under our assumptions he or she could
reach the goal by making a monthly pretax contribution of $129 (equivalent to
$93 after taxes). The total net cost for the 30-year-old in this hypothetical
example would be $39,265. If the individual in this hypothetical example waited
until age 50, he or she would have to make a monthly pretax contribution of $767
(equivalent to $552 after taxes) to attain the goal, illustrating the importance
of starting early.
CHART 4
GOAL: $250,000 BY AGE 65
[THE FOLLOWING DATA WAS REPRESENTED AS A BLACK AND WHITE
VERTICAL BAR GRAPH IN THE PRINTED DOCUMENT:]
GOAL: $250,000 BY AGE 65
Tax Savings
and Tax-deferred
Net Cost Earnings at 7.5%
$93 per month Age 30 $ 39,265 $ 210,735
$212 per month Age 40 63,641 186,359
$552 per month Age 50 99,383 150,617
[END OF GRAPHICALLY REPRESENTED DATA]
7
<PAGE>
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 traditional IRA.
The second type of program also provides for tax-deferred earnings growth;
however, contributions are made with after-tax dollars. Examples of this type of
program are nondeductible traditional IRAs and non-qualified annuities.
The third approach to retirement savings is fully taxable. Contributions are
made with after-tax dollars and earnings are taxed each year. Examples of this
type of program include certificates of deposit, savings accounts, and taxable
stock, bond or mutual fund investments.
Consider an example. For the type of retirement program that offers both pre-tax
contributions and tax deferral, assume that a $2,000 annual pre-tax contribution
is made for thirty years. In this example, the retirement funds would be
$172,339 after thirty years (assuming a 7.5% rate of return, no withdrawals and
assuming the deduction of the 1.35% Separate Account daily asset charge -- but
no withdrawal charge or other charges under the contract, or trust charges to
Portfolios), and such funds would be $222,309 without the effect of any charges.
Assuming a lump sum withdrawal was made in year thirty and a 28% tax bracket,
these amounts would be $124,084 and $160,062, respectively.
For the type of program that offers only tax deferral, assume an after-tax
annual contribution of $1,440 for thirty years and the same rate of return. The
after-tax contribution is derived by taxing the $2,000 pre-tax contribution,
again assuming a 28% tax bracket. In this example, the retirement funds would be
$124,084 after thirty years assuming the deduction of charges and no
withdrawals, and $160,062 without the effect of charges. Assuming a lump sum
withdrawal in year thirty, the total after-tax amount would be $101,436 with
charges deducted and $127,341 without charges as described above.
For the fully taxable investment, assume an after-tax contribution of $1,440 for
thirty years. Earnings are taxed annually. After thirty years, the amount of
this fully taxable investment is $108,046.
Keep in mind that taxable investments have fees and charges, too (investment
advisory fees, administrative charges, 12b-1 fees, sales loads, brokerage
commissions, etc.). We have not attempted to apply these fees and charges to the
fully taxable amounts since this is intended merely as an example of tax
deferral.
Again, it must be emphasized that the assumed rate of return of 7.5% compounded
annually used in these examples is for illustrative purposes only. It is not
intended to represent a guaranteed or expected rate of return on any type of
investment. Moreover, early withdrawals of tax-deferred investments are
generally subject to a 10% penalty tax.
INVESTMENT FOR RETIREMENT
Selecting an appropriate retirement program is clearly an important part of an
effective retirement planning strategy. Carefully choosing among available
investment is another essential component.
During the 1968-1998 period, common stock average annual returns outperformed
the average annual returns of fixed investments such as long-term government
bonds and Treasury Bills (T-Bills). See "Notes" below. Common stocks earned an
average annual return of 12.67% over this period, in contrast to 9.09% and 6.76%
for the other two investment categories. Significantly, common stock returns
also outpaced inflation, which grew at 5.24% over this period.
The Equitable Accumulator can be an effective program for diversifying ongoing
investments between various asset categories. In addition, the Equitable
Accumulator offers special features which help address the risk associated with
timing the equity markets, such as dollar cost averaging. By transferring the
same dollar amount each month from the Alliance Money Market option to other
variable investment options, 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.
8
<PAGE>
THE BENEFIT OF ANNUITIZATION
An individual may shift the risk of outliving his or her principal by electing a
lifetime income annuity. See "Choosing your annuity payout options" under
"Accessing your money" in the prospectus. Chart 5 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.
FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the contracts.
9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants ..................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1998 ............ FS-3
Statements of Operations for the Year Ended December 31, 1998 ...... FS-6
Statements of Changes in Net Assets for the Years Ended
December 31, 1998 and 1997 ....................................... FS-9
Notes to Financial Statements ...................................... FS-15
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ..................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1998 and 1997 ............ F-2
Consolidated Statements of Earnings, Years Ended December
31, 1998, 1997 and 1996 .......................................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended
December 31, 1998,
1997 and 1996 ................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31,
1998, 1997 and 1996 .............................................. F-5
Notes to Consolidated Financial Statements ......................... F-6
FS-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 45
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund,
Alliance Growth & Income Fund, Alliance Equity Index Fund, Alliance Common Stock
Fund, Alliance Global Fund, Alliance International Fund, Alliance Aggressive
Stock Fund, Alliance Small Cap Growth Fund, Alliance Conservative Investors
Fund, Alliance Growth Investors Fund, ("Hudson River Trust funds") and T. Rowe
Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, BT Equity 500
Index Fund, Merrill Lynch Basic Value Equity Fund, MFS Research Fund, BT
International Equity Index Fund, T. Rowe Price International Stock Fund, Morgan
Stanley Emerging Markets Equity Fund, Warburg Pincus Small Company Value Fund,
BT Small Company Index Fund, MFS Emerging Growth Companies Fund, EQ/Putnam
Balanced Fund and Merrill Lynch World Strategy Fund ("EQ Advisors Trust funds"),
separate investment funds of The Equitable Life Assurance Society of the United
States ("Equitable Life") Separate Account No. 45 at December 31, 1998 and the
results of each of their operations and changes in each of their net assets for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Equitable
Life's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1998 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $162,642,654 ....................... $162,027,740
38,988,768 ....................... $39,087,424
79,874,329 ....................... $68,956,617
52,351,834 .......................
38,500,311 .......................
179,571,303 .......................
51,702,567 .......................
367,878 .......................
40,156,608 .......................
Receivable for Trust shares sold ............ -- -- --
Receivable for policy-related transactions .. 4,052,521 284,956 281,931
------------ ----------- -----------
Total Assets ................................ 166,080,261 39,372,380 69,238,548
------------ ----------- -----------
LIABILITIES
Payable for Trust shares
purchased ................................ 4,071,280 311,491 285,060
Payable for policy-related
transactions ............................. -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 51,090 37,552 17,444
------------ ----------- -----------
Total Liabilities ........................... 4,122,370 349,043 302,504
------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $161,957,891 $39,023,337 $68,936,044
============ =========== ===========
<CAPTION>
EQUITY SERIES:
------------------------------------------------------------------------------------
MERRILL
T. ROWE EQ/PUTNAM ALLIANCE LYNCH
PRICE GROWTH & ALLIANCE BT EQUITY EQUITY BASIC VALUE
EQUITY INCOME GROWTH & 500 INDEX INDEX EQUITY
INCOME FUND VALUE FUND INCOME FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $162,642,654 .......................
38,988,768 .......................
79,874,329 .......................
52,351,834 ....................... $54,352,075
38,500,311 ....................... $41,327,548
179,571,303 ....................... $194,812,344
51,702,567 ....................... $57,083,310
367,878 ....................... $429,900
40,156,608 ....................... $40,154,990
Receivable for Trust shares sold ............ -- -- -- -- -- --
Receivable for policy-related transactions .. 192,690 169,537 886,818 1,978,165 12,773 297,870
----------- ----------- ------------ ----------- -------- -----------
Total Assets ................................ 54,544,765 41,497,085 195,699,162 59,061,475 442,673 40,452,860
----------- ----------- ------------ ----------- -------- -----------
LIABILITIES
Payable for Trust shares purchased .......... 192,690 169,537 914,736 1,978,218 13,332 297,913
Payable for policy related transactions...... -- -- -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 38,209 31,750 144,163 59,481 8,903 24,813
----------- ----------- ------------ ----------- -------- -----------
Total Liabilities ........................... 230,899 201,287 1,058,899 2,037,699 22,235 322,726
----------- ----------- ------------ ----------- -------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $54,313,866 $41,295,798 $194,640,263 $57,023,776 $420,438 $40,130,134
=========== =========== ============ =========== ======== ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $614,422,976 ....................... $673,522,100
46,867,524 ....................... $53,094,944
62,242,799 ....................... $66,482,102
19,182,262 ....................... $20,109,775
5,069,139 .......................
28,158,931 .......................
5,282,220 .......................
158,195,007 .......................
Receivable for Trust shares sold ............ -- -- -- 1,621,423
Receivable for policy-related transaction ... 3,169,259 789,675 223,087 --
------------ ----------- ----------- -----------
Total Assets ................................ 676,691,359 53,884,619 66,705,189 21,731,198
------------ ----------- ----------- -----------
LIABILITIES
Payable for Trust shares sold ............... 3,174,080 789,704 228,019 --
Payable for policy-related transactions ..... -- -- -- 1,629,516
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 15,873 11,321 69,713 23,074
------------ ----------- ----------- -----------
Total Liabilities ........................... 3,189,953 801,025 297,732 1,652,590
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $673,501,406 $53,083,594 $66,407,457 $20,078,608
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
MORGAN
T. ROWE STANLEY
BT PRICE EMERGING ALLIANCE
INTERNATIONAL INTERNATIONAL MARKETS AGGRESSIVE
EQUITY STOCK EQUITY STOCK
INDEX FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $614,422,976 .......................
46,867,524 .......................
62,242,799 .......................
19,182,262 .......................
5,069,139 ....................... $5,353,580
28,158,931 ....................... $29,654,895
5,282,220 ....................... $4,273,794
158,195,007 ....................... $147,616,537
Receivable for Trust shares sold ............ 228,451 -- -- --
Receivable for policy-related transaction ... -- 158,444 25,127 305,836
---------- ----------- ---------- ------------
Total Assets ................................ 5,582,031 29,813,339 4,298,921 147,922,373
---------- ----------- ---------- ------------
LIABILITIES
Payable for Trust shares sold ............... -- 158,443 26,143 313,060
Payable for policy-related transactions ..... 228,419 -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 6,600 22,436 8,961 11,344
---------- ----------- ---------- ------------
Total Liabilities ........................... 235,019 180,879 35,104 324,404
---------- ----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $5,347,012 $29,632,460 $4,263,817 $147,597,969
========== =========== ========== ============
</TABLE>
- ------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
------------------------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP BT SMALL GROWTH
COMPANY GROWTH COMPANY COMPANIES
VALUE FUND FUND INDEX FUND FUND
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 41,502,596............................... $37,275,602
42,123,172............................. $40,301,314
5,078,731............................. $5,098,116
61,770,493............................. $73,588,750
50,900,433.............................
33,319,831.............................
120,367,795.............................
5,865,231.............................
Receivable for Trust shares sold.................. -- -- -- --
Receivable for policy-related transactions........ 87,152 1,031,150 41,271 834,313
------------ ---------- ----------- ------------
Total Assets...................................... 37,362,754 41,332,464 5,139,387 74,423,063
------------ ---------- ----------- ------------
LIABILITIES
Payable for Trust shares purchased................ 87,151 1,035,757 41,271 834,334
Payable for policy-related transactions.......... -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 25,995 51,378 6,603 24,127
------------ ---------- ----------- ------------
Total Liabilities................................. 113,146 1,087,135 47,874 858,461
------------ ---------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS......... $37,249,608 $40,245,329 $5,091,513 $73,564,602
=========== =========== ========== ============
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 41,502,596.............................
42,123,172.............................
5,078,731.............................
61,770,493.............................
50,900,433............................. $51,458,514
33,319,831............................. $34,637,097
120,367,795............................. $126,599,682
5,865,231............................. $5,947,148
Receivable for Trust shares sold.................. -- -- -- --
Receivable for policy-related transactions........ 445,717 649,638 394,969 45,950
----------- ----------- ------------ ----------
Total Assets...................................... 51,904,231 35,286,735 126,994,651 5,993,098
----------- ----------- ------------ ----------
LIABILITIES
Payable for Trust shares purchased................ 447,264 649,660 435,647 45,950
Payable for policy-related transactions.......... -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 141,475 16,519 79,665 5,185
----------- ----------- ------------ ----------
Total Liabilities................................. 588,739 666,179 515,312 51,135
----------- ----------- ------------ ----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS......... $51,315,492 $34,620,556 $126,479,339 $5,941,963
=========== =========== ============ ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND
----------- ---------- -------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .............$5,658,138 $1,260,940 $ 5,454,605
Expenses (Note 3):
Asset-based charges 737,652 268,963 542,692
---------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ................ 4,920,486 991,977 4,911,913
---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ......
Realized gain distribution from the ...... 149,548 255,764 (1,040,219)
Trusts ................................ 4,257 -- 1,292,662
---------- ---------- -----------
NET REALIZED GAIN (LOSS) .................... 153,805 255,764 252,443
---------- ---------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... (465,201) 21,939 (786,186)
End of period ............................ (614,915) 98,656 (10,917,712)
---------- ---------- -----------
Change in unrealized appreciation ........
(depreciation) during the period ...... (149,714) 76,717 (10,131,526)
---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON ..
INVESTMENTS .............................. 4,091 332,481 (9,879,083)
---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ....
RESULTING FROM OPERATIONS ................$4,924,577 $1,324,458 $(4,967,170)
========== ========== ===========
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------------------------------
T.ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & BT EQUITY EQUITY BASIC VALUE
INCOME INCOME INCOME 500 INDEX INDEX EQUITY
FUND FUND VALUE FUND FUND FUND FUND
---------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .............$ 871,348 $ 348,923 $ 382,870 $ 254,693 $ 2,310 $ 377,168
Expenses (Note 3):
Asset-based charges
394,056 298,502 1,602,233 203,672 2,588 269,948
---------- ---------- ----------- ---------- ------- ----------
NET INVESTMENT INCOME (LOSS) ................ 477,292 50,421 (1,219,363) 51,021 (278) 107,220
---------- ---------- ----------- ---------- ------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ......
Realized gain distribution from the ...... 43,764 (69,351) 2,807,006 (262,278) 5,225 (175,666)
Trusts ................................ 1,120,050 315,112 15,440,331 -- 112 1,307,680
---------- ---------- ----------- ---------- ------- ----------
NET REALIZED GAIN (LOSS) .................... 1,163,814 245,761 18,247,337 (262,278) 5,337 1,132,014
---------- ---------- ----------- ---------- ------- ----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... 980,406 191,128 5,616,378 -- 4,722 (64,333)
End of period ............................ 2,000,241 2,827,238 15,241,041 5,380,743 62,022 (1,617)
---------- ---------- ----------- ---------- ------- ----------
Change in unrealized appreciation ........
(depreciation) during the period ...... 1,019,835 2,636,110 9,624,663 5,380,743 57,300 62,716
---------- ---------- ----------- ---------- ------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON ..
INVESTMENTS .............................. 2,183,649 2,881,871 27,872,000 5,118,465 62,637 1,194,730
---------- ---------- ----------- ---------- ------- ==========
NET INCREASE (DECREASE) IN NET ASSETS ....
RESULTING FROM OPERATIONS ................$2,660,941 $2,932,292 $26,652,637 $5,169,486 $62,359 $1,301,950
========== ========== =========== ========== ======= ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
-----------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ............. $ 2,403,283 $ 131,068 $ 598,042 $ 340,200
Expenses (Note 3):
Asset-based charges ................... 5,424,534 307,489 589,611 215,726
------------ ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ................ (3,021,251) (176,421) 8,431 124,474
------------ ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... 10,230,950 60,560 749,415 (1,566,752)
Realized gain distribution from the Trusts 79,194,636 -- 4,143,459 3,718
------------ ---------- ---------- -----------
NET REALIZED GAIN (LOSS) .................... 89,425,586 60,560 4,892,874 (1,563,034)
------------ ---------- ---------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... 23,451,447 37,510 (244,398) (2,137,851)
End of period ............................ 59,099,124 6,227,419 4,239,304 927,513
------------ ---------- ---------- -----------
Change in unrealized appreciation
(depreciation) during the period ........ 35,647,677 6,189,909 4,483,702 3,065,364
------------ ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. 125,073,263 6,250,469 9,376,576 1,502,330
------------ ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... $122,052,012 $6,074,048 $9,385,007 $ 1,626,804
============ ========== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED):
-------------------------------------------------------
MORGAN
T. ROWE STANLEY
BT PRICE EMERGING ALLIANCE
INTERNATIONAL INTER- MARKETS AGGRESSIVE
EQUITY NATIONAL EQUITY STOCK
INDEX FUND STOCK FUND FUND FUND
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ............. $ 66,107 $ 245,522 $ 16,085 $ 586,576
Expenses (Note 3):
Asset-based charges ................... 22,058 217,929 35,466 1,537,723
-------- ---------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ................ 44,049 27,593 (19,381) (951,147)
-------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... (38,281) 73,956 (337,130) (1,170,454)
Realized gain distribution from the Trusts -- 228 -- 6,889,454
-------- ---------- ----------- -----------
NET REALIZED GAIN (LOSS) .................... (38,281) 74,184 (337,130) 5,719,000
-------- ---------- ----------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... -- (576,978) (238,282) (3,851,402)
End of period ............................ 284,441 1,495,964 (1,008,425) 10,578,470)
-------- ---------- ----------- -----------
Change in unrealized appreciation
(depreciation) during the period ........ 284,441 2,072,942 (770,143) (6,727,068)
-------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. 246,160 2,147,126 (1,107,273) (1,008,068)
-------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... $290,209 $2,174,719 $(1,126,654) $(1,959,215)
======== ========== =========== ===========
</TABLE>
- ------------------
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
---------------------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE BT SMALL EMERGING
COMPANY SMALL CAP COMPANY GROWTH
VALUE GROWTH INDEX COMPANIES
FUND FUND FUND FUND
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .................... $ 172,128 $ 716 $ 34,326 $ 901
Expenses (Note 3):
Asset-based charges .......................... 355,215 336,205 20,638 373,152
----------- ----------- -------- -----------
NET INVESTMENT INCOME (LOSS) ....................... (183,087) (335,489) 13,688 (372,251)
----------- ----------- -------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ............. (395,526) (513,118) (50,161) 163,114
Realized gain distribution from the Trusts ...... -- -- 65,264 --
----------- ----------- -------- -----------
NET REALIZED GAIN (LOSS) ........................... (395,526) (513,118) 15,103 163,114
----------- ----------- -------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ............................. (300,436) (344,436) -- (259,194)
End of period ................................... (4,226,993) (1,821,859) 19,385 11,818,257
----------- ----------- -------- -----------
Change in unrealized appreciation
(depreciation)during the period ................ (3,926,557) (1,477,423) 19,385 12,077,451
----------- ----------- -------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ..................................... (4,322,083) (1,990,541) 34,488 12,240,565
----------- ----------- -------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ...................................... $(4,505,170) $(2,326,030) $ 48,176 $11,868,314
=========== =========== ======== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------------
ALLIANCE MERRILL
CONSERVA- ALLIANCE LYNCH
TIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .................... $1,373,189 $ 593,087 $ 1,887,685 $ 42,482
Expenses (Note 3):
Asset-based charges .......................... 387,733 194,358 1,064,812 31,672
---------- ---------- ----------- ---------
NET INVESTMENT INCOME (LOSS) ....................... 985,456 398,729 822,873 10,810
---------- ---------- ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ............. 568,518 (130,136) 736,026 (38,321)
Realized gain distribution from the Trusts ...... 2,571,769 355,759 9,800,094 --
---------- ---------- ----------- ---------
NET REALIZED GAIN (LOSS) ........................... 3,140,287 225,623 10,536,120 (38,321)
---------- ---------- ----------- ---------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ............................. 482,745 73,582 1,685,711 (129,123)
End of period ................................... 558,081 1,317,266 6,231,888 81,917
---------- ---------- ----------- ---------
Change in unrealized appreciation
(depreciation)during the period ................ 75,336 1,243,684 4,546,177 211,040
---------- ---------- ----------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ..................................... 3,215,623 1,469,307 15,082,297 172,719
---------- ---------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ...................................... $4,201,079 $1,868,036 $15,905,170 $ 183,529
========== ========== =========== =========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
-------------------------------
ALLIANCE
MONEY MARKET FUND
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 4,920,486 $ 2,322,115
Net realized gain (loss)...................................... 153,805 64,275
Change in unrealized appreciation (depreciation) of investments (149,714) (267,302)
------------ ------------
Net increase (decrease) in net assets from operations......... 4,924,577 2,119,088
------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 216,826,115 137,532,670
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 113,746,706 55,819,439
------------ ------------
Total..................................................... 330,572,821 193,352,109
------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 10,986,665 1,577,365
Withdrawal and administrative charges......................... 230,600 618,083
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 243,665,058 144,167,408
------------ ------------
Total....................................................... 254,882,323 146,362,856
------------ ------------
Net increase in net assets from Contractowners
transactions................................................ 75,690,498 46,989,253
------------ ------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (15,545) (46,770)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 80,599,530 49,061,571
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 81,358,361 32,296,790
------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $161,957,891 $ 81,358,361
============ ============
<CAPTION>
FIXED INCOME SERIES:
---------------------------
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES FUND
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 991,977 $ 303,709
Net realized gain (loss)...................................... 255,764 12,754
Change in unrealized appreciation (depreciation) of investments 76,717 58,654
----------- -----------
Net increase (decrease) in net assets from operations......... 1,324,458 375,117
----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 19,720,434 5,416,131
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 20,781,791 3,270,944
----------- -----------
Total..................................................... 40,502,225 8,687,075
----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 1,040,600 189,517
Withdrawal and administrative charges......................... 73,339 128,377
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 12,745,544 1,145,902
----------- -----------
Total....................................................... 13,859,483 1,463,796
----------- -----------
Net increase in net assets from Contractowners
transactions................................................ 26,642,742 7,223,279
----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (6,113) (12,130)
----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 27,961,087 7,586,266
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 11,062,250 3,475,984
----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $39,023,337 $11,062,250
============ ===========
<CAPTION>
FIXED INCOME SERIES:
------------------------------
ALLIANCE
HIGH YIELD FUND (a)
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 4,911,913 $ 601,148
Net realized gain (loss)...................................... 252,443 783,323
Change in unrealized appreciation (depreciation) of investments (10,131,526) (786,186)
------------ -----------
Net increase (decrease) in net assets from operations......... (4,967,170) 598,285
------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 47,559,333 13,779,925
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 47,655,636 22,095,921
------------ -----------
Total..................................................... 95,214,969 35,875,846
------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 2,110,668 161,257
Withdrawal and administrative charges......................... 128,063 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 37,545,562 17,780,088
------------ -----------
Total....................................................... 39,784,293 17,986,890
------------ -----------
Net increase in net assets from Contractowners
transactions................................................ 55,430,676 17,888,956
------------ -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (8,801) (5,902)
------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 50,454,705 18,481,339
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 18,481,339 --
------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $ 68,936,044 $18,481,339
============= ============
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
-------------------------------------------------------
T. ROWE PRICE EQUITY EQ/PUTNAM GROWTH &
INCOME FUND (a) INCOME VALUE FUND (a)
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).......... $ 477,292 $ 78,818 $ 50,421 $ 21,273
Net realized gain (loss).............. 1,163,814 54,535 245,761 54,646
Change in unrealized appreciation
(depreciation) of investments....... 1,019,835 980,406 2,636,110 191,128
----------- ----------- ------------ -----------
Net increase (decrease) in net
assets from operations.............. 2,660,941 1,113,759 2,932,292 267,047
----------- ----------- ------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions....................... 26,813,091 13,813,772 22,432,656 10,975,199
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1).......................... 10,252,099 4,356,204 6,980,421 3,217,543
----------- ----------- ------------ -----------
Total............................. 37,065,190 18,169,976 29,413,077 14,192,742
----------- ----------- ------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 1,205,409 86,052 1,300,000 58,925
Withdrawal and administrative charges.. 109,823 40,797 90,762 32,578
Transfers to other Funds and
Guaranteed Interest
Rate Account (Note 1)................ 3,039,300 183,349 3,822,075 180,506
----------- ----------- ------------ -----------
Total................................ 4,354,532 310,198 5,212,837 272,009
----------- ----------- ------------ -----------
Net increase in net assets from
Contractowners transactions.......... 32,710,658 17,859,778 24,200,240 13,920,733
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5)....... (26,248) (5,022) (22,154) (2,360)
----------- ----------- ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 35,345,351 18,968,515 27,110,378 14,185,420
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 18,968,515 -- 14,185,420 --
----------- ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $54,313,866 $18,968,515 $ 41,295,798 $14,185,420
=========== =========== ============ ===========
<CAPTION>
EQUITY SERIES:
-------------------------------------------------------------
ALLIANCE BT EQUITY ALLIANCE
GROWTH & INCOME 500 INDEX EQUITY INDEX
FUND FUND (b) FUND (a)
------------------------- ---------- ------------------
1998 1997 1998 1998 1997
----------- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).......... $ (1,219,363) $ (95,244) $ 51,021 $ (278) $ 187
Net realized gain (loss).............. 18,247,337 6,014,564 (262,278) 5,337 1,392
Change in unrealized appreciation
(depreciation) of investments....... 9,624,663 4,852,142 5,380,743 57,300 4,722
----------- ---------- ---------- ------- ------
Net increase (decrease) in net
assets from operations.............. 26,652,637 10,771,462 5,169,486 62,359 6,301
----------- ---------- ---------- ------- ------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions....................... 69,137,309 58,696,016 38,685,440 69,113 77,031
Transfers from other Funds and
Guaranteed Interest Rate
Account (Note 1).................. 25,662,665 16,269,895 24,595,843 198,702 15,328
----------- ---------- ---------- ------- ------
Total............................. 94,799,974 74,965,911 63,281,283 267,815 92,359
----------- ---------- ---------- ------- ------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 5,922,537 1,455,357 533,098 -- --
Withdrawal and administrative charges.. 501,695 425,279 13,875 380 --
Transfers to other Funds and
Guaranteed Interest
Rate Account (Note 1)................ 14,167,225 4,907,606 10,862,244 4,913 --
----------- ---------- ---------- ------- ------
Total................................ 20,591,457 6,788,242 11,409,217 5,293 --
----------- ---------- ---------- ------- ------
Net increase in net assets from
Contractowners transactions.......... 74,208,517 68,177,669 51,872,066 262,522 92,359
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5)....... (101,665) (94,285) (17,776) (1,961) (1,142)
----------- ---------- ---------- ------- ------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 100,759,489 78,854,846 57,023,776 322,920 97,518
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 93,880,774 15,025,928 -- 97,518 --
----------- ---------- ---------- ------- ------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $194,640,263 $93,880,774 $57,023,776 $420,438 $97,518
============ =========== =========== ======== =======
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
MERRILL LYNCH ALLIANCE
BASIC VALUE COMMON
EQUITY FUND (a) STOCK FUND
-------------------------- ----------------------------
1998 1997 1998 1997
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)..................... $ 107,220 $ 20,510 $ (3,021,251) $ (1,209,624)
Net realized gain (loss)......................... 1,132,014 47,779 89,425,586 27,433,324
Change in unrealized appreciation (depreciation)
of investments................................. 62,716 (64,333) 35,647,677 22,094,993
----------- ----------- ------------ ------------
Net increase (decrease) in net assets from operations 1,301,950 3,956 122,052,012 48,318,693
----------- ----------- ------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions.................................. 24,093,025 8,075,199 222,706,977 175,880,351
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............... 9,221,650 1,941,071 88,116,261 61,077,537
----------- ----------- ------------ ------------
Total.......................................... 33,314,675 10,016,270 310,823,238 236,957,888
----------- ----------- ------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........... 967,509 9,691 20,666,466 4,271,079
Withdrawal and administrative charges............ 69,854 17,792 1,652,840 1,459,175
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1).......................... 3,287,976 137,464 56,065,697 35,438,036
----------- ----------- ------------ ------------
Total.......................................... 4,325,339 164,947 78,385,003 41,168,290
----------- ----------- ------------ ------------
Net increase in net assets from Contractowners
transactions................................... 28,989,336 9,851,323 232,438,235 195,789,598
----------- ----------- ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (15,592) (839) (298,491) (305,436)
----------- ----------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................... 30,275,694 9,854,440 354,191,756 243,802,855
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.............................. 9,854,440 -- 319,309,650 75,506,795
----------- ----------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD.................................... $40,130,134 $ 9,854,440 $673,501,406 $319,309,650
=========== =========== ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------
MFS RESEARCH ALLIANCE
FUND (a) GLOBAL FUND
------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)..................... $ (176,421) $ (15,339) $ 8,431 $ 328,372
Net realized gain (loss)......................... 60,560 101,923 4,892,874 2,837,865
Change in unrealized appreciation (depreciation)
of investments................................. 6,189,909 37,510 4,483,702 (443,882)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations 6,074,048 124,094 9,385,007 2,722,355
----------- ----------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions.................................. 28,178,818 9,502,168 20,084,493 20,384,580
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............... 10,528,629 2,602,553 7,177,452 7,792,945
----------- ----------- ----------- -----------
Total.......................................... 38,707,447 12,104,721 27,261,945 28,177,525
----------- ----------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........... 1,059,377 28,630 1,765,622 621,118
Withdrawal and administrative charges............ 74,772 23,738 190,033 155,169
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1).......................... 2,504,801 209,610 6,748,641 6,961,429
----------- ----------- ----------- -----------
Total.......................................... 3,638,950 261,978 8,704,296 7,737,716
----------- ----------- ----------- -----------
Net increase in net assets from Contractowners
transactions................................... 35,068,497 11,842,743 18,557,649 20,439,809
----------- ----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (23,737) (2,051) (44,868) (28,799)
----------- ----------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................... 41,118,808 11,964,786 27,897,788 23,133,365
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.............................. 11,964,786 -- 38,509,669 15,376,304
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD.................................... $53,083,594 $11,964,786 $66,407,457 $38,509,669
=========== =========== =========== ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------------
BT
INTER-
NATIONAL
EQUITY T. ROWE PRICE
ALLIANCE INDEX INTERNATIONAL
INTERNATIONAL FUND STOCK
FUND 1998 (c) FUND (a)
------------------------- ---------- -------------------------
1998 1997 1998 1998 1997
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................. $ 124,474 $ 288,466 $ 44,049 $ 27,593 $ (45,798)
Net realized gain (loss)............... (1,563,034) 1,093,826 (38,281) 74,184 (53,503)
Change in unrealized appreciation
(depreciation) of investments........ 3,065,364 (2,169,239) 284,441 2,072,942 (576,978)
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in net
assets from
operations........................... 1,626,804 (786,947) 290,209 2,174,719 (676,279)
----------- ----------- ---------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions........................ 4,384,851 9,574,522 3,655,757 13,036,180 9,658,570
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1)........................... 44,058,459 18,180,472 2,070,284 10,402,147 5,113,170
----------- ----------- ---------- ----------- -----------
Total..................................... 48,443,310 27,754,994 5,726,041 23,438,327 14,771,740
----------- ----------- ---------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 810,093 341,327 22,805 754,896 37,224
Withdrawal and administrative charges.. 82,131 97,083 2,573 64,687 22,024
Transfers to other Funds and
Guaranteed Interest Rate Account
(Note 1)............................. 45,566,819 18,593,662 642,046 7,759,247 1,416,476
----------- ----------- ---------- ----------- -----------
Total................................... 46,459,043 19,032,072 667,424 8,578,830 1,475,724
----------- ----------- ---------- ----------- -----------
Net increase in net assets from
Contractowners transactions.......... 1,984,267 8,722,922 5,058,617 14,859,497 13,296,016
----------- ----------- ---------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT
NO. 45 (NOTE 5)........................ (15,805) (36,637) (1,814) (18,463) (3,030)
----------- ----------- ---------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 3,595,266 7,899,338 5,347,012 17,015,753 12,616,707
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 16,483,342 8,584,004 -- 12,616,707 --
----------- ----------- ---------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $20,078,608 $16,483,342 $5,347,012 $29,632,460 $12,616,707
============ ============ =========== ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
-------------------------------------------------------
MORGAN STANLEY
EMERGING MARKETS ALLIANCE
EQUITY AGGRESSIVE STOCK
FUND (b) FUND
------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................. $ (19,381) $ 1,234 $ (951,147) $ (880,189)
Net realized gain (loss)............... (337,130) (26,406) 5,719,000 9,879,526
Change in unrealized appreciation
(depreciation) of investments........ (770,143) (238,282) (6,727,068) (1,686,216)
----------- ----------- ------------ ------------
Net increase (decrease) in net
assets from
operations........................... (1,126,654) (263,454) (1,959,215) 7,313,121
----------- ----------- ------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions........................ 2,708,321 1,617,148 45,526,795 66,019,813
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1)........................... 1,357,280 889,247 12,684,235 17,726,363
----------- ----------- ------------ ------------
Total..................................... 4,065,601 2,506,395 58,211,030 83,746,176
----------- ----------- ------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 59,492 -- 5,047,753 1,854,804
Withdrawal and administrative charges.. 7,737 394 540,786 482,491
Transfers to other Funds and
Guaranteed Interest Rate Account
(Note 1)............................. 857,518 2,488 20,928,020 11,669,668
----------- ----------- ------------ ------------
Total................................... 924,747 2,882 26,516,559 14,006,963
----------- ----------- ------------ ------------
Net increase in net assets from
Contractowners transactions.......... 3,140,854 2,503,513 31,694,471 69,739,213
----------- ----------- ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT
NO. 45 (NOTE 5)........................ 10,524 (966) 35,035 (111,908)
----------- ----------- ------------ -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 2,024,724 2,239,093 29,770,291 76,940,426
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 2,239,093 -- 117,827,678 40,887,252
----------- ----------- ------------ -------------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $ 4,263,817 $ 2,239,093 $147,597,969 $117,827,678
=========== =========== ============ ============
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
--------------------------------------------------------
WARBURG PINCUS SMALL ALLIANCE
COMPANY VALUE SMALL CAP GROWTH
FUND (a) FUND (a)
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ (183,087) $ (64,437) $ (335,489) $ (49,856)
Net realized gain (loss)...................... (395,526) 338,068 (513,118) 440,546
Change in unrealized appreciation
(depreciation) of investments............... (3,926,557) (300,436) (1,477,423) (344,436)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from
operations.................................. (4,505,170) (26,805) (2,326,030) 46,254
----------- ----------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................... 17,316,209 17,791,841 22,333,800 12,116,331
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............ 10,231,935 11,695,862 10,827,569 5,602,864
----------- ----------- ----------- -----------
Total............................................ 27,548,144 29,487,703 33,161,369 17,719,195
----------- ----------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........ 1,086,279 134,692 1,022,179 20,842
Withdrawal and administrative charges......... 103,922 23,284 78,365 8,570
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).............. 9,358,044 4,520,417 5,823,960 1,504,600
----------- ----------- ----------- -----------
Total............................................ 10,548,245 4,678,393 6,924,504 1,534,012
----------- ----------- ----------- -----------
Net increase in net assets from Contractowners
transactions.................................. 16,999,899 24,809,310 26,236,865 16,185,183
----------- ----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45
(NOTE 5)...................................... (17,047) (10,579) 106,435 (3,378)
----------- ----------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................ 12,477,682 24,771,926 24,017,270 16,228,059
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................... 24,771,926 -- 16,228,059 --
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................. $37,249,608 $24,771,926 $40,245,329 $16,228,059
=========== =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONCLUDED):
----------------------------------------
BT SMALL
COMPANY MFS EMERGING GROWTH
INDEX COMPANIES
FUND (b) FUND (a)
---------- ---------------------------
1998 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ 13,688 $ (372,251) $ (15,821)
Net realized gain (loss)...................... 15,103 163,114 327,209
Change in unrealized appreciation
(depreciation) of investments............... 19,385 12,077,451 (259,194)
---------- ----------- -----------
Net increase (decrease) in net assets from
operations.................................. 48,176 11,868,314 52,194
---------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................... 4,131,338 40,723,333 9,607,211
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............ 1,311,488 16,938,315 3,864,604
---------- ----------- -----------
Total............................................ 5,442,826 57,661,648 13,471,815
---------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........ 21,074 1,543,076 45,537
Withdrawal and administrative charges......... 1,781 76,137 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).............. 375,472 6,249,256 1,527,808
---------- ----------- -----------
Total............................................ 398,327 7,868,469 1,587,690
---------- ----------- -----------
Net increase in net assets from Contractowners
transactions.................................. 5,044,499 49,793,179 11,884,125
---------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45
(NOTE 5)...................................... (1,162) (31,251) (1,959)
---------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................ 5,091,513 61,630,242 11,934,360
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................... -- 11,934,360 --
---------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................. $5,091,513 $73,564,602 $11,934,360
========== ============ ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
ALLIANCE
CONSERVATIVE EQ/PUTNAM
INVESTORS FUND BALANCED FUND (a)
--------------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................. $ 985,456 $ 481,754 $ 398,729 $ 51,548
Net realized gain (loss).......................... 3,140,287 687,695 225,623 45,528
Change in unrealized appreciation (depreciation)
of investments.................................. 75,336 478,094 1,243,684 73,582
----------- ----------- ----------- ----------
Net increase (decrease) in net assets from
operations...................................... 4,201,079 1,647,543 1,868,036 170,658
----------- ----------- ----------- ----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions................................... 21,651,343 10,862,780 20,768,914 4,294,496
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)................ 13,282,997 3,151,066 9,211,559 1,721,220
----------- ----------- ----------- ----------
Total......................................... 34,934,340 14,013,846 29,980,473 6,015,716
----------- ----------- ----------- ----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............ 1,883,884 567,547 567,437 17,533
Withdrawal and administrative charges............. 117,513 138,461 42,998 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).................. 7,120,635 1,428,179 2,636,967 120,099
----------- ----------- ----------- ----------
Total........................................... 9,122,032 2,134,187 3,247,402 152,925
----------- ----------- ----------- ----------
Net increase in net assets from Contractowners
transactions.................................... 25,812,308 11,879,659 26,733,071 5,862,791
----------- ----------- ----------- ----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (26,353) (57,026) (13,517) (483)
----------- ----------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................... 29,987,034 13,470,176 28,587,590 6,032,966
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, BEGINNING OF PERIOD............... 21,328,458 7,858,282 6,032,966 --
----------- ----------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, END OF PERIOD..................... $51,315,492 $21,328,458 $34,620,556 $6,032,966
=========== =========== =========== ==========
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
ALLIANCE
GROWTH MERRILL LYNCH WORLD
INVESTORS FUND STRATEGY FUND (a)
--------------------------- ------------------------
1998 1997 1998 1997
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................. $ 822,873 $ 736,541 $ 10,810 $ 2,974
Net realized gain (loss).......................... 10,536,120 3,620,598 (38,321) 24,219
Change in unrealized appreciation (depreciation)
of investments.................................. 4,546,177 1,844,488 211,040 (129,123)
------------ ----------- ---------- ----------
Net increase (decrease) in net assets from
operations...................................... 15,905,170 6,201,627 183,529 (101,930)
------------ ----------- ---------- ----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions................................... 44,347,044 32,084,069 2,756,653 2,043,811
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)................ 13,494,160 7,981,423 1,208,993 561,601
------------ ----------- ---------- ----------
Total......................................... 57,841,204 40,065,492 3,965,646 2,605,412
------------ ----------- ---------- ----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............ 3,711,360 1,014,211 125,335 3,514
Withdrawal and administrative charges............. 325,958 421,582 13,717 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).................. 9,119,743 2,744,848 463,447 84,455
------------ ----------- ---------- ----------
Total........................................... 13,157,061 4,180,641 602,499 90,566
------------ ----------- ---------- ----------
Net increase in net assets from Contractowners
transactions.................................... 44,684,143 35,884,851 3,363,147 2,514,846
------------ ----------- ---------- ----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (93,008) (111,839) (17,508) (121)
------------ ----------- ---------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................... 60,496,305 41,974,639 3,529,168 2,412,795
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, BEGINNING OF PERIOD............... 65,983,034 24,008,395 2,412,795 --
------------ ----------- ---------- ----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, END OF PERIOD..................... $126,479,339 $65,983,034 $5,941,963 $2,412,795
============ =========== ========== ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 45 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (the 1940
Act). Alliance Capital Management L.P., an indirect majority owned
subsidiary of Equitable Life, manages The Hudson River Trust (HRT) and is
the investment adviser for all of the investment funds of HRT. EQ Financial
Consultants, Inc., ("EQFC") is a wholly owned subsidiary of Equitable Life.
EQFC manages the EQ Advisors Trust (EQAT) and has overall responsibility
for general management and administration of EQAT. The Account consists of
25 investment funds (Funds): Alliance Money Market Fund, Alliance
Intermediate Government Securities Fund, Alliance High Yield Fund, T. Rowe
Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, BT Equity 500 Index Fund, Alliance Equity Index Fund,
Merrill Lynch Basic Value Equity Fund, Alliance Common Stock Fund, MFS
Research Fund, Alliance Global Fund, Alliance International Fund, BT
International Equity Index Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock
Fund, Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth
Fund, BT Small Company Index Fund, MFS Emerging Growth Companies Fund,
Alliance Conservative Investors Fund, EQ/Putnam Balanced Fund, Alliance
Growth Investors Fund and Merrill Lynch World Strategy Fund. The assets in
each Fund are invested in shares of a corresponding portfolio (Portfolio)
of a mutual fund, Class 1A and 1B shares of HRT or Class 1B shares of EQAT
(collectively, the "Trusts"). Class 1A and 1B shares are offered by the
Trusts at net asset value. Both classes of shares are subject to fees for
investment management and advisory services and other Trust expenses. Class
1B shares are subject to distribution fees imposed under a distribution
plan (herein the "Rule 12b-1 Plans") adopted pursuant to Rule 12b-1 under
the 1940 Act, as amended. The Rule 12b-1 Plans provide that the Trusts, on
behalf of each Fund, may charge annually up to 0.25% of the average daily
net assets of a Fund attributable to its Class 1B shares in respect of
activities primarily intended to result in the sale of the Class 1B shares.
These fees are reflected in the net asset value of the shares. Class 1A
shares of HRT continue to be purchased by contracts in-force prior to May
1, 1997. The Trusts are open-ended, diversified management investment
companies that sell their shares to separate accounts of insurance
companies. Each Portfolio has separate investment objectives.
EQFC earns fees from both Trusts under distribution agreements held with
the Trusts. EQFC also earns fees under an investment management agreement
with EQAT. Alliance earns fees under an investment advisory agreement
with the HRT.
The Account is used to fund benefits for the Equitable Accumulator and
Income Manager Accumulator non-qualified deferred variable annuities which
combine the portfolios in the Account with guaranteed fixed rate options,
and the Equitable Accumulator IRA and Income Manager Accumulator IRA, which
offer the same investment options as Equitable Accumulator and Income
Manager Accumulator for the non-qualified market. The Equitable Accumulator
and Income Manager Accumulator are also available for purchase by certain
types of qualified plans. The Equitable Accumulator (IRA, NQ and QP) and
Income Manager Accumulator (IRA, NQ and QP), collectively referred to as
the Contracts, are offered under group and individual variable annuity
forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Receivable/Payable for policy-related transactions represent amounts due
to/from general account predominately related to premiums, surrenders and
death benefit.
Contractowners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate of
the Contractowners' accounts allocated to that Fund. Additional assets are
set aside in Equitable Life's General Account to provide for other policy
benefits, as required under the state insurance law. Equitable Life's
General Account is subject to creditor rights.
Included in the Withdrawal and Administrative Charges line of the
Statements of Changes in Net Assets are certain administrative charges
which are deducted from the Contractowners account value.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trust using the market or fair value of the underlying
assets of the Portfolio less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth quarter on the
ex-dividend date. Capital gains are distributed by the Trust at the end of
each year.
No federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code and
no federal income tax payable by Equitable Life is expected to affect the
unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required. However, Equitable Life retains the
right to charge for any federal income tax incurred which is attributable
to the Account if the law is changed.
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life charges for mortality and expense risks
at an annual rate of 1.10% of daily net assets for Equitable Accumulator
Contracts (0.90% for Income Manager Accumulator Contracts). In addition,
asset-based administrative charges are also charged to the account at an
annual rate of 0.25% of daily net assets. The charges may be retained in
the Account by Equitable Life and participate in the net investment results
of the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.35% for Equitable Accumulator (1.15% for Income
Manager Accumulator). Trust shares are valued at their net asset value with
investment advisory or management fees, the 12b-1 fee, and other expenses
of the Trust, in effect, passed on to the Account and reflected in the
accumulation unit values of the Contracts.
4. Contributions, Transfers and Charges
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
-------------------------- --------------
Net Issued (Redeemed) Class A 115bp .......... (89) (374)
Net Issued (Redeemed) Class B 0bp ............ 853 1,178
Net Issued (Redeemed) Class B 115bp .......... 399 794
Net Issued (Redeemed) Class B 135bp .......... 1,566 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- --------------------------------------------------
Net Issued (Redeemed) Class A 115bp .......... 111 161
Net Issued (Redeemed) Class B 115bp .......... 734 345
Net Issued (Redeemed) Class B 135bp .......... 928 --
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
ALLIANCE HIGH YIELD FUND (a) (IN THOUSANDS)
----------------------------
Net Issued (Redeemed) Class A 115bp..... 75 98
Net Issued (Redeemed) Class B 115bp..... 946 505
Net Issued (Redeemed) Class B 135bp..... 801 --
T. ROWE PRICE EQUITY INCOME FUND (a)
------------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,537 1,565
Net Issued (Redeemed) Class B 135bp..... 1,059 --
EQ/PUTNAM GROWTH & INCOME FUND (a)
----------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,117 1,230
Net Issued (Redeemed) Class B 135bp..... 867 --
ALLIANCE GROWTH & INCOME FUND
-----------------------------
Net Issued (Redeemed) Class A 115bp..... 48 2,377
Net Issued (Redeemed) Class B 115bp..... 2,016 1,829
Net Issued (Redeemed) Class B 135bp..... 1,854 --
BT EQUITY 500 INDEX (c)
------------------------
Net Issued (Redeemed) Class B 115bp..... 2,189 --
Net Issued (Redeemed) Class B 135bp..... 2,246 --
ALLIANCE EQUITY INDEX FUND (a)
------------------------------
Net Issued (Redeemed) Class A 115bp..... -- --
Net Issued (Redeemed) Class B 115bp..... 9 5
Net Issued (Redeemed) Class B 135bp..... 2 --
MERRILL LYNCH BASIC VALUE FUND (a)
----------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,278 849
Net Issued (Redeemed) Class B 135bp..... 1,010 --
ALLIANCE COMMON STOCK FUND
--------------------------
Net Issued (Redeemed) Class A 115bp..... (35) 620
Net Issued (Redeemed) Class B 115bp..... 582 519
Net Issued (Redeemed) Class B 135bp..... 550 --
- ----------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
MFS RESEARCH FUND (a) (IN THOUSANDS)
---------------------
Net Issued (Redeemed) Class B 115bp .... 1,244 1,039
Net Issued (Redeemed) Class B 135bp .... 1,479 --
ALLIANCE GLOBAL FUND
--------------------
Net Issued (Redeemed) Class A 115bp .... (103) 444
Net Issued (Redeemed) Class B 115bp .... 360 308
Net Issued (Redeemed) Class B 135bp .... 354 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Net Issued (Redeemed) Class A 115bp .... (150) 438
Net Issued (Redeemed) Class B 115bp .... 153 285
Net Issued (Redeemed) Class B 135bp .... 166 --
BT INTERNATIONAL EQUITY INDEX (c)
---------------------------------
Net Issued (Redeemed) Class B 115bp .... 209 --
Net Issued (Redeemed) Class B 135bp .... 242 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (a)
------------------------------------------
Net Issued (Redeemed) Class B 115bp .... 704 1,291
Net Issued (Redeemed) Class B 113bp .... 705 --
MORGAN STANLEY EMERGING MARKETS FUND (b)
----------------------------------------
Net Issued (Redeemed) Class B 115bp .... 285 282
Net Issued (Redeemed) Class B 135bp .... 177 --
ALLIANCE AGGRESSIVE STOCK FUND
------------------------------
Net Issued (Redeemed) Class A 115bp .... (160) 641
Net Issued (Redeemed) Class B 115bp .... 311 369
Net Issued (Redeemed) Class B 135bp .... 293 --
- ------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Concluded)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------
WARBURG PINCUS SMALL COMPANY FUND (a) (IN THOUSANDS)
-------------------------------------
Net Issued (Redeemed) Class B 115bp........... 888 2,096
Net Issued (Redeemed) Class B 135bp........... 560 --
Net Issued (Redeemed) Class B 135bp........... 1,448 --
ALLIANCE SMALL CAP GROWTH FUND (a)
--------------------------------------
Net Issued (Redeemed) Class A 115bp........... 106 208
Net Issued (Redeemed) Class B 115bp........... 1,222 1,084
Net Issued (Redeemed) Class B 135bp........... 775 --
MFS EMERGING GROWTH COMPANIES FUND (a)
-------------------------------------
Net Issued (Redeemed) Class B 115bp........... 1,637 982
Net Issued (Redeemed) Class B 135bp........... 1,942 --
BT SMALL COMPANY INDEX FUND (b)
------------------------------------
Net Issued (Redeemed) Class B 115bp........... 243 --
Net Issued (Redeemed) Class B 135bp........... 284 --
ALLIANCE CONSERVATIVE INVESTORS FUND
--------------------------------------
Net Issued (Redeemed) Class A 115bp........... 52 356
Net Issued (Redeemed) Class B 115bp........... 565 295
Net Issued (Redeemed) Class B 135bp........... 659 --
EQ/PUTNAM BALANCED FUND (a)
--------------------------------
Net Issued (Redeemed) Class B 115bp........... 1,094 531
Net Issued (Redeemed) Class B 135bp........... 1,136 --
ALLIANCE GROWTH INVESTORS FUND
---------------------------------
Net Issued (Redeemed) Class A 115bp........... (81) 682
Net Issued (Redeemed) Class B 115bp........... 778 581
Net Issued (Redeemed) Class B 135bp........... 694 --
MERRILL LYNCH WORLD STRATEGY FUND (a)
----------------------------------------
Net Issued (Redeemed) Class B 115bp........... 170 232
Net Issued (Redeemed) Class B 135bp........... 140 --
- ------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1998.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. Amounts retained by Equitable Life in Separate Account No. 45
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset-based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and asset-based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at any
time by Equitable Life to its General Account.
The following table shows the contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
YEARS ENDED DECEMBER 31,
------------------------------
INVESTMENT FUND 1998 1997
--------------- ------------------------------
Alliance Money Market Fund ..................... $ (908,916) $(240,000)
Alliance Intermediate Government Securities Fund (293,270) (60,000)
Alliance High Yield Fund(1) .................... (593,703) 10,000
T. Rowe Price Equity Income Fund(1) ............ (397,541) --
EQ/Putnam Growth & Income Value Fund(1) ........ (300,588) --
Alliance Growth & Income Fund .................. (1,926,708) (250,000)
BT Equity 500 Index Fund(3) .................... (161,967) --
Alliance Equity Index Fund ..................... (2,128) 5,000
Merrill Lynch Basic Value Equity Fund(1) ....... (268,189) --
Alliance Common Stock Fund ..................... (6,883,461) (840,000)
MFS Research Fund(1) ........................... (329,924) --
Alliance Global Fund ........................... (708,300) (185,000)
Alliance International Fund .................... (298,470) (120,000)
BT International Equity Index Fund(3) .......... (17,272) --
T. Rowe Price International Stock Fund(1) ...... (223,491) --
Morgan Stanley Emerging Markets Equity Fund(2) . (17,574) --
Alliance Aggressive Stock Fund ................. (1,947,808) (435,000)
Warburg Pincus Small Company Value Fund(1) ..... (365,698) --
Alliance Small Cap Growth Fund(1) .............. (232,599) 10,000
BT Small Company Index Fund(3) ................. (15,197) --
MFS Emerging Growth Companies Fund(1) .......... (389,504) --
Alliance Conservative Investors Fund ........... (415,465) (87,000)
EQ/Putnam Balanced Fund(1) ..................... (196,023) --
Alliance Growth Investors Fund ................. (1,444,473) (185,000)
Merrill Lynch World Strategy Fund(1) ........... (45,763) --
- -------------------
(1) Commenced operations on May 1, 1997.-
(2) Commenced operations on August 20, 1997.
(3) Commenced operations on January 1, 1998.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE MONEY MARKET FUND
- --------------------------
Class A 115bp Unit value, beginning of period.............. $25.85 $24.81 $23.83
Class A 115bp Unit value, end of period.................... $26.92 $25.85 $24.81
Class B 0bp Unit value, beginning of period (a)............ $31.27 $30.25 --
Class B 0bp Unit value, end of period (a) ................. $32.86 $31.27 --
Class B 115bp Unit value, beginning of period (b).......... $25.85 $25.17 --
Class B 115bp Unit value, end of period (b)................ $26.85 $25.85 --
Class B 135bp Unit value, beginning of period (c).......... $25.31 -- --
Class B 135bp Unit value, end of period (c)................ $25.92 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 839 928 1,302
Class B 0bp............................................. 2,031 1,178 --
Class B 115bp........................................... 1,193 794 --
Class B 135bp........................................... 1,566 -- --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A 115bp Unit value, beginning of period.............. $14.60 $13.77 $13.42
Class A 115bp Unit value, end of period.................... $15.55 $14.60 $13.77
Class B 115bp Unit value, beginning of period (b).......... $14.58 $13.88 --
Class B 115bp Unit value, end of period (b)................ $15.49 $14.58 --
Class B 135bp Unit value, beginning of period (c).......... $14.59 -- --
Class B 135bp Unit value, end of period (c)................ $15.25 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 524 413 252
Class B 115bp........................................... 1,079 345 --
Class B 135bp........................................... 929 -- --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A 115bp Unit value, beginning of period (a).......... $30.73 $26.95 --
Class A 115bp Unit value, end of period (a)................ $28.81 $30.73 --
Class B 115bp Unit value, beginning of period (a).......... $30.63 $26.91 --
Class B 115bp Unit value, end of period (a)................ $28.65 $30.63 --
Class B 135bp Unit value, beginning of period (c).......... $31.54 -- --
Class B 135bp Unit value, end of period (c)................ $27.96 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 173 98 --
Class B 115bp........................................... 1,451 505 --
Class B 135bp........................................... 801 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> C>
T. ROWE PRICE EQUITY INCOME FUND (a)
- ------------------------------------
Class B 115bp Unit value, beginning of period.............. $12.12 $10.00 --
Class B 115bp Unit value, end of period.................... $13.07 $12.12 --
Class B 135bp Unit value, beginning of period (c).......... $13.19 -- --
Class B 135bp Unit value, end of period (c)................ $13.02 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 3,102 1,565 --
Class B 135bp........................................... 1,059 -- --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (a)
- ----------------------------------------
Class B 115bp Unit value, beginning of period.............. $11.53 $10.00 --
Class B 115bp Unit value, end of period.................... $12.86 $11.53 --
Class B 135bp Unit value, beginning of period (c) ......... $12.86 -- --
Class B 135bp Unit value, end of period (c) ............... $12.82 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,347 1,230 --
Class B 135bp........................................... 867 -- --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A 115bp Unit value, beginning of period.............. $17.83 $14.23 $11.99
Class A 115bp Unit value, end of period.................... $21.30 $17.83 $14.23
Class B 115bp Unit value, beginning of period (b).......... $17.80 $14.67 --
Class B 115bp Unit value, end of period (b)................ $21.22 $17.80 --
Class B 135bp Unit value, beginning of period (c).......... $19.99 -- --
Class B 135bp Unit value, end of period (c)................ $20.99 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 3,481 3,433 1,056
Class B 115bp........................................... 3,845 1,829 --
Class B 135bp........................................... 1,853 -- --
BT EQUITY 500 INDEX FUND (c)
- ----------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $12.37 -- --
Class B 135bp Unit value, beginning of period (c).......... $11.28 -- --
Class B 135bp Unit value, end of period (c)................ $12.34 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,189 -- --
Class B 135bp........................................... 2,426 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE EQUITY INDEX FUND (a)
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $21.41 $17.62 --
Class A 115bp Unit value, end of period.................... $27.11 $21.41 --
Class B 115bp Unit value, beginning of period.............. $21.38 $17.62 --
Class B 115bp Unit value, end of period.................... $26.99 $21.38 --
Class B 135bp Unit value, beginning of period (d).......... $24.44 -- --
Class B 135bp Unit value, end of period (d)................ $26.73 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... -- -- --
Class B 115bp........................................... 14 5 --
Class B 135bp........................................... 2 -- --
MERRILL LYNCH BASIC VALUE EQUITY FUND (a)
- -----------------------------------------
Class B 115bp Unit value, beginning of period (b).......... $11.61 $10.00 --
Class B 115bp Unit value, end of period (b)................ $12.81 $11.61 --
Class B 135bp Unit value, beginning of period (d).......... $13.70 -- --
Class B 135bp Unit value, end of period (d)................ $12.76 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,127 849 --
Class B 135bp........................................... 1,009 -- --
ALLIANCE COMMON STOCK FUND
- --------------------------
Class A 115bp Unit value, beginning of period.............. $195.37 $152.96 $124.52
Class A 115bp Unit value, end of period.................... $249.88 $195.37 $152.96
Class B 115bp Unit value, beginning of period (b).......... $194.74 $153.35 --
Class B 115bp Unit value, end of period (b)................ $248.45 $194.74 --
Class B 135bp Unit value, beginning of period (d).......... $211.50 -- --
Class B 135bp Unit value, end of period (d)................ $237.18 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,079 1,114 494
Class B 115bp........................................... 1,101 519 --
Class B 135bp........................................... 550 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Commenced operations on January 1, 1998.
(d) Units were made available for sale on May 1, 1998.
FS-23
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
MFS RESEARCH FUND (a)
- ---------------------
Class B 115bp Unit value, beginning of period.............. $11.52 $10.00 --
Class B 115bp Unit value, end of period.................... $14.13 $11.52 --
Class B 135bp Unit value, beginning of period (d).......... $13.53 -- --
Class B 135bp Unit value, end of period (d)................ $14.08 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,283 1,039 --
Class B 135bp........................................... 1,479 -- --
ALLIANCE GLOBAL FUND
- --------------------
Class A 115bp Unit value, beginning of period.............. $27.85 $25.25 $22.29
Class A 115bp Unit value, end of period.................... $33.53 $27.85 $25.25
Class B 115bp Unit value, beginning of period (c).......... $27.76 $24.87 --
Class B 115bp Unit value, end of period (c)................ $33.34 $27.76 --
Class B 135bp Unit value, beginning of period (d).......... $31.57 -- --
Class B 135bp Unit value, end of period (d)................ $32.58 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 971 1,074 609
Class B 115bp........................................... 668 308 --
Class B 135bp........................................... 354 -- --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A 115bp Unit value, beginning of period.............. $11.48 $11.98 $11.03
Class A 115bp Unit value, end of period.................... $12.54 $11.48 $11.98
Class B 115bp Unit value, beginning of period (c).......... $11.46 $11.86 --
Class B 115bp Unit value, end of period (c)................ $12.49 $11.46 --
Class B 135bp Unit value, beginning of period (d).......... $13.41 -- --
Class B 135bp Unit value, end of period (d)................ $12.40 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,001 1,151 717
Class B 115bp........................................... 438 285 --
Class B 135bp........................................... 166 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1997.
(d) Units were made available for sale on May 1, 1998.
FS-24
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
BT INTERNATIONAL EQUITY INDEX FUND (c)
- --------------------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $11.87 -- --
Class B 135bp Unit value, beginning of period (e).......... $11.50 -- --
Class B 135bp Unit value, end of period (e)................ $11.85 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 209 -- --
Class B 135bp........................................... 242 -- --
T. ROWE PRICE INTERNATIONAL STOCK FUND (a)
- ------------------------------------------
Class B 115bp Unit value, beginning of period.............. $9.77 $10.00 --
Class B 115bp Unit value, end of period.................... $10.98 $9.77 --
Class B 135bp Unit value, beginning of period (e).......... $11.13 -- --
Class B 135bp Unit value, end of period (e)................ $10.95 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 1,995 1,291 --
Class B 135bp........................................... 705 -- --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (b)
- -----------------------------------------------
Class B 115bp Unit value, beginning of period.............. $7.95 $10.00 --
Class B 115bp Unit value, end of period.................... $5.73 $7.95 --
Class B 135bp Unit value, beginning of period(e)........... $8.23 -- --
Class B 135bp Unit value, end of period (e)................ $5.72 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 567 282 --
Class B 135bp........................................... 177 -- --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $72.23 $65.94 $54.59
Class A 115bp Unit value, end of period.................... $71.60 $72.23 $65.94
Class B 115bp Unit value, beginning of period (d).......... $72.00 $62.84 --
Class B 115bp Unit value, end of period (d)................ $71.21 $72.00 --
Class B 135bp Unit value, beginning of period (e).......... $79.87 -- --
Class B 135bp Unit value, end of period (e)................ $69.37 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,101 1,261 620
Class B 115bp........................................... 680 369 --
Class B 135bp........................................... 293 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
(d) Units were made available for sale May 1, 1997.
(e) Units were made available for sale on May 1, 1998.
FS-25
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
WARBURG PINCUS SMALL COMPANY VALUE FUND (a)
- -------------------------------------------
Class B 115bp Unit value, beginning of period.............. $11.82 $10.00 --
Class B 115bp Unit value, end of period.................... $10.52 $11.82 --
Class B 135bp Unit value, beginning of period (c).......... $12.72 -- --
Class B 135bp Unit value, end of period (c)................ $10.48 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,984 2,096 --
Class B 135bp........................................... 560 -- --
ALLIANCE SMALL CAP GROWTH FUND (a)
- ----------------------------------
Class A 115bp Unit value, beginning of period.............. $12.57 $10.00 --
Class A 115bp Unit value, end of period.................... $11.90 $12.57 --
Class B 115bp Unit value, beginning of period.............. $12.55 $10.00 --
Class B 115bp Unit value, end of period.................... $11.86 $12.55 --
Class B 135bp Unit value, beginning of period (c).......... $14.29 -- --
Class B 135bp Unit value, end of period (c)................ $11.82 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 314 208 --
Class B 115bp........................................... 2,306 1,084 --
Class B 135bp........................................... 775 -- --
BT SMALL COMPANY INDEX FUND (b)
- -------------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $9.66 -- --
Class B 135bp Unit value, beginning of period (c).......... $10.97 -- --
Class B 135bp Unit value, end of period (c)................ $9.64 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 244 -- --
Class B 135bp........................................... 284 -- --
MFS EMERGING GROWTH FUND (a)
- ----------------------------
Class B 115bp Unit value, beginning of period.............. $12.15 $10.00 --
Class B 115bp Unit value, end of period.................... $16.16 $12.15 --
Class B 135bp Unit value, beginning of period (c).......... $14.42 -- --
Class B 135bp Unit value, end of period (c)................ $16.10 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,619 982 --
Class B 135bp........................................... 1,942 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1998.
FS-26
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A 115bp Unit value, beginning of period.............. $19.26 $17.21 $16.55
Class A 115bp Unit value, end of period.................... $21.68 $19.26 $17.21
Class B 115bp Unit value, beginning of period (b).......... $19.23 $17.33 --
Class B 115bp Unit value, end of period (b)................ $21.60 $19.23 --
Class B 135bp Unit value, beginning of period (c).......... $20.06 -- --
Class B 135bp Unit value, end of period (c)................ $21.20 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 865 813 457
Class B 115bp........................................... 860 295 --
Class B 135bp........................................... 659 -- --
EQ/PUTNAM BALANCED FUND (a)
- ---------------------------
Class B 115bp Unit value, beginning of period.............. $11.36 $10.00 --
Class B 115bp Unit value, end of period.................... $12.56 $11.36 --
Class B 135bp Unit value, beginning of period (c).......... $12.29 -- --
Class B 135bp Unit value, end of period (c)................ $12.51 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 1,625 531 --
Class B 135bp........................................... 1,136 -- --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $30.31 $26.26 $23.59
Class A 115bp Unit value, end of period.................... $35.70 $30.31 $26.26
Class B 115bp Unit value, beginning of period (b).......... $30.22 $26.23 --
Class B 115bp Unit value, end of period (b)................ $35.50 $30.22 --
Class B 135bp Unit value, beginning of period (c).......... $32.93 -- --
Class B 135bp Unit value, end of period (c)................ $34.84 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,515 1,596 914
Class B 115bp........................................... 1,359 581 --
Class B 135bp........................................... 694 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-27
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Concluded)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
MERRILL LYNCH WORLD STRATEGY FUND (a)
- -------------------------------------
Class B 115bp Unit value, beginning of period.............. $10.39 $10.00 --
Class B 115bp Unit value, end of period.................... $10.97 $10.39 --
Class B 135bp Unit value, beginning of period (b).......... $11.31 -- --
Class B 135bp Unit value, end of period (b)................ $10.94 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 402 232 --
Class B 135bp........................................... 140 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1998.
FS-28
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of The Equitable Life Assurance Society of the United States and its
subsidiaries ("Equitable Life") at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Equitable
Life's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its method of accounting for long-lived assets in 1996.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,993.7 $ 19,630.9
Held to maturity, at amortized cost..................................... 125.0 -
Mortgage loans on real estate............................................. 2,809.9 2,611.4
Equity real estate........................................................ 1,676.9 2,495.1
Policy loans.............................................................. 2,086.7 2,422.9
Other equity investments.................................................. 713.3 951.5
Investment in and loans to affiliates..................................... 928.5 731.1
Other invested assets..................................................... 808.2 612.2
----------------- -----------------
Total investments..................................................... 28,142.2 29,455.1
Cash and cash equivalents................................................... 1,245.5 300.5
Deferred policy acquisition costs........................................... 3,563.8 3,236.6
Amounts due from discontinued operations.................................... 2.7 572.8
Other assets................................................................ 3,051.9 2,687.4
Closed Block assets......................................................... 8,632.4 8,566.6
Separate Accounts assets.................................................... 43,302.3 36,538.7
----------------- -----------------
Total Assets................................................................ $ 87,940.8 $ 81,357.7
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,889.7 $ 21,579.5
Future policy benefits and other policyholders' liabilities................. 4,694.2 4,553.8
Short-term and long-term debt............................................... 1,181.7 1,716.7
Other liabilities........................................................... 3,474.3 3,267.2
Closed Block liabilities.................................................... 9,077.0 9,073.7
Separate Accounts liabilities............................................... 43,211.3 36,306.3
----------------- -----------------
Total liabilities..................................................... 82,528.2 76,497.2
----------------- -----------------
Commitments and contingencies (Notes 11, 13, 14, 15 and 16)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued
and outstanding........................................................... 2.5 2.5
Capital in excess of par value.............................................. 3,110.2 3,105.8
Retained earnings........................................................... 1,944.1 1,235.9
Accumulated other comprehensive income...................................... 355.8 516.3
----------------- -----------------
Total shareholder's equity............................................ 5,412.6 4,860.5
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 87,940.8 $ 81,357.7
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,056.2 $ 950.6 $ 874.0
Premiums...................................................... 588.1 601.5 597.6
Net investment income......................................... 2,228.1 2,282.8 2,203.6
Investment gains (losses), net................................ 100.2 (45.2) (9.8)
Commissions, fees and other income............................ 1,503.0 1,227.2 1,081.8
Contribution from the Closed Block............................ 87.1 102.5 125.0
----------------- ----------------- -----------------
Total revenues.......................................... 5,562.7 5,119.4 4,872.2
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,153.0 1,266.2 1,270.2
Policyholders' benefits....................................... 1,024.7 978.6 1,317.7
Other operating costs and expenses............................ 2,201.2 2,203.9 2,075.7
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,378.9 4,448.7 4,663.6
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 1,183.8 670.7 208.6
Federal income taxes.......................................... 353.1 91.5 9.7
Minority interest in net income of consolidated subsidiaries.. 125.2 54.8 81.7
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 705.5 524.4 117.2
Discontinued operations, net of Federal income taxes.......... 2.7 (87.2) (83.8)
Cumulative effect of accounting change, net of Federal
income taxes................................................ - - (23.1)
----------------- ----------------- -----------------
Net Earnings.................................................. $ 708.2 $ 437.2 $ 10.3
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............. 3,105.8 3,105.8 3,105.8
Additional capital in excess of par value..................... 4.4 - -
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,110.2 3,105.8 3,105.8
Retained earnings, beginning of year.......................... 1,235.9 798.7 788.4
Net earnings.................................................. 708.2 437.2 10.3
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,944.1 1,235.9 798.7
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year........................................... 516.3 177.0 361.4
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year........... 355.8 516.3 177.0
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 5,412.6 $ 4,860.5 $ 4,084.0
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment.................................................. (149.5) 343.7 (206.6)
Minimum pension liability adjustment.......................... (11.0) (4.4) 22.2
----------------- ----------------- -----------------
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Comprehensive Income.......................................... $ 547.7 $ 776.5 $ (174.1)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,153.0 1,266.2 1,270.2
Universal life and investment-type product
policy fee income......................................... (1,056.2) (950.6) (874.0)
Investment (gains) losses................................... (100.2) 45.2 9.8
Change in Federal income tax payable........................ 123.1 (74.4) (197.1)
Other, net.................................................. (324.9) 169.4 330.2
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 503.0 893.0 549.4
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,289.0 2,702.9 2,275.1
Sales....................................................... 16,972.1 10,385.9 8,964.3
Purchases................................................... (18,578.5) (13,205.4) (12,559.6)
Decrease (increase) in short-term investments............... 102.4 (555.0) 450.3
Decrease in loans to discontinued operations................ 660.0 420.1 1,017.0
Sale of subsidiaries........................................ - 261.0 -
Other, net.................................................. (341.8) (612.6) (281.0)
----------------- ----------------- -----------------
Net cash provided (used) by investing activities.............. 1,103.2 (603.1) (133.9)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,508.1 1,281.7 1,925.4
Withdrawals............................................... (1,724.6) (1,886.8) (2,385.2)
Net (decrease) increase in short-term financings............ (243.5) 419.9 (.3)
Repayments of long-term debt................................ (24.5) (196.4) (124.8)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (87.2) (83.9) -
Other, net.................................................. (89.5) (62.7) (66.5)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (661.2) (528.2) (651.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 945.0 (238.3) (235.9)
Cash and cash equivalents, beginning of year.................. 300.5 538.8 774.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,245.5 $ 300.5 $ 538.8
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 130.7 $ 217.1 $ 109.9
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 254.3 $ 170.0 $ (10.0)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly owned
life insurance subsidiaries, Equitable of Colorado ("EOC"), and, prior
to December 31, 1996, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which continues to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), in which Equitable Life has a
57.7% ownership interest, and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate in which
Equitable Life has a 32.5% ownership interest. AXA ("AXA"), a French
holding company for an international group of insurance and related
financial services companies, is the Holding Company's largest
shareholder, owning approximately 58.5% at December 31, 1998 (53.4% if
all securities convertible into, and options on, common stock were to be
converted or exercised).
The Insurance segment offers a variety of traditional, variable and
interest-sensitive life insurance products, disability income, annuity
products, mutual fund and other investment products to individuals and
small groups. It also administers traditional participating group
annuity contracts with conversion features, generally for corporate
qualified pension plans, and association plans which provide full
service retirement programs for individuals affiliated with professional
and trade associations. This segment includes Separate Accounts for
individual insurance and annuity products.
The Investment Services segment includes Alliance, the results of DLJ
which are accounted for on an equity basis, and, through June 10, 1997,
Equitable Real Estate Investment Management, Inc. ("EREIM"), a real
estate investment management subsidiary which was sold. Alliance
provides diversified investment fund management services to a variety of
institutional clients, including pension funds, endowments, and foreign
financial institutions, as well as to individual investors, principally
through a broad line of mutual funds. This segment includes
institutional Separate Accounts which provide various investment options
for large group pension clients, primarily deferred benefit contribution
plans, through pooled or single group accounts. DLJ's businesses include
securities underwriting, sales and trading, merchant banking, financial
advisory services, investment research, venture capital, correspondent
brokerage services, online interactive brokerage services and asset
management. DLJ serves institutional, corporate, governmental and
individual clients both domestically and internationally. EREIM provided
real estate investment management services, property management
services, mortgage servicing and loan asset management, and agricultural
investment management.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance and EREIM (see Note 5); and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
F-6
<PAGE>
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets,
liabilities and results of operations are presented in the consolidated
financial statements as single line items (see Note 7). Unless
specifically stated, all other footnote disclosures contained herein
exclude the Closed Block related amounts.
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been
eliminated in consolidation. The years "1998," "1997" and "1996" refer
to the years ended December 31, 1998, 1997 and 1996, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1998 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force
on that date. The assets allocated to the Closed Block, together with
anticipated revenues from policies included in the Closed Block, were
reasonably expected to be sufficient to support such business, including
provision for payment of claims, certain expenses and taxes, and for
continuation of dividend scales payable in 1991, assuming the experience
underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or any
affiliate of Equitable Life without the approval of the New York
Superintendent of Insurance (the "Superintendent"). Closed Block assets
and liabilities are carried on the same basis as similar assets and
liabilities held in the General Account. The excess of Closed Block
liabilities over Closed Block assets represents the expected future
post-tax contribution from the Closed Block which would be recognized in
income over the period the policies and contracts in the Closed Block
remain in force.
Discontinued Operations
Discontinued operations include the Group Non-Participating Wind-Up
Annuities ("Wind-Up Annuities") and the Guaranteed Interest Contract
("GIC") lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and believes the allowance for future losses at
December 31, 1998 is adequate to provide for all future losses; however,
the quarterly allowance review continues to involve numerous estimates
and subjective judgments regarding the expected performance of
Discontinued Operations Investment Assets. There can be no assurance the
losses provided for will not differ from the losses ultimately realized.
To the extent actual results or future projections of the discontinued
operations differ from management's current best estimates and
assumptions underlying the allowance for future losses, the difference
would be reflected in the consolidated statements of earnings in
discontinued operations. In particular, to the extent income, sales
proceeds and holding periods for equity real estate differ from
management's previous assumptions, periodic adjustments to the allowance
are likely to result (see Note 8).
Accounting Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for public companies to report
information about operating segments in annual and interim financial
statements issued to shareholders. It also specifies related disclosure
requirements for products and services, geographic areas and major
customers. Generally, financial information must be reported using the
basis management uses to make operating decisions and to evaluate
business performance. The Company implemented SFAS No. 131 effective
December 31, 1998 and continues to identify two operating segments to
reflect its major businesses: Insurance and Investment Services. While
the segment descriptions are the same as those previously reported,
certain amounts have been reattributed between the two reportable
segments. Prior period comparative segment information has been
restated.
F-7
<PAGE>
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of external and certain internal costs
incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP
98-1 prospectively effective January 1, 1998. The adoption of SOP 98-1
did not have a material impact on the Company's consolidated financial
statements. Capitalized internal-use software is amortized on a
straight-line basis over the estimated useful life of the software.
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of
January 1, 1996. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held for production of income. Real estate
which management intends to sell or abandon is classified as real estate
held for sale. Valuation allowances on real estate held for sale
continue to be computed using the lower of depreciated cost or estimated
fair value, net of disposition costs. Initial adoption of the impairment
requirements of SFAS No. 121 to other assets to be disposed of resulted
in a charge for the cumulative effect of an accounting change of $23.1
million, net of a Federal income tax benefit of $12.4 million, due to
the writedown to fair value of building improvements relating to
facilities vacated in 1996.
New Accounting Pronouncements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," which amends
existing accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. This statement is effective for the first
fiscal quarter beginning after December 15, 1998. This statement is not
expected to have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and for hedging activities. It
requires all derivatives to be recognized on the balance sheet at fair
value. The accounting for changes in the fair value of a derivative
depends on its intended use. Derivatives not used in hedging activities
must be adjusted to fair value through earnings. Changes in the fair
value of derivatives used in hedging activities will, depending on the
nature of the hedge, either be offset in earnings against the change in
fair value of the hedged item attributable to the risk being hedged or
recognized in other comprehensive income until the hedged item affects
earnings. For all hedging activities, the ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings.
SFAS No. 133 requires adoption in fiscal years beginning after June 15,
1999 and permits early adoption as of the beginning of any fiscal
quarter following issuance of the statement. Retroactive application to
financial statements of prior periods is prohibited. The Company expects
to adopt SFAS No. 133 effective January 1, 2000. Adjustments resulting
from initial adoption of the new requirements will be reported in a
manner similar to the cumulative effect of a change in accounting
principle and will be reflected in net income or accumulated other
comprehensive income based upon existing hedging relationships, if any.
Management currently is assessing the impact of adoption. However,
Alliance's adoption is not expected to have a significant impact on the
Company's consolidated balance sheet or statement of earnings. Also,
since most of DLJ's derivatives are carried at fair values, the
Company's consolidated earnings and financial position are not expected
to be significantly affected by DLJ's adoption of the new requirements.
F-8
<PAGE>
In late 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts that Do Not Transfer Insurance
Risk". This SOP, effective for fiscal years beginning after June 15,
1999, provides guidance to both the insured and insurer on how to apply
the deposit method of accounting when it is required for insurance and
reinsurance contracts that do not transfer insurance risk. The SOP does
not address or change the requirements as to when deposit accounting
should be applied. SOP 98-7 applies to all entities and all insurance
and reinsurance contracts that do not transfer insurance risk except for
long-duration life and health insurance contracts. This SOP is not
expected to have a material impact on the Company's consolidated
financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments". SOP 97-3
provides guidance for assessments related to insurance activities and
requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which the Company has both the
ability and the intent to hold to maturity, are stated principally at
amortized cost. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
F-9
<PAGE>
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains (losses).
Unrealized investment gains and losses on equity securities and fixed
maturities available for sale held by the Company are accounted for as a
separate component of accumulated comprehensive income, net of related
deferred Federal income taxes, amounts attributable to discontinued
operations, participating group annuity contracts and deferred policy
acquisition costs ("DAC") related to universal life and investment-type
products and participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 25 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to accumulated other comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
F-10
<PAGE>
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1998, the expected investment yield, excluding
policy loans, generally ranged from 7.29% grading to 6.5% over a 20 year
period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated comprehensive income in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
includes a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996 a loss recognition study of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
F-11
<PAGE>
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its Pension Par
and DI reserves have been calculated on a reasonable basis and are
adequate, there can be no assurance reserves will be sufficient to
provide for future liabilities.
Claim reserves and associated liabilities for individual DI and major
medical policies were $938.6 million and $886.7 million at December 31,
1998 and 1997, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 202.1 $ 190.2 $ 189.0
Incurred benefits related to prior years........... 22.2 2.1 69.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 224.3 $ 192.3 $ 258.1
================= ================ =================
Benefits paid related to current year.............. $ 17.0 $ 28.8 $ 32.6
Benefits paid related to prior years............... 155.4 146.2 153.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 172.4 $ 175.0 $ 185.9
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1998, participating policies, including those in the
Closed Block, represent approximately 19.9% ($49.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account; therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1998, 1997 and 1996, investment results of
such Separate Accounts were $4,591.0 million, $3,411.1 million and
$2,970.6 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the Statement, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds
the option price. See Note 22 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------------- ----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C> <C>
December 31, 1998
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,520.8 $ 793.6 $ 379.6 $ 14,934.8
Mortgage-backed.................... 1,807.9 23.3 .9 1,830.3
U.S. Treasury securities and
U.S. government and
agency securities................ 1,464.1 107.6 .7 1,571.0
States and political subdivisions.. 55.0 9.9 - 64.9
Foreign governments................ 363.3 20.9 30.0 354.2
Redeemable preferred stock......... 242.7 7.0 11.2 238.5
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,453.8 $ 962.3 $ 422.4 $ 18,993.7
================= ================= ================ =================
Held to Maturity: Corporate......... $ 125.0 $ - $ - $ 125.0
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 58.3 $ 114.9 $ 22.5 $ 150.7
================= ================= ================ =================
December 31, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,850.5 $ 785.0 $ 74.5 $ 15,561.0
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 52.8 6.8 .1 59.5
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
determines an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1998 and 1997, securities
without a readily ascertainable market value having an amortized cost of
$3,539.9 million and $3,759.2 million, respectively, had estimated fair
values of $3,748.5 million and $3,903.9 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 324.8 $ 323.4
Due in years two through five.......................................... 3,778.2 3,787.9
Due in years six through ten........................................... 6,543.4 6,594.1
Due after ten years.................................................... 5,756.8 6,219.5
Mortgage-backed securities............................................. 1,807.9 1,830.3
---------------- -----------------
Total.................................................................. $ 18,211.1 $ 18,755.2
================ =================
</TABLE>
Corporate bonds held to maturity with an amortized cost and estimated
fair value of $125.0 million are due in one year or less.
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
concentrations in any single issuer or a particular industry group.
Certain of these corporate high yield securities are classified as other
than investment grade by the various rating agencies, i.e., a rating
below Baa or National Association of Insurance Commissioners ("NAIC")
designation of 3 (medium grade), 4 or 5 (below investment grade) or 6
(in or near default). At December 31, 1998, approximately 15.1% of the
$18,336.1 million aggregate amortized cost of bonds held by the Company
was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to
be other than investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 384.5 $ 137.1 $ 325.3
SFAS No. 121 release............................... - - (152.4)
Additions charged to income........................ 86.2 334.6 125.0
Deductions for writedowns and
asset dispositions............................... (240.1) (87.2) (160.8)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 34.3 $ 55.8 $ 50.4
Equity real estate............................... 196.3 328.7 86.7
----------------- ---------------- -----------------
Total.............................................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
</TABLE>
F-15
<PAGE>
At December 31, 1998, the carrying value of fixed maturities which are
non-income producing for the twelve months preceding the consolidated
balance sheet date was $60.8 million.
At December 31, 1998 and 1997, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $7.0 million (0.2% of total
mortgage loans on real estate) and $23.4 million (0.9% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $115.1
million and $183.4 million at December 31, 1998 and 1997, respectively.
Gross interest income on restructured mortgage loans on real estate that
would have been recorded in accordance with the original terms of such
loans amounted to $10.3 million, $17.2 million and $35.5 million in
1998, 1997 and 1996, respectively. Gross interest income on these loans
included in net investment income aggregated $8.3 million, $12.7 million
and $28.2 million in 1998, 1997 and 1996, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 125.4 $ 196.7
Impaired mortgage loans without provision for losses............... 8.6 3.6
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 134.0 200.3
Provision for losses............................................... (29.0) (51.8)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 105.0 $ 148.5
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
During 1998, 1997 and 1996, respectively, the Company's average recorded
investment in impaired mortgage loans was $161.3 million, $246.9 million
and $552.1 million. Interest income recognized on these impaired
mortgage loans totaled $12.3 million, $15.2 million and $38.8 million
($.9 million, $2.3 million and $17.9 million recognized on a cash basis)
for 1998, 1997 and 1996, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1998 and 1997, the carrying value of equity real estate
held for sale amounted to $836.2 million and $1,023.5 million,
respectively. For 1998, 1997 and 1996, respectively, real estate of $7.1
million, $152.0 million and $58.7 million was acquired in satisfaction
of debt. At December 31, 1998 and 1997, the Company owned $552.3 million
and $693.3 million, respectively, of real estate acquired in
satisfaction of debt.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years. Accumulated
depreciation on real estate was $374.8 million and $541.1 million at
December 31, 1998 and 1997, respectively. Depreciation expense on real
estate totaled $30.5 million, $74.9 million and $91.8 million for 1998,
1997 and 1996, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 and 29 individual ventures as of December 31, 1998 and 1997,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater, is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 913.7 $ 1,700.9
Investments in securities, generally at estimated fair value........... 636.9 1,374.8
Cash and cash equivalents.............................................. 85.9 105.4
Other assets........................................................... 279.8 584.9
---------------- -----------------
Total Assets........................................................... $ 1,916.3 $ 3,766.0
================ =================
Borrowed funds - third party........................................... $ 367.1 $ 493.4
Borrowed funds - the Company........................................... 30.1 31.2
Other liabilities...................................................... 197.2 284.0
---------------- -----------------
Total liabilities...................................................... 594.4 808.6
---------------- -----------------
Partners' capital...................................................... 1,321.9 2,957.4
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 1,916.3 $ 3,766.0
================ =================
Equity in partners' capital included above............................. $ 312.9 $ 568.5
Equity in limited partnership interests not included above............. 442.1 331.8
Other.................................................................. .7 4.3
---------------- -----------------
Carrying Value......................................................... $ 755.7 $ 904.6
================ =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 246.1 $ 310.5 $ 348.9
Revenues of other limited partnership interests.... 128.9 506.3 386.1
Interest expense - third party..................... (33.3) (91.8) (111.0)
Interest expense - the Company..................... (2.6) (7.2) (30.0)
Other expenses..................................... (197.0) (263.6) (282.5)
----------------- ---------------- -----------------
Net Earnings....................................... $ 142.1 $ 454.2 $ 311.5
================= ================ =================
Equity in net earnings included above.............. $ 59.6 $ 76.7 $ 73.9
Equity in net earnings of limited partnership
interests not included above..................... 22.7 69.5 35.8
Other.............................................. - (.9) .9
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 82.3 $ 145.3 $ 110.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,489.0 $ 1,459.4 $ 1,307.4
Mortgage loans on real estate...................... 235.4 260.8 303.0
Equity real estate................................. 356.1 390.4 442.4
Other equity investments........................... 83.8 156.9 122.0
Policy loans....................................... 144.9 177.0 160.3
Other investment income............................ 185.7 181.7 217.4
----------------- ---------------- -----------------
Gross investment income.......................... 2,494.9 2,626.2 2,552.5
Investment expenses.............................. (266.8) (343.4) (348.9)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,228.1 $ 2,282.8 $ 2,203.6
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ (24.3) $ 88.1 $ 60.5
Mortgage loans on real estate...................... (10.9) (11.2) (27.3)
Equity real estate................................. 74.5 (391.3) (79.7)
Other equity investments........................... 29.9 14.1 18.9
Sale of subsidiaries............................... (2.6) 252.1 -
Issuance and sales of Alliance Units............... 19.8 - 20.6
Issuance and sale of DLJ common stock.............. 18.2 3.0 -
Other.............................................. (4.4) - (2.8)
----------------- ---------------- -----------------
Investment Gains (Losses), Net..................... $ 100.2 $ (45.2) $ (9.8)
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $101.6 million, $11.7 million
and $29.9 million for 1998, 1997 and 1996, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million for 1997. In the fourth quarter of 1997, the
Company reclassified $1,095.4 million depreciated cost of equity real
estate from real estate held for the production of income to real estate
held for sale. Additions to valuation allowances of $227.6 million were
recorded upon these transfers. Additionally, in fourth quarter 1997,
$132.3 million of writedowns on real estate held for production of
income were recorded.
For 1998, 1997 and 1996, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $15,961.0
million, $9,789.7 million and $8,353.5 million. Gross gains of $149.3
million, $166.0 million and $154.2 million and gross losses of $95.1
million, $108.8 million and $92.7 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 1998,
1997 and 1996 amounted to $(331.7) million, $513.4 million and $(258.0)
million, respectively.
For 1998, 1997 and 1996, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.9 million, $137.5
million and $136.7 million, respectively.
F-18
<PAGE>
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note which was paid in 1998. The Company recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE continues to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and for the year ended December 31, 1996,
respectively, the businesses sold reported combined revenues of $91.6
million and $226.1 million and combined net earnings of $10.7 million
and $30.7 million.
In 1996, Alliance acquired the business of Cursitor Holdings L.P. and
Cursitor Holdings Limited (collectively, "Cursitor") for approximately
$159.0 million. The purchase price consisted of $94.3 million in cash,
1.8 million of Alliance's publicly traded units ("Alliance Units"), 6%
notes aggregating $21.5 million payable ratably over four years, and
additional consideration to be determined at a later date but currently
estimated to not exceed $10.0 million. The excess of the purchase price,
including acquisition costs and minority interest, over the fair value
of Cursitor's net assets acquired resulted in the recognition of
intangible assets consisting of costs assigned to contracts acquired and
goodwill of approximately $122.8 million and $38.3 million,
respectively. The Company recognized an investment gain of $20.6 million
as a result of the issuance of Alliance Units in this transaction. On
June 30, 1997, Alliance reduced the recorded value of goodwill and
contracts associated with Alliance's acquisition of Cursitor by $120.9
million. This charge reflected Alliance's view that Cursitor's
continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1998, the Company's ownership of Alliance Units was approximately 56.7%.
F-19
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and
the changes for the corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 533.6 $ 189.9 $ 396.5
Changes in unrealized investment gains (losses).... (242.4) 543.3 (297.6)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... (5.7) 53.2 -
DAC............................................ 13.2 (89.0) 42.3
Deferred Federal income taxes.................. 85.4 (163.8) 48.7
----------------- ---------------- -----------------
Balance, End of Year............................... $ 384.1 $ 533.6 $ 189.9
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 539.9 $ 871.2 $ 357.8
Other equity investments....................... 92.4 33.7 31.6
Other, principally Closed Block................ 111.1 80.9 53.1
----------------- ---------------- -----------------
Total........................................ 743.4 985.8 442.5
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (24.7) (19.0) (72.2)
DAC.......................................... (127.8) (141.0) (52.0)
Deferred Federal income taxes................ (206.8) (292.2) (128.4)
----------------- ---------------- -----------------
Total.............................................. $ 384.1 $ 533.6 $ 189.9
================= ================ =================
</TABLE>
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents cumulative gains and
losses on items that are not reflected in earnings. The balances for the
years 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Unrealized gains on investments.................... $ 384.1 $ 533.6 $ 189.9
Minimum pension liability.......................... (28.3) (17.3) (12.9)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive Income............................. $ 355.8 $ 516.3 $ 177.0
================= ================ =================
</TABLE>
F-20
<PAGE>
The components of other comprehensive income for the years 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment
securities:
Net unrealized gains (losses) arising during
the period..................................... $ (186.1) $ 564.0 $ (249.8)
Reclassification adjustment for (gains) losses
included in net earnings....................... (56.3) (20.7) (47.8)
----------------- ---------------- -----------------
Net unrealized gains (losses) on investment
securities....................................... (242.4) 543.3 (297.6)
Adjustments for policyholder liabilities,
DAC and deferred
Federal income taxes............................. 92.9 (199.6) 91.0
----------------- ---------------- -----------------
Change in unrealized gains (losses), net of
reclassification and adjustments................. (149.5) 343.7 (206.6)
Change in minimum pension liability................ (11.0) (4.4) 22.2
----------------- ---------------- -----------------
Total Other Comprehensive Income................... $ (160.5) $ 339.3 $ (184.4)
================= ================ =================
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,149.0 and $4,059.4)........................................... $ 4,373.2 $ 4,231.0
Mortgage loans on real estate........................................ 1,633.4 1,341.6
Policy loans......................................................... 1,641.2 1,700.2
Cash and other invested assets....................................... 86.5 282.0
DAC.................................................................. 676.5 775.2
Other assets......................................................... 221.6 236.6
----------------- -----------------
Total Assets......................................................... $ 8,632.4 $ 8,566.6
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,013.1 $ 8,993.2
Other liabilities.................................................... 63.9 80.5
----------------- -----------------
Total Liabilities.................................................... $ 9,077.0 $ 9,073.7
================= =================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 661.7 $ 687.1 $ 724.8
Investment income (net of investment
expenses of $15.5, $27.0 and $27.3).............. 569.7 574.9 546.6
Investment losses, net............................. .5 (42.4) (5.5)
----------------- ---------------- -----------------
Total revenues............................... 1,231.9 1,219.6 1,265.9
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,082.0 1,066.7 1,106.3
Other operating costs and expenses................. 62.8 50.4 34.6
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,144.8 1,117.1 1,140.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 87.1 $ 102.5 $ 125.0
================= ================ =================
</TABLE>
At December 31, 1998 and 1997, problem mortgage loans on real estate had
an amortized cost of $5.1 million and $8.1 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $26.0 million and $70.5 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 55.5 $ 109.1
Impaired mortgage loans without provision for losses................... 7.6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 63.1 109.7
Provision for losses................................................... (10.1) (17.4)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 53.0 $ 92.3
================ =================
</TABLE>
During 1998, 1997 and 1996, the Closed Block's average recorded
investment in impaired mortgage loans was $85.5 million, $110.2 million
and $153.8 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $4.7 million, $9.4 million and $10.9
million ($1.5 million, $4.1 million and $4.7 million recognized on a
cash basis) for 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $11.1 million and $18.5 million on
mortgage loans on real estate and $15.4 million and $16.8 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million and $12.8 million for 1997 and 1996, respectively. Writedowns of
equity real estate subsequent to the adoption of SFAS No. 121 amounted
to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in fourth
quarter 1997, $28.8 million of writedowns on real estate held for
production of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 553.9 $ 635.2
Equity real estate................................................... 611.0 874.5
Other equity investments............................................. 115.1 209.3
Other invested assets................................................ 24.9 152.4
----------------- -----------------
Total investments.................................................. 1,304.9 1,871.4
Cash and cash equivalents............................................ 34.7 106.8
Other assets......................................................... 219.0 243.8
----------------- -----------------
Total Assets......................................................... $ 1,558.6 $ 2,222.0
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,021.7 $ 1,048.3
Allowance for future losses.......................................... 305.1 259.2
Amounts due to continuing operations................................. 2.7 572.8
Other liabilities.................................................... 229.1 341.7
----------------- -----------------
Total Liabilities.................................................... $ 1,558.6 $ 2,222.0
================= =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $63.3, $97.3 and $127.5)............. $ 160.4 $ 188.6 $ 245.4
Investment gains (losses), net..................... 35.7 (173.7) (18.9)
Policy fees, premiums and other income............. (4.3) .2 .2
----------------- ---------------- -----------------
Total revenues..................................... 191.8 15.1 226.7
Benefits and other deductions...................... 141.5 169.5 250.4
Earnings added (losses charged) to allowance
for future losses................................ 50.3 (154.4) (23.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing (loss from
strengthening) of the allowance for future
losses........................................... 4.2 (134.1) (129.0)
Federal income tax (expense) benefit............... (1.5) 46.9 45.2
----------------- ---------------- -----------------
Earnings (Loss) from Discontinued Operations....... $ 2.7 $ (87.2) $ (83.8)
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in a release of allowance in
1998 and strengthening of allowance in 1997 and 1996.
F-23
<PAGE>
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in fourth quarter 1997, $92.5 million of writedowns on
real estate held for production of income were recognized.
Benefits and other deductions includes $26.6 million, $53.3 million and
$114.3 million of interest expense related to amounts borrowed from
continuing operations in 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $3.0 million and $28.4 million on
mortgage loans on real estate and $34.8 million and $88.4 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1998 and 1997, problem mortgage loans on real estate had
amortized costs of $1.1 million and $11.0 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $3.5 million and $109.4 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 6.7 $ 101.8
Impaired mortgage loans without provision for losses................... 8.5 .2
---------------- -----------------
Recorded investment in impaired mortgages.............................. 15.2 102.0
Provision for losses................................................... (2.1) (27.3)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 13.1 $ 74.7
================ =================
</TABLE>
During 1998, 1997 and 1996, the discontinued operations' average
recorded investment in impaired mortgage loans was $73.3 million, $89.2
million and $134.8 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.7 million, $6.6 million and
$10.1 million ($3.4 million, $5.3 million and $7.5 million recognized on
a cash basis) for 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, discontinued operations had carrying
values of $50.0 million and $156.2 million, respectively, of real estate
acquired in satisfaction of debt.
F-24
<PAGE>
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 179.3 $ 422.2
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.7
Other.............................................................. .3 .3
----------------- -----------------
Total Equitable Life........................................... 599.4 599.4
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.91% - 12.00%, due through 2017................... 392.2 676.6
----------------- -----------------
Alliance:
Other.............................................................. 10.8 18.5
----------------- -----------------
Total long-term debt................................................. 1,002.4 1,294.5
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,181.7 $ 1,716.7
================= =================
</TABLE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in September
2000. The interest rates are based on external indices dependent on the
type of borrowing and at December 31, 1998 range from 5.23% to 7.75%.
There were no borrowings outstanding under this bank credit facility at
December 31, 1998.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1998, there were no borrowings outstanding under this
program.
During July 1998, Alliance entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which
replaced a $250.0 million revolving credit facility. Under the facility,
the interest rate, at the option of Alliance, is a floating rate
generally based upon a defined prime rate, a rate related to the London
Interbank Offered Rate ("LIBOR") or the Federal Funds Rate. A facility
fee is payable on the total facility. During September 1998, Alliance
increased the size of its commercial paper program from $250.0 million
to $425.0 million. Borrowings from these two sources may not exceed
$425.0 million in the aggregate. The revolving credit facility provides
backup liquidity for commercial paper issued under Alliance's commercial
paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants which require Alliance to,
among other things, meet certain financial ratios. As of December 31,
1998, Alliance had commercial paper outstanding totaling $179.5 million
at an effective interest rate of 5.5% and there were no borrowings
outstanding under Alliance's revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
F-25
<PAGE>
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $640.2 million and $1,164.0 million at December 31, 1998
and 1997, respectively, as collateral for certain short-term and
long-term debt.
At December 31, 1998, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1999 and the succeeding
four years are $322.8 million, $6.9 million, $1.7 million, $1.8 million
and $2.0 million, respectively, and $668.0 million thereafter.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 283.3 $ 186.5 $ 97.9
Deferred......................................... 69.8 (95.0) (88.2)
----------------- ---------------- -----------------
Total.............................................. $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 414.3 $ 234.7 $ 73.0
Non-taxable minority interest...................... (33.2) (38.0) (28.6)
Adjustment of tax audit reserves................... 16.0 (81.7) 6.9
Equity in unconsolidated subsidiaries.............. (39.3) (45.1) (32.3)
Other.............................................. (4.7) 21.6 (9.3)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 235.3 $ - $ 257.9 $ -
Other.................................. 27.8 - 30.7 -
DAC, reserves and reinsurance.......... - 231.4 - 222.8
Investments............................ - 364.4 - 405.7
--------------- ---------------- --------------- ---------------
Total.................................. $ 263.1 $ 595.8 $ 288.6 $ 628.5
=============== ================ =============== ===============
</TABLE>
F-26
<PAGE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ (7.7) $ 46.2 $ (156.2)
Investments........................................ 46.8 (113.8) 78.6
Compensation and related benefits.................. 28.6 3.7 22.3
Other.............................................. 2.1 (31.1) (32.9)
----------------- ---------------- -----------------
Deferred Federal Income Tax
Expense (Benefit)................................ $ 69.8 $ (95.0) $ (88.2)
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Holding Company's consolidated Federal income tax returns for the
years 1992 through 1996. Management believes these audits will have no
material adverse effect on the Company's results of operations.
11) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 438.8 $ 448.6 $ 461.4
Reinsurance assumed................................ 203.6 198.3 177.5
Reinsurance ceded.................................. (54.3) (45.4) (41.3)
----------------- ---------------- -----------------
Premiums........................................... $ 588.1 $ 601.5 $ 597.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 75.7 $ 61.0 $ 48.2
================= ================ =================
Policyholders' Benefits Ceded...................... $ 85.9 $ 70.6 $ 54.1
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 39.5 $ 36.4 $ 32.3
================= ================ =================
</TABLE>
Beginning in May 1997, the Company began reinsuring on a yearly renewal
term basis 90% of the mortality risk on new issues of certain term,
universal and variable life products. During 1996, the Company's
retention limit on joint survivorship policies was increased to $15.0
million. Effective January 1, 1994, all in force business above $5.0
million was reinsured. The Insurance Group also reinsures the entire
risk on certain substandard underwriting risks as well as in certain
other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $1.3 million,
$1.6 million and $2.4 million for 1998, 1997 and 1996, respectively.
Ceded death and disability benefits totaled $15.6 million, $4.3 million
and $21.2 million for 1998, 1997 and 1996, respectively. Insurance
liabilities ceded totaled $560.3 million and $593.8 million at December
31, 1998 and 1997, respectively.
F-27
<PAGE>
12) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 33.2 $ 32.5 $ 33.8
Interest cost on projected benefit obligations..... 129.2 128.2 120.8
Actual return on assets............................ (175.6) (307.6) (181.4)
Net amortization and deferrals..................... 6.1 166.6 43.4
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ (7.1) $ 19.7 $ 16.6
================= ================ =================
</TABLE>
The plan's projected benefit obligation under the qualified and
non-qualified plans was comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Benefit obligation, beginning of year.................................. $ 1,801.3 $ 1,765.5
Service cost........................................................... 33.2 32.5
Interest cost.......................................................... 129.2 128.2
Actuarial (gains) losses............................................... 108.4 (15.5)
Benefits paid.......................................................... (138.7) (109.4)
---------------- -----------------
Benefit Obligation, End of Year........................................ $ 1,933.4 $ 1,801.3
================ =================
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Plan assets at fair value, beginning of year........................... $ 1,867.4 $ 1,626.0
Actual return on plan assets........................................... 338.9 307.5
Contributions.......................................................... - 30.0
Benefits paid and fees................................................. (123.2) (96.1)
---------------- -----------------
Plan assets at fair value, end of year................................. 2,083.1 1,867.4
Projected benefit obligations.......................................... 1,933.4 1,801.3
---------------- -----------------
Projected benefit obligations less than plan assets.................... 149.7 66.1
Unrecognized prior service cost........................................ (7.5) (9.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 38.7 95.0
Unrecognized net asset at transition................................... 1.5 3.1
---------------- -----------------
Prepaid Pension Cost.................................................. $ 182.4 $ 154.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.0% and 3.83%, respectively, at December 31, 1998 and
7.25% and 4.07%, respectively, at December 31, 1997. As of January 1,
1998 and 1997, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
F-28
<PAGE>
The Company recorded, as a reduction of shareholders' equity an
additional minimum pension liability of $28.3 million and $17.3 million,
net of Federal income taxes, at December 31, 1998 and 1997,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $31.8 million,
$33.2 million and $34.7 million for 1998, 1997 and 1996, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1998, 1997 and 1996, the Company made
estimated postretirement benefits payments of $28.4 million, $18.7
million and $18.9 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.6 $ 4.5 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 33.6 34.7 34.6
Net amortization and deferrals..................... .5 1.9 2.4
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 38.7 $ 41.1 $ 42.3
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation, beginning
of year.............................................................. $ 490.8 $ 388.5
Service cost........................................................... 4.6 4.5
Interest cost.......................................................... 33.6 34.7
Contributions and benefits paid........................................ (28.4) 72.1
Actuarial (gains) losses............................................... (10.2) (9.0)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 490.4 490.8
Unrecognized prior service cost........................................ 31.8 40.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (121.2) (140.6)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 401.0 $ 390.5
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and medical benefits will be limited to 200%
of 1993 costs for all participants.
F-29
<PAGE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 8.0% in 1998,
gradually declining to 2.5% in the year 2009, and in 1997 was 8.75%,
gradually declining to 2.75% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.0%
and 7.25% at December 31, 1998 and 1997, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1998
would be increased 4.83%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 4.57%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 1998
would be decreased by 5.6%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 5.4%.
13) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1998 and 1997, respectively, was $880.9 million and
$1,353.4 million. The average unexpired terms at December 31, 1998
ranged from 1 month to 4.3 years. At December 31, 1998, the cost of
terminating swaps in a loss position was $8.0 million. Equitable Life
has implemented an interest rate cap program designed to hedge crediting
rates on interest-sensitive individual annuities contracts. The
outstanding notional amounts at December 31, 1998 of contracts purchased
and sold were $8,450.0 million and $875.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $54.8 million and
is being amortized ratably over the contract periods ranging from 1 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1998 and 1997.
F-30
<PAGE>
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 7 and 8:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,809.9 $ 2,961.8 $ 2,611.4 $ 2,822.8
Other limited partnership interests.... 562.6 562.6 509.4 509.4
Policy loans........................... 2,086.7 2,370.7 2,422.9 2,493.9
Policyholders' account balances -
investment contracts................. 12,892.0 13,396.0 12,611.0 12,714.0
Long-term debt......................... 1,002.4 1,025.2 1,294.5 1,257.0
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,633.4 1,703.5 1,341.6 1,420.7
Other equity investments............... 56.4 56.4 86.3 86.3
Policy loans........................... 1,641.2 1,929.7 1,700.2 1,784.2
SCNILC liability....................... 25.0 25.0 27.6 30.3
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 553.9 599.9 655.5 779.9
Fixed maturities....................... 24.9 24.9 38.7 38.7
Other equity investments............... 115.1 115.1 209.3 209.3
Guaranteed interest contracts.......... 37.0 34.0 37.0 34.0
Long-term debt......................... 147.1 139.8 296.4 297.6
</TABLE>
F-31
<PAGE>
14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $142.9 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $287.3 million at December 31, 1998, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $24.7 million of letters of credit outstanding
at December 31, 1998.
15) LITIGATION
Major Medical Insurance Cases
Equitable Life agreed to settle, subject to court approval, previously
disclosed cases involving lifetime guaranteed renewable major medical
insurance policies issued by Equitable Life in five states. Plaintiffs
in these cases claimed that Equitable Life's method for determining
premium increases breached the terms of certain forms of the policies
and was misrepresented. In certain cases plaintiffs also claimed that
Equitable Life misrepresented to policyholders that premium increases
had been approved by insurance departments, and that it determined
annual rate increases in a manner that discriminated against the
policyholders.
In December 1997, Equitable Life entered into a settlement agreement,
subject to court approval, which would result in creation of a
nationwide class consisting of all persons holding, and paying premiums
on, the policies at any time since January 1, 1988 and the dismissal
with prejudice of the pending actions and the resolution of all similar
claims on a nationwide basis. Under the terms of the settlement, which
involves approximately 127,000 former and current policyholders,
Equitable Life would pay $14.2 million in exchange for release of all
claims and will provide future relief to certain current policyholders
by restricting future premium increases, estimated to have a present
value of $23.3 million. This estimate is based upon assumptions about
future events that cannot be predicted with certainty and accordingly
the actual value of the future relief may vary. In October 1998, the
court entered a judgment approving the settlement agreement and, in
November, a member of the national class filed a notice of appeal of the
judgment. In January 1999, the Court of Appeals granted Equitable Life's
motion to dismiss the appeal.
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported
class actions against Equitable Life and its subsidiary insurance
companies Equitable Variable Life Insurance Company ("EVLICO," which was
merged into Equitable Life effective January 1, 1997) and The Equitable
of Colorado, Inc. ("EOC"). These actions involve, among other things,
sales of life and annuity products for varying periods from 1980 to the
present, and allege, among other things, sales practice
misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the
propriety of a product as a replacement of an existing policy; and
failure to disclose a product as life insurance. Some actions are in
state courts and others are in U.S. District Courts in varying
jurisdictions, and are in varying stages of discovery and motions for
class certification.
F-32
<PAGE>
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition
against cancellation of policies for non-payment of premium or other
remedies, as well as attorneys' fees and expenses. Similar actions have
been filed against other life and health insurers and have resulted in
the award of substantial judgments, including material amounts of
punitive damages, or in substantial settlements. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of these cases should not have a material adverse
effect on the financial position of The Equitable. The Equitable's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on The
Equitable's results of operations in any particular period.
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action
in September 1997, in the United States District Court for the Northern
District of Alabama, Southern Division, involving alleged discrimination
on the basis of race against African-American applicants and potential
applicants in hiring individuals as sales agents. Plaintiffs seek a
declaratory judgment and affirmative and negative injunctive relief,
including the payment of back-pay, pension and other compensation.
Although the outcome of litigation cannot be predicted with certainty,
The Equitable's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of The Equitable. The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on The Equitable's results of operations
in any particular period.
Alliance Capital
In July 1995, a class action complaint was filed against Alliance North
American Government Income Trust, Inc. (the "Fund"), Alliance and
certain other defendants affiliated with Alliance, including the Holding
Company, alleging violations of Federal securities laws, fraud and
breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. The original complaint was dismissed
in 1996; on appeal, the dismissal was affirmed. In October 1996,
plaintiffs filed a motion for leave to file an amended complaint,
alleging the Fund failed to hedge against currency risk despite
representations that it would do so, the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
two Fund advertisements misrepresented the risks of investing in the
Fund. In October 1998, the U.S. Court of Appeals for the Second Circuit
issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended
complaint containing the other allegations. Alliance believes that the
allegations in the amended complaint, which was filed in February 1999,
are without merit and intends to defend itself vigorously against these
claims. While the ultimate outcome of this matter cannot be determined
at this time, Alliance's management does not expect that it will have a
material adverse effect on Alliance's results of operations or financial
condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and
warrants to purchase common shares, of Rickel Home Centers, Inc.
("Rickel"), which filed a voluntary petition for reorganization pursuant
to Chapter 11 of the Bankruptcy Code. The complaint seeks unspecified
compensatory and punitive damages from DLJSC, as an underwriter and as
an owner of 7.3% of the common stock, for alleged violation of Federal
securities laws and common law fraud for alleged misstatements and
omissions contained in the prospectus and registration statement used in
the offering of the units. DLJSC is defending itself vigorously against
all the allegations contained in the complaint. Although there can be no
assurance, DLJ's management does not believe that the ultimate outcome
of this litigation will have a material adverse effect on DLJ's
consolidated financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot predict whether or not such litigation will have a
material adverse effect on DLJ's results of operations in any particular
period.
F-33
<PAGE>
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of
subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC"). The debentures were canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
litigation seeks compensatory and punitive damages for DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
proceedings. Trial is expected in early May 1999. DLJSC intends to
defend itself vigorously against all the allegations contained in the
complaint. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant in a complaint which alleges that DLJSC and a
number of other financial institutions and several individual defendants
violated civil provisions of RICO by inducing plaintiffs to invest over
$40 million in The Securities Groups, a number of tax shelter limited
partnerships, during the years 1978 through 1982. The plaintiffs seek
recovery of the loss of their entire investment and an approximately
equivalent amount of tax-related damages. Judgment for damages under
RICO are subject to trebling. Discovery is complete. Trial has been
scheduled for May 17, 1999. DLJSC believes that it has meritorious
defenses to the complaints and will continue to contest the suits
vigorously. Although there can be no assurance, DLJ's management does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant along with certain other parties in four actions
involving Mid-American Waste Systems, Inc. ("Mid-American"), which filed
a voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code in January 1997. Three actions seek rescission,
compensatory and punitive damages for DLJSC's role in underwriting notes
of Mid-American. The other action, filed by the Plan Administrator for
the bankruptcy estate of Mid-American, alleges that DLJSC is liable as
an underwriter for alleged misrepresentations and omissions in the
prospectus for the notes, and liable as financial advisor to
Mid-American for allegedly failing to advise Mid-American about its
financial condition. DLJSC believes that it has meritorious defenses to
the complaints and will continue to contest the suits vigorously.
Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon
information currently available to it, DLJ's management cannot predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
Other Matters
In addition to the matters described above, the Holding Company and its
subsidiaries are involved in various legal actions and proceedings in
connection with their businesses. Some of the actions and proceedings
have been brought on behalf of various alleged classes of claimants and
certain of these claimants seek damages of unspecified amounts. While
the ultimate outcome of such matters cannot be predicted with certainty,
in the opinion of management no such matter is likely to have a material
adverse effect on the Company's consolidated financial position or
results of operations.
16) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1999 and the succeeding four years are $98.7 million, $92.7
million, $73.4 million, $59.9 million, $55.8 million and $550.1 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1999 and the succeeding four years is $7.6 million, $5.6
million, $4.6 million, $2.3 million, $2.3 million and $25.4 million
thereafter.
F-34
<PAGE>
At December 31, 1998, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1999
and the succeeding four years is $189.2 million, $177.0 million, $165.5
million, $145.4 million, $122.8 million and $644.7 million thereafter.
17) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 772.0 $ 721.5 $ 704.8
Commissions........................................ 478.1 409.6 329.5
Short-term debt interest expense................... 26.1 31.7 8.0
Long-term debt interest expense.................... 84.6 121.2 137.3
Amortization of policy acquisition costs........... 292.7 287.3 405.2
Capitalization of policy acquisition costs......... (609.1) (508.0) (391.9)
Rent expense, net of sublease income............... 100.0 101.8 113.7
Cursitor intangible assets writedown............... - 120.9 -
Other.............................................. 1,056.8 917.9 769.1
----------------- ---------------- -----------------
Total.............................................. $ 2,201.2 $ 2,203.9 $ 2,075.7
================= ================ =================
</TABLE>
During 1997 and 1996, the Company restructured certain operations in
connection with cost reduction programs and recorded pre-tax provisions
of $42.4 million and $24.4 million, respectively. The amounts paid
during 1998, associated with cost reduction programs, totaled $22.6
million. At December 31, 1998, the liabilities associated with cost
reduction programs amounted to $39.4 million. The 1997 cost reduction
program included costs related to employee termination and exit costs.
The 1996 cost reduction program included restructuring costs related to
the consolidation of insurance operations' service centers. Amortization
of DAC in 1996 included a $145.0 million writeoff of DAC related to DI
contracts.
18) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1998, 1997 and 1996, statutory net
income (loss) totaled $384.4 million, $(351.7) million and $(351.1)
million, respectively. Statutory surplus, capital stock and Asset
Valuation Reserve ("AVR") totaled $4,728.0 million and $3,907.1 million
at December 31, 1998 and 1997, respectively. No dividends have been paid
by Equitable Life to the Holding Company to date.
At December 31, 1998, the Insurance Group, in accordance with various
government and state regulations, had $25.6 million of securities
deposited with such government or state agencies.
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' equity on a GAAP basis are primarily attributable to: (a)
inclusion in SAP of an AVR intended to stabilize surplus from
fluctuations in the value of the investment portfolio; (b) future policy
benefits and policyholders' account balances under SAP differ from GAAP
due to differences between actuarial assumptions and reserving
methodologies; (c) certain policy acquisition costs are expensed under
SAP but deferred under GAAP and amortized over future periods to achieve
a matching of revenues and expenses; (d) Federal income taxes are
generally accrued under SAP based upon revenues and expenses in the
Federal income tax return while under GAAP deferred taxes are provided
for timing differences between recognition of revenues and expenses for
financial reporting and income tax purposes; (e) valuation of assets
under SAP and GAAP differ due to different investment valuation and
depreciation methodologies, as well as the deferral of interest-related
realized capital gains and losses on fixed income investments; and (f)
differences in the accrual methodologies for post-employment and
retirement benefit plans.
F-35
<PAGE>
19) BUSINESS SEGMENT INFORMATION
The Company's operations consist of Insurance and Investment Services.
The Company's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment. Management evaluates the
performance of each segment based upon operating results adjusted to
exclude the effect of unusual or non-recurring events and transactions
and certain revenue and expense categories not related to the base
operations of the particular business net of minority interest.
Information for all periods is presented on a comparable basis.
Intersegment investment advisory and other fees of approximately $61.8
million, $84.1 million and $129.2 million for 1998, 1997 and 1996,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to discontinued
operations of $.5 million, $4.2 million and $13.3 million for 1998, 1997
and 1996, respectively, are eliminated in consolidation.
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations
before Federal income taxes and cumulative effect of accounting change
as reported on the consolidated statements of earnings and the segments'
assets to total assets on the consolidated balance sheets, respectively.
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Segment revenues..................... $ 4,029.8 $ 1,438.4 $ (5.7) $ 5,462.5
Investment gains..................... 64.8 35.4 - 100.2
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 4,094.6 $ 1,473.8 $ (5.7) $ 5,562.7
=============== ================= =============== ================
Pre-tax operating earnings........... $ 688.6 $ 284.3 $ - $ 972.9
Investment gains , net of
DAC and other charges.............. 41.7 27.7 - 69.4
Pre-tax minority interest............ - 141.5 - 141.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 730.3 $ 453.5 $ - $ 1,183.8
=============== ================= =============== ================
Total Assets......................... $ 75,626.0 $ 12,379.2 $ (64.4) $ 87,940.8
=============== ================= =============== ================
1997
Segment revenues..................... $ 3,990.8 $ 1,200.0 $ (7.7) $ 5,183.1
Investment gains (losses)............ (318.8) 255.1 - (63.7)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,672.0 $ 1,455.1 $ (7.7) $ 5,119.4
=============== ================= =============== ================
Pre-tax operating earnings........... $ 507.0 $ 258.3 $ - $ 765.3
Investment gains (losses), net of
DAC and other charges.............. (292.5) 252.7 - (39.8)
Non-recurring costs and expenses..... (41.7) (121.6) - (163.3)
Pre-tax minority interest............ - 108.5 - 108.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 172.8 $ 497.9 $ - $ 670.7
=============== ================= =============== ================
Total Assets......................... $ 67,762.4 $ 13,691.4 $ (96.1) $ 81,357.7
=============== ================= =============== ================
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1996
Segment revenues..................... $ 3,789.1 $ 1,105.5 $ (12.6) $ 4,882.0
Investment gains (losses)............ (30.3) 20.5 - (9.8)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,758.8 $ 1,126.0 $ (12.6) $ 4,872.2
=============== ================= =============== ================
Pre-tax operating earnings........... $ 337.1 $ 224.6 $ - $ 561.7
Investment gains (losses), net of
DAC and other charges.............. (37.2) 16.9 - (20.3)
Reserve strengthening and DAC
writeoff........................... (393.0) - - (393.0)
Non-recurring costs and
expenses........................... (22.3) (1.1) - (23.4)
Pre-tax minority interest............ - 83.6 - 83.6
--------------- ----------------- --------------- ----------------
Earnings (Loss) from
Continuing Operations.............. $ (115.4) $ 324.0 $ - $ 208.6
=============== ================= =============== ================
</TABLE>
20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1998 and 1997 are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Total Revenues................ $ 1,470.2 $ 1,422.9 $ 1,297.6 $ 1,372.0
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 212.8 $ 197.0 $ 136.8 $ 158.9
================= ================= ================== ==================
Net Earnings.................. $ 213.3 $ 198.3 $ 137.5 $ 159.1
================= ================= ================== ==================
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million.
F-37
<PAGE>
21) INVESTMENT IN DLJ
At December 31, 1998, the Company's ownership of DLJ interest was
approximately 32.5%. The Company's ownership interest will be further
reduced upon the issuance of common stock after the vesting of
forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 13,195.1 $ 16,535.7
Securities purchased under resale agreements........................... 20,063.3 22,628.8
Broker-dealer related receivables...................................... 34,264.5 28,159.3
Other assets........................................................... 4,759.3 3,182.0
---------------- -----------------
Total Assets........................................................... $ 72,282.2 $ 70,505.8
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 35,775.6 $ 36,006.7
Broker-dealer related payables......................................... 26,161.5 26,127.2
Short-term and long-term debt.......................................... 3,997.6 3,249.5
Other liabilities...................................................... 3,219.8 2,860.9
---------------- -----------------
Total liabilities...................................................... 69,154.5 68,244.3
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,927.7 2,061.5
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 72,282.2 $ 70,505.8
================ =================
DLJ's equity as reported............................................... $ 2,927.7 $ 2,061.5
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.7 23.5
The Holding Company's equity ownership in DLJ.......................... (1,002.4) (740.2)
Minority interest in DLJ............................................... (1,118.2) (729.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 830.8 $ 615.5
================ =================
</TABLE>
F-38
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 3,184.7 $ 2,430.7
Net investment income.................................................. 2,189.1 1,652.1
Dealer, trading and investment gains, net.............................. 33.2 557.7
---------------- -----------------
Total revenues......................................................... 5,407.0 4,640.5
Total expenses including income taxes.................................. 5,036.2 4,232.2
---------------- -----------------
Net earnings........................................................... 370.8 408.3
Dividends on preferred stock........................................... 21.3 12.2
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 349.5 $ 396.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 349.5 $ 396.1
Amortization of cost in excess of net assets acquired in 1985.......... (.8) (1.3)
The Holding Company's equity in DLJ's earnings......................... (136.8) (156.8)
Minority interest in DLJ............................................... (99.5) (109.1)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 112.4 $ 128.9
================ =================
</TABLE>
22) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1998, 1997 and 1996 would have
been:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As reported............................................. $ 708.2 $ 437.2 $ 10.3
Pro forma............................................... 678.4 426.3 3.3
</TABLE>
The fair values of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, were estimated as of the
dates of grant using the Black-Scholes option pricing model. The option
pricing assumptions for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ---------- --------- ---------- -------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield...... 0.32% 0.48% 0.80% 0.69% 0.86% 1.54% 6.50% 8.00% 8.00%
Expected volatility. 28% 20% 20% 40% 33% 25% 29% 26% 23%
Risk-free interest
rate.............. 5.48% 5.99% 5.92% 5.53% 5.96% 6.07% 4.40% 5.70% 5.80%
Expected life
in years.......... 5 5 5 5 5 5 7.2 7.2 7.4
Weighted average
fair value per
option at
grant-date........ $22.64 $12.25 $6.94 $16.27 $10.81 $4.03 $3.86 $2.18 $1.35
</TABLE>
F-39
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price of Price of Price of
Shares Options Shares Options Units Options
(In Millions) Outstanding (In Millions) Outstanding (In Millions) Outstanding
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1996........ 6.7 $20.27 18.4 $13.50 9.6 $ 8.86
Granted................ .7 $24.94 4.2 $16.27 1.4 $12.56
Exercised.............. (.1) $19.91 - (.8) $ 6.82
Expired................ - - -
Forfeited.............. (.6) $20.21 (.4) $13.50 (.2) $ 9.66
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 22.2 $14.03 10.0 $ 9.54
Granted................ 3.2 $41.85 6.4 $30.54 2.2 $18.28
Exercised.............. (1.6) $20.26 (.2) $16.01 (1.2) $ 8.06
Forfeited.............. (.4) $23.43 (.2) $13.79 (.4) $10.64
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 28.2 $17.78 10.6 $11.41
Granted................ 4.3 $66.26 1.5 $38.59 2.8 $26.28
Exercised.............. (1.1) $21.18 (1.4) $14.91 (.9) $ 8.91
Forfeited.............. (.4) $47.01 (.1) $17.31 (.2) $13.14
--------------- ------------- ---------------
Balance as of
December 31, 1998...... 10.7 $44.00 28.2 $19.04 12.3 $14.94
=============== ============= ===============
</TABLE>
F-40
<PAGE>
Information about options outstanding and exercisable at December 31,
1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------------------------- ----------------- ---------------- ------------------- ---------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 3.7 5.19 $20.97 3.0 $20.33
$28.50 -$45.25 3.0 8.68 $41.79 -
$50.63 -$66.75 2.1 9.21 $52.73 -
$81.94 -$82.56 1.9 9.62 $82.56 -
----------------- -------------------
$18.125 -$82.56 10.7 7.75 $44.00 3.0 $20.33
================= ================= ================ ==================== ==============
DLJ
----------------------
$13.50 -$25.99 22.3 7.1 $14.59 21.4 $15.05
$26.00 -$38.99 5.0 8.8 $33.94 -
$39.00 -$52.875 .9 9.4 $44.65 -
----------------- -------------------
$13.50 -$52.875 28.2 7.5 $19.04 21.4 $15.05
================= ================== ============== ===================== =============
Alliance
----------------------
$ 3.03 -$ 9.69 3.1 4.5 $ 8.03 2.4 $ 7.57
$ 9.81 -$10.69 2.0 5.3 $10.05 1.6 $10.07
$11.13 -$13.75 2.4 7.5 $11.92 1.0 $11.77
$18.47 -$18.78 2.0 9.0 $18.48 .4 $18.48
$22.50 -$26.31 2.8 9.9 $26.28 - -
----------------- -------------------
$ 3.03 -$26.31 12.3 7.2 $14.94 5.4 $ 9.88
================= =================== ============= ===================== =============
</TABLE>
F-41
<PAGE>
SUPPLEMENT TO
EQUITABLE ACCUMULATOR(SM) (IRA, NQ, AND QP)
PROSPECTUS DATED MAY 1, 1998, AND
TAX SHELTERED ANNUITY SUPPLEMENT DATED JUNE 18, 1998
Combination Variable and Fixed Deferred Annuity Certificates
Issued By
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This supplement dated May 1, 1999, updates certain information in the
Accumulator prospectus dated May 1, 1998, as previously supplemented on January
4, 1999, of The Equitable Life Assurance Society of the United States (EQUITABLE
LIFE). You should keep the supplements and the prospectus for future reference.
We have filed with the Securities and Exchange Commission (SEC) our statement of
additional information (SAI) dated May 1, 1999. If you do not presently have a
copy of the prospectus and prior supplement, you may obtain additional copies,
as well as a copy of the SAI, from us, free of charge, by writing to Equitable
Life, P.O. Box 1547, Secaucus, NJ 07096-1547, call (800) 789-7771. If you only
need a copy of the SAI, you may mail in the SAI request form located at the end
of this supplement. The SAI has been incorporated by reference into this
supplement.
In this supplement we provide information on (1) three new Investment Funds; (2)
the proposed substitution of Portfolios; (3) unit values and number of
outstanding units for the Investment Funds; (4) Equitable Life; and (5) our Year
2000 progress.
(1) NEW INVESTMENT FUNDS
- ------------------------
You may now allocate your Contributions among 30 Investment Funds. The following
three new Investment Funds are available under your Certificate as of May 1,
1999.
o EQ/Alliance Premier Growth
o Capital Guardian Research
o Capital Guardian U.S. Equity
Each new Investment Fund invests in a corresponding new Portfolio of EQ Advisors
Trust. The objectives and Adviser for each Portfolio are shown below:
<TABLE>
<CAPTION>
PORTFOLIOS OF EQ ADVISORS TRUST
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME OBJECTIVE ADVISER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQ/Alliance Premier Growth Long-term growth of capital Alliance Capital Management L.P.
- ----------------------------------------------------------------------------------------------------------------------
Capital Guardian Research Long-term growth of capital Capital Guardian Trust Company
- ----------------------------------------------------------------------------------------------------------------------
Capital Guardian U.S. Equity Long-term growth of capital Capital Guardian Trust Company
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Copyright 1999 The Equitable Life Assurance Society of the United States.
All rights reserved.
Accumulator is a service mark of The Equitable Life Assurance
Society of the United States.
SUPPLEMENT DATED MAY 1, 1999
PROS AGTSUPP1 (5/99)
<PAGE>
THE FOLLOWING ARE THE EQ ADVISORS TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TOTAL
OTHER ANNUAL
INVESTMENT EXPENSES(3) EXPENSES(3)
MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE
PORTFOLIOS(1) & ADVISORY FEES 12B-1 FEE(2) LIMITATION) LIMITATION)
- ---------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
EQ/Alliance Premium Growth 0.90% 0.25% 0.00% 1.15%
Capital Guardian Research 0.65% 0.25% 0.05% 0.95%
Capital Guardian U.S. Equity 0.65% 0.25% 0.05% 0.95%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Portfolios commenced operations on May 1, 1999.
(2) Portfolio shares are all subject to fees imposed under distribution plans
(the "Rule 12b-1 Plans") adopted by The Hudson River Trust and EQ Advisors
Trust pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. The 12b-1 fee will not be increased for the life of the contracts.
(3) The maximum investment management and advisory fees for each Portfolio of
EQ Advisors Trust cannot be increased without a vote of that Portfolio's
shareholders. See the prospectus for EQ Advisors Trust. The amounts shown
as "Other Expenses" will fluctuate from year to year depending on actual
expenses. However, EQ Financial Consultants, Inc. ("EQF"), EQ Advisors
Trust's manager, has entered into an expense limitation agreement with
respect to each Portfolio. Under this agreement EQF has agreed to waive or
limit its fees and assume other expenses. Under the expense limitation
agreement, total annual operating expenses of each Portfolio (other than
interest, taxes, brokerage commissions, capitalized expenditures,
extraordinary expenses, and 12b-1 fees) are limited for the average daily
net assets of each Portfolio as follows: 0.90% for EQ/Alliance Premier
Growth; 0.70% for Capital Guardian Research and Capital Guardian U.S.
Equity. During 1999, EQF plans to change its name to AXA Advisors, Inc.
Each Portfolio may at a later date make a reimbursement to EQF for any of
the management fees waived or limited and other expenses assumed and paid
by EQF pursuant to the expense limitation agreement provided that, among
other things, such Portfolio has reached sufficient size to permit such
reimbursement to be made and provided that the Portfolio's current annual
operating expenses do not exceed the operating expense limit determined for
such Portfolio.
THE FOLLOWING EXAMPLES SHOW THE EXPENSES WHICH YOU WOULD PAY IN THE SITUATIONS
ILLUSTRATED. PLEASE REFER TO YOUR PROSPECTUS FOR FURTHER EXPLANATION REGARDING
THE CALCULATION OF THE EXAMPLES.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE IF YOU DO NOT SURRENDER YOUR CERTIFICATE
END OF EACH PERIOD SHOWN, THE EXPENSES AT THE END OF EACH PERIOD SHOWN, THE
WOULD BE: EXPENSES WOULD BE:
- ------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQ/Alliance Premier Growth $95.26 $133.87 -- -- $28.41 $87.34 -- --
Capital Guardian Research $93.27 $127.92 -- -- $26.42 $81.38 -- --
Capital Guardian U.S. Equity $93.27 $127.92 -- -- $26.42 $81.38 -- --
</TABLE>
ANNUITY ADMINISTRATIVE FEE. We generally deduct a $350 annuity administrative
fee from amounts applied to purchase certain life annuity payout options.
Assuming an annuity payout option could be issued and you elect a life annuity
payout option, the expenses shown in the example for "if you do not surrender
your Certificate" would, in each case, be increased by $4.43 based on the
average amount applied to annuity payout options in 1998.
2
<PAGE>
(2) PROPOSED SUBSTITUTION OF PORTFOLIOS
- ---------------------------------------
We are asking the SEC to approve the substitution of 14 newly created Portfolios
of the EQ Advisors Trust for The Hudson River Trust Portfolios currently
available under the Investment Funds (the "Substitution"). The EQ Advisors Trust
Portfolios will have substantially identical investment objectives, strategies,
and policies as those of The Hudson River Trust Portfolios they would replace.
The assets of any Portfolio of The Hudson River Trust underlying your
Certificate would be transferred to the substituted EQ Advisors Trust Portfolio.
We believe that this Substitution will be in your best interest because you
would have a single set of Investment Funds with similar advisory structures.
You also will have a single EQ Advisors Trust prospectus for all the Portfolios,
rather than the two separate prospectuses you now receive. EQ Financial
Consultants Inc. will be the manager of the new EQ Advisors Trust Portfolios,
and Alliance Capital Management L.P. will continue to provide the day-to-day
advisory services to each of the new Portfolios.
You should note that:
o No action is required on your part. You will not need to vote a proxy, file
a new election, or take any other action if the SEC approves the
Substitution.
o The elections you have on file for allocating your annuity account value
and contributions will remain unchanged until you direct us otherwise.
o We will bear all expenses directly relating to the Substitution
transaction.
o The management fees for the new Portfolios will be the same as those for
the corresponding Portfolios of The Hudson River Trust. Certain of the new
EQ Advisor Trust Portfolios may have slightly higher expense ratios.
o On the effective date of the Substitution transaction, your annuity account
value (i.e., the units you own) in the Investment Funds will be the same as
before the transaction.
o The Substitution will have no tax consequences for you.
Please review the EQ Advisors Trust prospectus that accompanies this prospectus.
It contains more information about the EQ Advisors Trust, including its
management structure, advisory arrangements, and general fees and expenses that
will be of interest to you.
Subject to SEC approval, we expect the Substitution to be completed in the fall
of 1999. It will affect everyone who has a balance in The Hudson River Trust
Portfolios at that time. Of course, you may transfer your annuity account value
among the investment options, as usual.
We will notify you when we receive SEC approval, and again when the Substitution
is complete.
3
<PAGE>
(3) UNIT VALUES AND NUMBER OF UNITS OUTSTANDING FOR EACH INVESTMENT FUND
- ------------------------------------------------------------------------
------------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------------------------------------------------------
THE HUDSON RIVER TRUST FUNDS
Alliance Aggressive Stock
Unit value $69.37
Number of units outstanding (000s) 293
Alliance Common Stock
Unit value $237.18
Number of units outstanding (000s) 550
Alliance Conservative Investors
Unit value $21.20
Number of units outstanding (000s) 659
Alliance Equity Index
Unit value $26.73
Number of units outstanding (000s) 2
Alliance Global
Unit value $32.58
Number of units outstanding (000s) 354
Alliance Growth & Income
Unit value $20.99
Number of units outstanding (000s) 1,853
Alliance Growth Investors
Unit value $34.84
Number of units outstanding (000s) 694
Alliance High Yield
Unit value $27.96
Number of units outstanding (000s) 801
Alliance Intermediate Government Securities
Unit value $15.25
Number of units outstanding (000s) 929
Alliance International
Unit value $12.40
Number of units outstanding (000s) 166
Alliance Money Market
Unit value $25.92
Number of units outstanding (000s) 1,566
Alliance Small Cap Growth
Unit value $11.82
Number of units outstanding (000s) 775
EQ ADVISORS TRUST FUNDS
BT Equity 500 Index
Unit value $12.34
Number of units outstanding (000s) 2,426
BT International Equity Index
Unit value $11.85
Number of units outstanding (000s) 242
4
<PAGE>
------------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------------------------------------------------------
BT Small Company Index
Unit value $9.64
Number of units outstanding (000s) 284
MFS Emerging Growth Companies
Unit value $16.10
Number of units outstanding (000s) 1,942
MFS Research
Unit value $14.08
Number of units outstanding (000s) 1,479
Merrill Lynch Basic Value Equity
Unit value $12.76
Number of units outstanding (000s) 1,009
Merrill Lynch World Strategy
Unit value $10.94
Number of units outstanding (000s) 140
Morgan Stanley Emerging Markets Equity
Unit value $5.72
Number of units outstanding (000s) 177
EQ/Putnam Balanced
Unit value $12.51
Number of units outstanding (000s) 1,136
EQ/Putnam Growth & Income Value
Unit value $12.82
Number of units outstanding (000s) 867
T. Rowe Price Equity Income
Unit value $13.02
Number of units outstanding (000s) 1,059
T. Rowe Price International Stock
Unit value $10.95
Number of units outstanding (000s) 705
Warburg Pincus Small Company Value
Unit value $10.48
Number of units outstanding (000s) 560
(4) UPDATED INFORMATION ON EQUITABLE LIFE
- -----------------------------------------
We are The Equitable Life Assurance Society of the United States ("Equitable
Life"), a New York stock life insurance corporation. We have been doing business
since 1859. Equitable Life is a wholly owned subsidiary of The Equitable
Companies Incorporated ("Equitable Companies"), whose majority shareholder is
AXA, a French holding company for an international group of insurance and
related financial services companies. As a majority shareholder, and under its
other arrangements with Equitable Life and Equitable Life's parent, AXA
exercises significant influence over the operations and capital structure of
Equitable Life and its parent. No company other than Equitable Life, however,
has any legal responsibility to pay amounts that Equitable Life owes under the
contracts. During 1999, Equitable Companies plans to change its name to AXA
Financial, Inc.
5
<PAGE>
Equitable Companies and its consolidated subsidiaries managed approximately
$347.5 billion in assets as of December 31, 1998. For over 100 years we have
been among the largest insurance companies in the United States. We are licensed
to sell life insurance and annuities in all fifty states, the District of
Columbia, Puerto Rico, and the U.S. Virgin Islands. Our home office is located
at 1290 Avenue of the Americas, New York, N.Y. 10104.
(5) ABOUT OUR YEAR 2000 PROGRESS
- --------------------------------
Equitable Life relies upon various computer systems in order to administer your
Certificate and operate the Investment Options. Some of these systems belong to
service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000, and
Equitable Life has identified those of its systems critical to business
operations that were not year 2000 compliant. By year end 1998, the work of
modifying or replacing non-compliant systems was substantially completed.
Equitable Life has begun comprehensive testing of its year 2000 compliance and
expects that the testing will be substantially completed by June 30, 1999.
Equitable Life has contacted third-party service providers to seek confirmation
that they are acting to address the year 2000 issue with the goal of avoiding
any material adverse effect on services provided to Certificate owners and on
operations of the Investment Options. Most third-party service providers have
provided Equitable Life confirmation of their year 2000 compliance. Equitable
Life believes it is on schedule for substantially all such systems and services,
including those considered to be mission-critical, to be confirmed as year 2000
compliant, renovated, replaced or the subject of contingency plans, by June 30,
1999, except for one investment accounting system which is scheduled to be
replaced by August 31, 1999 and confirmed as year 2000 compliant by September
30, 1999. Additionally, Equitable Life will be supplementing its existing
business continuity and disaster recovery plans to cover certain categories of
contingencies that could arise as a result of year 2000 related failures. Year
2000 specific contingency plans are anticipated to be in place by June 30, 1999.
There are many risks associated with year 2000 issues, including the risk that
Equitable Life's computer systems will not operate as intended. Additionally,
there can be no assurance that the systems of third parties will be year 2000
compliant. Any significant unresolved difficulty related to the year 2000
compliance initiatives could result in an interruption in, or a failure of,
normal business operations and, accordingly, could have a material adverse
effect on our ability to administer your Certificate and operate the Investment
Options.
To the fullest extent permitted by law, the foregoing year 2000 discussion is a
"Year 2000 Readiness Disclosure" within the meaning of The Year 2000 Information
and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
6
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
----
Custodian and Independent Accountants 2
Yield Information for the Alliance Money Market Fund,
Alliance High Yield Fund, and Alliance Intermediate
Government Securities Fund 2
Financial Statements 2
HOW TO OBTAIN AN ACCUMULATOR STATEMENT OF ADDITIONAL INFORMATION FOR SEPARATE
ACCOUNT NO. 45
Send this request form to:
Equitable Life
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Accumulator SAI dated May 1, 1999 for the Accumulator
Prospectus dated May 1, 1998 as supplemented on January 4, 1999:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
7
<PAGE>
SUPPLEMENT TO INCOME MANAGER(R)
ACCUMULATOR(SM) AND ROLLOVER IRA PROSPECTUSES
DATED DECEMBER 31, 1997
Combination Variable and Fixed Deferred Annuity Certificates
Issued By
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This supplement dated May 1, 1999, updates certain information in the Income
Manager prospectuses dated December 31, 1997, as previously supplemented on May
1, 1998, and January 4, 1999, of The Equitable Life Assurance Society of the
United States (EQUITABLE LIFE). You should keep the supplements and the
prospectus for future reference. We have filed with the Securities and Exchange
Commission (SEC) our statement of additional information (SAI) dated May 1,
1999. If you do not presently have a copy of the prospectus and prior
supplements, you may obtain additional copies, as well as a copy of the SAI,
from us, free of charge, by writing to Equitable Life, P.O. Box 1547, Secaucus,
NJ 07096-1547, call (800) 789-7771. If you only need a copy of the SAI, you may
mail in the SAI request form located at the end of this supplement. The SAI has
been incorporated by reference into this supplement.
In this supplement we provide information on (1) three new Investment Funds; (2)
the proposed substitution of Portfolios; (3) unit values and number of
outstanding units for the Investment Funds; (4) Equitable Life; and (5) our Year
2000 progress.
(1) NEW INVESTMENT FUNDS
- ------------------------
You may now allocate your Contributions among 30 Investment Funds. The following
three new Investment Funds are available under your Certificate as of May 1,
1999.
o EQ/Alliance Premier Growth
o Capital Guardian Research
o Capital Guardian U.S. Equity
Each new Investment Fund invests in a corresponding new Portfolio of EQ Advisors
Trust. The objectives and Adviser for each Portfolio are shown below:
PORTFOLIOS OF EQ ADVISORS TRUST
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME OBJECTIVE ADVISER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQ/Alliance Premier Growth Long-term growth of capital Alliance Capital Management L.P.
- ----------------------------------------------------------------------------------------------------------------------
Capital Guardian Research Long-term growth of capital Capital Guardian Trust Company
- ----------------------------------------------------------------------------------------------------------------------
Capital Guardian U.S. Equity Long-term growth of capital Capital Guardian Trust Company
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Copyright 1999 The Equitable Life Assurance Society of the United States.
All rights reserved. Accumulator is a service mark and
Income Manager is a registered service mark of The
Equitable Life Assurance Society of the United States.
SUPPLEMENT DATED MAY 1, 1999
PROS AGTSUPP2 (5/99)
<PAGE>
THE FOLLOWING ARE THE EQ ADVISORS TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TOTAL
OTHER ANNUAL
INVESTMENT EXPENSES(3) EXPENSES(3)
MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE
PORTFOLIOS(1) & ADVISORY FEES 12B-1 FEE(2) LIMITATION) LIMITATION)
- ---------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
EQ/Alliance Premium Growth 0.90% 0.25% 0.00% 1.15%
Capital Guardian Research 0.65% 0.25% 0.05% 0.95%
Capital Guardian U.S. Equity 0.65% 0.25% 0.05% 0.95%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Portfolios commenced operations on May 1, 1999.
(2) Portfolio shares are all subject to fees imposed under distribution plans
(the "Rule 12b-1 Plans") adopted by The Hudson River Trust and EQ Advisors
Trust pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. The 12b-1 fee will not be increased for the life of the contracts.
(3) The maximum investment management and advisory fees for each Portfolio of
EQ Advisors Trust cannot be increased without a vote of that Portfolio's
shareholders. See the prospectus for EQ Advisors Trust. The amounts shown
as "Other Expenses" will fluctuate from year to year depending on actual
expenses. However, EQ Financial Consultants, Inc. ("EQF"), EQ Advisors
Trust's manager, has entered into an expense limitation agreement with
respect to each Portfolio. Under this agreement EQF has agreed to waive or
limit its fees and assume other expenses. Under the expense limitation
agreement, total annual operating expenses of each Portfolio (other than
interest, taxes, brokerage commissions, capitalized expenditures,
extraordinary expenses, and 12b-1 fees) are limited for the average daily
net assets of each Portfolio as follows: 0.90% for EQ/Alliance Premier
Growth; 0.70% for Capital Guardian Research and Capital Guardian U.S.
Equity. During 1999, EQF plans to change its name to AXA Advisors, Inc.
Each Portfolio may at a later date make a reimbursement to EQF for any of
the management fees waived or limited and other expenses assumed and paid
by EQF pursuant to the expense limitation agreement provided that, among
other things, such Portfolio has reached sufficient size to permit such
reimbursement to be made and provided that the Portfolio's current annual
operating expenses do not exceed the operating expense limit determined for
such Portfolio.
THE FOLLOWING EXAMPLES SHOW THE EXPENSES WHICH YOU WOULD PAY IN THE SITUATIONS
ILLUSTRATED. PLEASE REFER TO YOUR PROSPECTUS FOR FURTHER EXPLANATION REGARDING
THE CALCULATION OF THE EXAMPLES.
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
END OF EACH PERIOD SHOWN, THE EXPENSES AT THE END OF EACH PERIOD SHOWN, THE
WOULD BE: EXPENSES WOULD BE:
- ----------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQ/Alliance Premier Growth $93.22 $131.02 -- -- $27.99 $86.37 -- --
Capital Guardian Research $91.23 $125.05 -- -- $26.00 $80.40 -- --
Capital Guardian U.S. Equity $91.23 $125.05 -- -- $26.00 $80.40 -- --
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
GUARANTEED MINIMUM DEATH BENEFIT ONLY BENEFIT (PLAN B) ELECTION
- ----------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE IF YOU DO NOT SURRENDER YOUR CERTIFICATE
END OF EACH PERIOD SHOWN, THE EXPENSES AT THE END OF EACH PERIOD SHOWN, THE
WOULD BE: EXPENSES WOULD BE:
- ----------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQ/Alliance Premier Growth $93.22 $125.75 -- -- $25.34 $78.13 -- --
Capital Guardian Research $91.23 $119.76 -- -- $23.35 $72.14 -- --
Capital Guardian U.S. Equity $91.23 $119.76 -- -- $23.35 $72.14 -- --
</TABLE>
ANNUITY ADMINISTRATIVE FEE. We generally deduct a $350 annuity administrative
fee from amounts applied to purchase certain life annuity payout options.
Assuming an annuity payout option could be issued and you elect a life annuity
payout option, the expenses shown in the examples for "if you do not surrender
your Certificate" would, in each case, be increased by $4.43 based on the
average amount applied to annuity payout options in 1998.
(2) PROPOSED SUBSTITUTION OF PORTFOLIOS
- ---------------------------------------
We are asking the SEC to approve the substitution of 14 newly created Portfolios
of the EQ Advisors Trust for The Hudson River Trust Portfolios currently
available under the Investment Funds (the "Substitution"). The EQ Advisors Trust
Portfolios will have substantially identical investment objectives, strategies,
and policies as those of The Hudson River Trust Portfolios they would replace.
The assets of any Portfolio of The Hudson River Trust underlying your
Certificate would be transferred to the substituted EQ Advisors Trust Portfolio.
We believe that this Substitution will be in your best interest because you
would have a single set of Investment Funds with similar advisory structures.
You also will have a single EQ Advisors Trust prospectus for all the Portfolios,
rather than the two separate prospectuses you now receive. EQ Financial
Consultants Inc. will be the manager of the new EQ Advisors Trust Portfolios,
and Alliance Capital Management L.P. will continue to provide the day-to-day
advisory services to each of the new Portfolios.
You should note that:
o No action is required on your part. You will not need to vote a proxy, file
a new election, or take any other action if the SEC approves the
Substitution.
o The elections you have on file for allocating your annuity account value
and contributions will remain unchanged until you direct us otherwise.
o We will bear all expenses directly relating to the Substitution
transaction.
o The management fees for the new Portfolios will be the same as those for
the corresponding Portfolios of The Hudson River Trust. Certain of the new
EQ Advisor Trust Portfolios may have slightly higher expense ratios.
o On the effective date of the Substitution transaction, your annuity account
value (i.e., the units you own) in the Investment Funds will be the same as
before the transaction.
o The Substitution will have no tax consequences for you.
3
<PAGE>
Please review the EQ Advisors Trust prospectus that accompanies this prospectus.
It contains more information about the EQ Advisors Trust, including its
management structure, advisory arrangements, and general fees and expenses that
will be of interest to you.
Subject to SEC approval, we expect the Substitution to be completed in the fall
of 1999. It will affect everyone who has a balance in The Hudson River Trust
Portfolios at that time. Of course, you may transfer your annuity account value
among the investment options, as usual.
We will notify you when we receive SEC approval, and again when the Substitution
is complete.
(3) UNIT VALUES AND NUMBER OF UNITS OUTSTANDING FOR EACH INVESTMENT FUND
- ------------------------------------------------------------------------
------------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------------------------------------------------------
THE HUDSON RIVER TRUST FUNDS
Alliance Aggressive Stock
Unit value $71.21
Number of units outstanding (000s) 680
Alliance Common Stock
Unit value $248.45
Number of units outstanding (000s) 1,101
Alliance Conservative Investors
Unit value $21.60
Number of units outstanding (000s) 860
Alliance Equity Index
Unit value $26.99
Number of units outstanding (000s) 14
Alliance Global
Unit value $33.34
Number of units outstanding (000s) 668
Alliance Growth & Income
Unit value $21.22
Number of units outstanding (000s) 3,845
Alliance Growth Investors
Unit value $30.22
Number of units outstanding (000s) 1,359
Alliance High Yield
Unit value $28.65
Number of units outstanding (000s) 1,451
Alliance Intermediate Government Securities
Unit value $15.49
Number of units outstanding (000s) 1,079
Alliance International
Unit value $12.49
Number of units outstanding (000s) 438
Alliance Money Market
Unit value $26.85
Number of units outstanding (000s) 1,193
4
<PAGE>
------------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------------------------------------------------------
Alliance Small Cap Growth
Unit value $11.86
Number of units outstanding (000s) 2,306
EQ ADVISORS TRUST FUNDS
BT Equity 500 Index
Unit value $12.37
Number of units outstanding (000s) 2,189
BT International Equity Index
Unit value $11.87
Number of units outstanding (000s) 209
BT Small Company Index
Unit value $9.66
Number of units outstanding (000s) 244
MFS Emerging Growth Companies
Unit value $16.16
Number of units outstanding (000s) 2,619
MFS Research
Unit value $14.13
Number of units outstanding (000s) 2,283
Merrill Lynch Basic Value Equity
Unit value $12.81
Number of units outstanding (000s) 2,127
Merrill Lynch World Strategy
Unit value $10.97
Number of units outstanding (000s) 402
Morgan Stanley Emerging Markets Equity
Unit value $5.73
Number of units outstanding (000s) 567
EQ/Putnam Balanced
Unit value $12.56
Number of units outstanding (000s) 1,625
EQ/Putnam Growth & Income Value
Unit value $12.86
Number of units outstanding (000s) 2,347
T. Rowe Price Equity Income
Unit value $13.07
Number of units outstanding (000s) 3,102
T. Rowe Price International Stock
Unit value $10.98
Number of units outstanding (000s) 1,995
Warburg Pincus Small Company Value
Unit value $10.52
Number of units outstanding (000s) 2,984
5
<PAGE>
(4) UPDATED INFORMATION ON EQUITABLE LIFE
- ------------------------------------------
We are The Equitable Life Assurance Society of the United States ("Equitable
Life"), a New York stock life insurance corporation. We have been doing business
since 1859. Equitable Life is a wholly owned subsidiary of The Equitable
Companies Incorporated ("Equitable Companies"), whose majority shareholder is
AXA, a French holding company for an international group of insurance and
related financial services companies. As a majority shareholder, and under its
other arrangements with Equitable Life and Equitable Life's parent, AXA
exercises significant influence over the operations and capital structure of
Equitable Life and its parent. No company other than Equitable Life, however,
has any legal responsibility to pay amounts that Equitable Life owes under the
contracts. During 1999, Equitable Companies plans to change its name to AXA
Financial, Inc.
Equitable Companies and its consolidated subsidiaries managed approximately
$347.5 billion in assets as of December 31, 1998. For over 100 years we have
been among the largest insurance companies in the United States. We are licensed
to sell life insurance and annuities in all fifty states, the District of
Columbia, Puerto Rico, and the U.S. Virgin Islands. Our home office is located
at 1290 Avenue of the Americas, New York, N.Y. 10104.
(5) ABOUT OUR YEAR 2000 PROGRESS
- ---------------------------------
Equitable Life relies upon various computer systems in order to administer your
Certificate and operate the Investment Options. Some of these systems belong to
service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its computer
systems would recognize the year 2000 before, on or after January 1, 2000, and
Equitable Life has identified those of its systems critical to business
operations that were not year 2000 compliant. By year end 1998, the work of
modifying or replacing non-compliant systems was substantially completed.
Equitable Life has begun comprehensive testing of its year 2000 compliance and
expects that the testing will be substantially completed by June 30, 1999.
Equitable Life has contacted third-party service providers to seek confirmation
that they are acting to address the year 2000 issue with the goal of avoiding
any material adverse effect on services provided to Certificate owners and on
operations of the Investment Options. Most third-party service providers have
provided Equitable Life confirmation of their year 2000 compliance. Equitable
Life believes it is on schedule for substantially all such systems and services,
including those considered to be mission-critical, to be confirmed as year 2000
compliant, renovated, replaced or the subject of contingency plans, by June 30,
1999, except for one investment accounting system which is scheduled to be
replaced by August 31, 1999 and confirmed as year 2000 compliant by September
30, 1999. Additionally, Equitable Life will be supplementing its existing
business continuity and disaster recovery plans to cover certain categories of
contingencies that could arise as a result of year 2000 related failures. Year
2000 specific contingency plans are anticipated to be in place by June 30, 1999.
There are many risks associated with year 2000 issues, including the risk that
Equitable Life's computer systems will not operate as intended. Additionally,
there can be no assurance that the systems of third parties will be year 2000
compliant. Any significant unresolved difficulty related to the year 2000
compliance initiatives could result in an interruption in, or a failure of,
normal business operations and, accordingly, could have a material adverse
effect on our ability to administer your Certificate and operate the Investment
Options.
6
<PAGE>
To the fullest extent permitted by law, the foregoing year 2000 discussion is a
"Year 2000 Readiness Disclosure" within the meaning of The Year 2000 Information
and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
7
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------------------
PAGE
----
<S> <C>
Custodian and Independent Accountants 2
Yield Information for the Alliance Money Market Fund, Alliance High
Yield Fund, and Alliance Intermediate Government Securities Fund 2
Financial Statements 2
</TABLE>
HOW TO OBTAIN AN INCOME MANAGER STATEMENT OF ADDITIONAL INFORMATION
FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Income Manager SAI dated May 1, 1999 for the Income Manager
Prospectuses dated December 31, 1997 as supplemented on May 1, 1998 and January
4, 1999.
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
8
<PAGE>
SUPPLEMENT TO INCOME MANAGER(R)
ACCUMULATOR(SM) AND ROLLOVER IRA PROSPECTUSES
DATED OCTOBER 17, 1996
Combination Variable and Fixed Deferred Annuity Certificates
Issued By
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This supplement dated May 1, 1999, updates certain information in the Income
Manager prospectuses dated October 17, 1996 as previously supplemented on May 1,
1997, December 31, 1997, May 1, 1998, and January 4, 1999, of The Equitable Life
Assurance Society of the United States (EQUITABLE LIFE). You should keep the
supplements and the prospectus for future reference. We have filed with the
Securities and Exchange Commission (SEC) our statement of additional information
(SAI) dated May 1, 1999. If you do not presently have a copy of the prospectus
and prior supplements, you may obtain additional copies, as well as a copy of
the SAI, from us, free of charge, by writing to Equitable Life, P.O. Box 1547,
Secaucus, NJ 07096-1547, call (800) 789-7771. If you only need a copy of the
SAI, you may mail in the SAI request form located at the end of this supplement.
The SAI has been incorporated by reference into this supplement.
In this supplement we provide information on (1) three new Investment Funds; (2)
the proposed substitution of Portfolios; (3) unit values and number of
outstanding units for the Investment Funds; (4) Equitable Life; and (5) our Year
2000 progress.
(1) NEW INVESTMENT FUNDS
- ------------------------
You may now allocate your Contributions among 30 Investment Funds. The following
three new Investment Funds are available under your Certificate as of May 1,
1999.
o EQ/Alliance Premier Growth
o Capital Guardian Research
o Capital Guardian U.S. Equity
Each new Investment Fund invests in a corresponding new Portfolio of EQ Advisors
Trust. The objectives and Adviser for each Portfolio are shown below:
PORTFOLIOS OF EQ ADVISORS TRUST
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME OBJECTIVE ADVISER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQ/Alliance Premier Growth Long-term growth of capital Alliance Capital Management L.P.
- ----------------------------------------------------------------------------------------------------------------------
Capital Guardian Research Long-term growth of capital Capital Guardian Trust Company
- ----------------------------------------------------------------------------------------------------------------------
Capital Guardian U.S. Equity Long-term growth of capital Capital Guardian Trust Company
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Copyright 1999 The Equitable Life Assurance Society of the United States.
All rights reserved. Accumulator is a service mark and
Income Manager is a registered service mark of
The Equitable Life Assurance Society of the United States.
SUPPLEMENT DATED MAY 1, 1999
PROS AGTSUPP3 (5/99)
<PAGE>
THE FOLLOWING ARE THE EQ ADVISORS TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TOTAL
OTHER ANNUAL
INVESTMENT EXPENSES(3) EXPENSES(3)
MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE
PORTFOLIOS(1) & ADVISORY FEES 12B-1 FEE(2) LIMITATION) LIMITATION)
- ---------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
EQ/Alliance Premium Growth 0.90% 0.25% 0.00% 1.15%
Capital Guardian Research 0.65% 0.25% 0.05% 0.95%
Capital Guardian U.S. Equity 0.65% 0.25% 0.05% 0.95%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Portfolios commenced operations on May 1, 1999.
(2) Portfolio shares are all subject to fees imposed under distribution plans
(the "Rule 12b-1 Plans") adopted by The Hudson River Trust and EQ Advisors
Trust pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. The 12b-1 fee will not be increased for the life of the contracts.
(3) The maximum investment management and advisory fees for each Portfolio of
EQ Advisors Trust cannot be increased without a vote of that Portfolio's
shareholders. See the prospectus for EQ Advisors Trust. The amounts shown
as "Other Expenses" will fluctuate from year to year depending on actual
expenses. However, EQ Financial Consultants, Inc. ("EQF"), EQ Advisors
Trust's manager, has entered into an expense limitation agreement with
respect to each Portfolio. Under this agreement EQF has agreed to waive or
limit its fees and assume other expenses. Under the expense limitation
agreement, total annual operating expenses of each Portfolio (other than
interest, taxes, brokerage commissions, capitalized expenditures,
extraordinary expenses, and 12b-1 fees) are limited for the average daily
net assets of each Portfolio as follows: 0.90% for EQ/Alliance Premier
Growth; 0.70% for Capital Guardian Research and Capital Guardian U.S.
Equity. During 1999, EQF plans to change its name to AXA Advisors, Inc.
Each Portfolio may at a later date make a reimbursement to EQF for any of
the management fees waived or limited and other expenses assumed and paid
by EQF pursuant to the expense limitation agreement provided that, among
other things, such Portfolio has reached sufficient size to permit such
reimbursement to be made and provided that the Portfolio's current annual
operating expenses do not exceed the operating expense limit determined for
such Portfolio.
THE FOLLOWING EXAMPLES SHOW THE EXPENSES WHICH YOU WOULD PAY IN THE SITUATIONS
ILLUSTRATED. PLEASE REFER TO YOUR PROSPECTUS FOR FURTHER EXPLANATION REGARDING
THE CALCULATION OF THE EXAMPLES.
<TABLE>
<CAPTION>
COMBINED GMDB/GMIB BENEFIT (PLAN A) ELECTION
- ------------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE IF YOU DO NOT SURRENDER YOUR CERTIFICATE
END OF EACH PERIOD SHOWN, THE EXPENSES AT THE END OF EACH PERIOD SHOWN, THE
WOULD BE: EXPENSES WOULD BE:
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQ/Alliance Premier Growth $96.22 $143.66 -- -- $32.99 $101.03 -- --
Capital Guardian Research $94.23 $137.72 -- -- $31.00 $95.09 -- --
Capital Guardian U.S. Equity $94.23 $137.72 -- -- $31.00 $95.09 -- --
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
GMDB ONLY BENEFIT (PLAN B) ELECTION
- ------------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE AT THE IF YOU DO NOT SURRENDER YOUR CERTIFICATE
END OF EACH PERIOD SHOWN, THE EXPENSES AT THE END OF EACH PERIOD SHOWN, THE
WOULD BE: EXPENSES WOULD BE:
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQ/Alliance Premier Growth $96.22 $138.39 -- -- $30.34 $92.78 -- --
Capital Guardian Research $94.23 $132.44 -- -- $28.35 $86.81 -- --
Capital Guardian U.S. Equity $94.23 $132.44 -- -- $28.35 $86.81 -- --
</TABLE>
ANNUITY ADMINISTRATIVE FEE. We generally deduct a $350 annuity administrative
fee from amounts applied to purchase certain life annuity payout options.
Assuming an annuity payout option could be issued and you elect a life annuity
payout option, the expenses shown in the examples for "if you do not surrender
your Certificate" would, in each case, be increased by $4.43 based on the
average amount applied to annuity payout options in 1998.
(2) PROPOSED SUBSTITUTION OF PORTFOLIOS
- ---------------------------------------
We are asking the SEC to approve the substitution of 14 newly created Portfolios
of the EQ Advisors Trust for The Hudson River Trust Portfolios currently
available under the Investment Funds (the "Substitution"). The EQ Advisors Trust
Portfolios will have substantially identical investment objectives, strategies,
and policies as those of The Hudson River Trust Portfolios they would replace.
The assets of any Portfolio of The Hudson River Trust underlying your
Certificate would be transferred to the substituted EQ Advisors Trust Portfolio.
We believe that this Substitution will be in your best interest because you
would have a single set of Investment Funds with similar advisory structures.
You also will have a single EQ Advisors Trust prospectus for all the Portfolios,
rather than the two separate prospectuses you now receive. EQ Financial
Consultants Inc. will be the manager of the new EQ Advisors Trust Portfolios,
and Alliance Capital Management L.P. will continue to provide the day-to-day
advisory services to each of the new Portfolios.
You should note that:
o No action is required on your part. You will not need to vote a proxy, file
a new election, or take any other action if the SEC approves the
Substitution.
o The elections you have on file for allocating your annuity account value
and contributions will remain unchanged until you direct us otherwise.
o We will bear all expenses directly relating to the Substitution
transaction.
o The management fees for the new Portfolios will be the same as those for
the corresponding Portfolios of The Hudson River Trust. Certain of the new
EQ Advisor Trust Portfolios may have slightly higher expense ratios.
o On the effective date of the Substitution transaction, your annuity account
value (i.e., the units you own) in the Investment Funds will be the same as
before the transaction.
o The Substitution will have no tax consequences for you.
3
<PAGE>
Please review the EQ Advisors Trust prospectus that accompanies this prospectus.
It contains more information about the EQ Advisors Trust, including its
management structure, advisory arrangements, and general fees and expenses that
will be of interest to you.
Subject to SEC approval, we expect the Substitution to be completed in the fall
of 1999. It will affect everyone who has a balance in The Hudson River Trust
Portfolios at that time. Of course, you may transfer your annuity account value
among the investment options, as usual.
We will notify you when we receive SEC approval, and again when the Substitution
is complete.
(3) UNIT VALUES AND NUMBER OF UNITS OUTSTANDING FOR EACH INVESTMENT FUND
- ------------------------------------------------------------------------
------------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------------------------------------------------------
THE HUDSON RIVER TRUST FUNDS
Alliance Aggressive Stock
Unit value $71.60
Number of units outstanding (000s) 1,101
Alliance Common Stock
Unit value $249.88
Number of units outstanding (000s) 1,079
Alliance Conservative Investors
Unit value $21.68
Number of units outstanding (000s) 865
Alliance Global
Unit value $33.53
Number of units outstanding (000s) 971
Alliance Growth & Income
Unit value $21.30
Number of units outstanding (000s) 3,481
Alliance Growth Investors
Unit value $35.70
Number of units outstanding (000s) 1,515
Alliance High Yield
Unit value $28.81
Number of units outstanding (000s) 173
Alliance Intermediate Government Securities
Unit value $15.55
Number of units outstanding (000s) 524
Alliance International
Unit value $12.54
Number of units outstanding (000s) 1,001
Alliance Money Market
Unit value $26.92
Number of units outstanding (000s) 839
Alliance Small Cap Growth
Unit value $11.90
Number of units outstanding (000s) 314
4
<PAGE>
------------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
------------------------------------------------------------------------
EQ ADVISORS TRUST FUNDS
BT Equity 500 Index
Unit value $12.37
Number of units outstanding (000s) 2,189
BT International Equity Index
Unit value $11.87
Number of units outstanding (000s) 209
BT Small Company Index
Unit value $9.66
Number of units outstanding (000s) 244
MFS Emerging Growth Companies
Unit value $16.16
Number of units outstanding (000s) 2,619
MFS Research
Unit value $14.13
Number of units outstanding (000s) 2,283
Merrill Lynch Basic Value Equity
Unit value $12.81
Number of units outstanding (000s) 2,127
Merrill Lynch World Strategy
Unit value $10.97
Number of units outstanding (000s) 402
Morgan Stanley Emerging Markets Equity
Unit value $5.73
Number of units outstanding (000s) 567
EQ/Putnam Balanced
Unit value $12.56
Number of units outstanding (000s) 1,625
EQ/Putnam Growth & Income Value
Unit value $12.86
Number of units outstanding (000s) 2,347
T. Rowe Price Equity Income
Unit value $13.07
Number of units outstanding (000s) 3,102
T. Rowe Price International Stock
Unit value $10.98
Number of units outstanding (000s) 1,995
Warburg Pincus Small Company Value
Unit value $10.52
Number of units outstanding (000s) 2,984
5
<PAGE>
(4) UPDATED INFORMATION ON EQUITABLE LIFE
- -----------------------------------------
We are The Equitable Life Assurance Society of the United States ("Equitable
Life"), a New York stock life insurance corporation. We have been doing business
since 1859. Equitable Life is a wholly owned subsidiary of The Equitable
Companies Incorporated ("Equitable Companies"), whose majority shareholder is
AXA, a French holding company for an international group of insurance and
related financial services companies. As a majority shareholder, and under its
other arrangements with Equitable Life and Equitable Life's parent, AXA
exercises significant influence over the operations and capital structure of
Equitable Life and its parent. No company other than Equitable Life, however,
has any legal responsibility to pay amounts that Equitable Life owes under the
contracts. During 1999, Equitable Companies plans to change its name to AXA
Financial, Inc.
Equitable Companies and its consolidated subsidiaries managed approximately
$347.5 billion in assets as of December 31, 1998. For over 100 years we have
been among the largest insurance companies in the United States. We are licensed
to sell life insurance and annuities in all fifty states, the District of
Columbia, Puerto Rico, and the U.S. Virgin Islands. Our home office is located
at 1290 Avenue of the Americas, New York, N.Y. 10104.
(5) ABOUT OUR YEAR 2000 PROGRESS
- ---------------------------------
Equitable Life relies upon various computer systems in order to administer
your Certificate and operate the Investment Options. Some of these systems
belong to service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its
computer systems would recognize the year 2000 before, on or after January 1,
2000, and Equitable Life has identified those of its systems critical to
business operations that were not year 2000 compliant. By year end 1998, the
work of modifying or replacing non-compliant systems was substantially
completed. Equitable Life has begun comprehensive testing of its year 2000
compliance and expects that the testing will be substantially completed by June
30, 1999. Equitable Life has contacted third-party service providers to seek
confirmation that they are acting to address the year 2000 issue with the goal
of avoiding any material adverse effect on services provided to Certificate
owners and on operations of the Investment Options. Most third-party service
providers have provided Equitable Life confirmation of their year 2000
compliance. Equitable Life believes it is on schedule for substantially all such
systems and services, including those considered to be mission-critical, to be
confirmed as year 2000 compliant, renovated, replaced or the subject of
contingency plans, by June 30, 1999, except for one investment accounting system
which is scheduled to be replaced by August 31, 1999 and confirmed as year 2000
compliant by September 30, 1999. Additionally, Equitable Life will be
supplementing its existing business continuity and disaster recovery plans to
cover certain categories of contingencies that could arise as a result of year
2000 related failures. Year 2000 specific contingency plans are anticipated to
be in place by June 30, 1999.
There are many risks associated with year 2000 issues, including the risk
that Equitable Life's computer systems will not operate as intended.
Additionally, there can be no assurance that the systems of third parties will
be year 2000 compliant. Any significant unresolved difficulty related to the
year 2000 compliance initiatives could result in an interruption in, or a
failure of, normal business operations and, accordingly, could have a material
adverse effect on our ability to administer your Certificate and operate the
Investment Options.
6
<PAGE>
To the fullest extent permitted by law, the foregoing year 2000 discussion
is a "Year 2000 Readiness Disclosure" within the meaning of The Year 2000
Information and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------------------
PAGE
----
<S> <C>
Custodian and Independent Accountants 2
Yield Information for the Alliance Money Market Fund, Alliance High
Yield Fund, and Alliance Intermediate Government Securities Fund 2
Financial Statements 2
</TABLE>
HOW TO OBTAIN AN INCOME MANAGER STATEMENT OF ADDITIONAL INFORMATION
FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Income Manager SAI dated May 1, 1999 for the Income Manager
Prospectuses dated October 17, 1996 as supplemented on May 1, 1997, December 31,
1997, May 1, 1998, and January 4, 1999:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
8
<PAGE>
SUPPLEMENT TO INCOME MANAGER(R)
ACCUMULATOR(SM) AND ROLLOVER IRA PROSPECTUSES
DATED MAY 1, 1996
Combination Variable and Fixed Deferred Annuity Certificates
Issued By
The Equitable Life Assurance Society of the United States
- --------------------------------------------------------------------------------
This supplement dated May 1, 1999, updates certain information in the Income
Manager prospectuses dated May 1, 1996 as previously supplemented on May 1,
1997, December 31, 1997, May 1, 1998, and January 4, 1999, of The Equitable Life
Assurance Society of the United States (EQUITABLE LIFE). You should keep the
supplements and the prospectus for future reference. We have filed with the
Securities and Exchange Commission (SEC) our statement of additional information
(SAI) dated May 1, 1999. If you do not presently have a copy of the prospectus
and prior supplements, you may obtain additional copies, as well as a copy of
the SAI, from us, free of charge, by writing to Equitable Life, P.O. Box 1547,
Secaucus, NJ 07096-1547, call (800) 789-7771. If you only need a copy of the
SAI, you may mail in the SAI request form located at the end of this supplement.
The SAI has been incorporated by reference into this supplement.
In this supplement we provide information on (1) three new Investment Funds; (2)
the proposed substitution of Portfolios; (3) unit values and number of
outstanding units for the Investment Funds; (4) Equitable Life; and (5) our Year
2000 progress.
(1) NEW INVESTMENT FUNDS
- ------------------------
You may now allocate your Contributions among 30 Investment Funds. The following
three new Investment Funds are available under your Certificate as of May 1,
1999.
o EQ/Alliance Premier Growth
o Capital Guardian Research
o Capital Guardian U.S. Equity
Each new Investment Fund invests in a corresponding new Portfolio of EQ Advisors
Trust. The objectives and Adviser for each Portfolio are shown below:
<TABLE>
<CAPTION>
PORTFOLIOS OF EQ ADVISORS TRUST
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME OBJECTIVE ADVISER
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQ/Alliance Premier Growth Long-term growth of capital Alliance Capital Management L.P.
- ----------------------------------------------------------------------------------------------------------------------
Capital Guardian Research Long-term growth of capital Capital Guardian Trust Company
- ----------------------------------------------------------------------------------------------------------------------
Capital Guardian U.S. Equity Long-term growth of capital Capital Guardian Trust Company
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Copyright 1999 The Equitable Life Assurance Society of the United States.
All rights reserved. Accumulator is a service mark and
Income Manager is a registered service mark of The Equitable
Life Assurance Society of the United States.
SUPPLEMENT DATED MAY 1, 1999
PROS AGTSUPP4 (5/99)
<PAGE>
THE FOLLOWING ARE THE EQ ADVISORS TRUST ANNUAL EXPENSES (AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS IN EACH PORTFOLIO):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TOTAL
OTHER ANNUAL
INVESTMENT EXPENSES(3) EXPENSES(3)
MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE
PORTFOLIOS(1) & ADVISORY FEES 12B-1 FEE(2) LIMITATION) LIMITATION)
- ---------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
EQ/Alliance Premium Growth 0.90% 0.25% 0.00% 1.15%
Capital Guardian Research 0.65% 0.25% 0.05% 0.95%
Capital Guardian U.S. Equity 0.65% 0.25% 0.05% 0.95%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Portfolios commenced operations on May 1, 1999.
(2) Portfolio shares are all subject to fees imposed under distribution plans
(the "Rule 12b-1 Plans") adopted by The Hudson River Trust and EQ Advisors
Trust pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. The 12b-1 fee will not be increased for the life of the contracts.
(3) The maximum investment management and advisory fees for each Portfolio of
EQ Advisors Trust cannot be increased without a vote of that Portfolio's
shareholders. See the prospectus for EQ Advisors Trust. The amounts shown
as "Other Expenses" will fluctuate from year to year depending on actual
expenses. However, EQ Financial Consultants, Inc. ("EQF"), EQ Advisors
Trust's manager, has entered into an expense limitation agreement with
respect to each Portfolio. Under this agreement EQF has agreed to waive or
limit its fees and assume other expenses. Under the expense limitation
agreement, total annual operating expenses of each Portfolio (other than
interest, taxes, brokerage commissions, capitalized expenditures,
extraordinary expenses, and 12b-1 fees) are limited for the average daily
net assets of each Portfolio as follows: 0.90% for EQ/Alliance Premier
Growth; 0.70% for Capital Guardian Research and Capital Guardian U.S.
Equity. During 1999, EQF plans to change its name to AXA Advisors, Inc.
Each Portfolio may at a later date make a reimbursement to EQF for any of
the management fees waived or limited and other expenses assumed and paid
by EQF pursuant to the expense limitation agreement provided that, among
other things, such Portfolio has reached sufficient size to permit such
reimbursement to be made and provided that the Portfolio's current annual
operating expenses do not exceed the operating expense limit determined for
such Portfolio.
THE FOLLOWING EXAMPLES SHOW THE EXPENSES WHICH YOU WOULD PAY IN THE SITUATIONS
ILLUSTRATED. PLEASE REFER TO YOUR PROSPECTUS FOR FURTHER EXPLANATION REGARDING
THE CALCULATION OF THE EXAMPLES.
<TABLE>
<CAPTION>
FOR ACCUMULATOR CERTIFICATES
- ------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE IF YOU DO NOT SURRENDER YOUR CERTIFICATE
AT THE END OF EACH PERIOD SHOWN, AT THE END OF EACH PERIOD SHOWN, THE
THE EXPENSES WOULD BE: EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQ/Alliance Premier Growth $96.22 $141.56 -- -- $31.93 $97.73 -- --
Capital Guardian Research $94.23 $135.61 -- -- $29.94 $91.78 -- --
Capital Guardian U.S. Equity $94.23 $135.61 -- -- $29.94 $91.78 -- --
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FOR ROLLOVER IRA CERTIFICATES
- ------------------------------------------------------------------------------------------------------------------------------
IF YOU SURRENDER YOUR CERTIFICATE IF YOU DO NOT SURRENDER YOUR CERTIFICATE
AT THE END OF EACH PERIOD SHOWN, AT THE END OF EACH PERIOD SHOWN, THE
THE EXPENSES WOULD BE: EXPENSES WOULD BE:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQ/Alliance Premier Growth $96.22 $138.39 -- -- $30.34 $92.78 -- --
Capital Guardian Research $94.23 $132.44 -- -- $28.35 $86.81 -- --
Capital Guardian U.S. Equity $94.23 $132.44 -- -- $28.35 $86.81 -- --
</TABLE>
ANNUITY ADMINISTRATIVE FEE. We generally deduct a $350 annuity administrative
fee from amounts applied to purchase certain life annuity payout options.
Assuming an annuity payout option could be issued and you elect a life annuity
payout option, the expenses shown in the examples for "if you do not surrender
your Certificate" would, in each case, be increased by $4.43 based on the
average amount applied to annuity payout options in 1998.
(2) PROPOSED SUBSTITUTION OF PORTFOLIOS
- ---------------------------------------
We are asking the SEC to approve the substitution of 14 newly created Portfolios
of the EQ Advisors Trust for The Hudson River Trust Portfolios currently
available under the Investment Funds (the "Substitution"). The EQ Advisors Trust
Portfolios will have substantially identical investment objectives, strategies,
and policies as those of The Hudson River Trust Portfolios they would replace.
The assets of any Portfolio of The Hudson River Trust underlying your
Certificate would be transferred to the substituted EQ Advisors Trust Portfolio.
We believe that this Substitution will be in your best interest because you
would have a single set of Investment Funds with similar advisory structures.
You also will have a single EQ Advisors Trust prospectus for all the Portfolios,
rather than the two separate prospectuses you now receive. EQ Financial
Consultants Inc. will be the manager of the new EQ Advisors Trust Portfolios,
and Alliance Capital Management L.P. will continue to provide the day-to-day
advisory services to each of the new Portfolios.
You should note that:
o No action is required on your part. You will not need to vote a proxy, file
a new election, or take any other action if the SEC approves the
Substitution.
o The elections you have on file for allocating your annuity account value
and contributions will remain unchanged until you direct us otherwise.
o We will bear all expenses directly relating to the Substitution
transaction.
o The management fees for the new Portfolios will be the same as those for
the corresponding Portfolios of The Hudson River Trust. Certain of the new
EQ Advisor Trust Portfolios may have slightly higher expense ratios.
o On the effective date of the Substitution transaction, your annuity account
value (i.e., the units you own) in the Investment Funds will be the same as
before the transaction.
o The Substitution will have no tax consequences for you.
3
<PAGE>
Please review the EQ Advisors Trust prospectus that accompanies this prospectus.
It contains more information about the EQ Advisors Trust, including its
management structure, advisory arrangements, and general fees and expenses that
will be of interest to you.
Subject to SEC approval, we expect the Substitution to be completed in the fall
of 1999. It will affect everyone who has a balance in The Hudson River Trust
Portfolios at that time. Of course, you may transfer your annuity account value
among the investment options, as usual.
We will notify you when we receive SEC approval, and again when the Substitution
is complete.
(3) UNIT VALUES AND NUMBER OF UNITS OUTSTANDING FOR EACH INVESTMENT FUND
- ------------------------------------------------------------------------
---------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
---------------------------------------------------------------------
THE HUDSON RIVER TRUST FUNDS
Alliance Aggressive Stock
Unit value $71.60
Number of units outstanding (000s) 1,101
Alliance Common Stock
Unit value $249.88
Number of units outstanding (000s) 1,079
Alliance Conservative Investors
Unit value $21.68
Number of units outstanding (000s) 865
Alliance Global
Unit value $33.53
Number of units outstanding (000s) 971
Alliance Growth & Income
Unit value $21.30
Number of units outstanding (000s) 3,481
Alliance Growth Investors
Unit value $35.70
Number of units outstanding (000s) 1,515
Alliance High Yield
Unit value $28.81
Number of units outstanding (000s) 173
Alliance Intermediate Government Securities
Unit value $15.55
Number of units outstanding (000s) 524
Alliance International
Unit value $12.54
Number of units outstanding (000s) 1,001
Alliance Money Market
Unit value $26.92
Number of units outstanding (000s) 839
Alliance Small Cap Growth
Unit value $11.90
Number of units outstanding (000s) 314
4
<PAGE>
---------------------------------------------------------------------
FOR THE YEAR ENDING
DEC. 31, 1998
---------------------------------------------------------------------
EQ ADVISORS TRUST FUNDS
BT Equity 500 Index
Unit value $12.37
Number of units outstanding (000s) 2,189
BT International Equity Index
Unit value $11.87
Number of units outstanding (000s) 209
BT Small Company Index
Unit value $9.66
Number of units outstanding (000s) 244
MFS Emerging Growth Companies
Unit value $16.16
Number of units outstanding (000s) 2,619
MFS Research
Unit value $14.13
Number of units outstanding (000s) 2,283
Merrill Lynch Basic Value Equity
Unit value $12.81
Number of units outstanding (000s) 2,127
Merrill Lynch World Strategy
Unit value $10.97
Number of units outstanding (000s) 402
Morgan Stanley Emerging Markets Equity
Unit value $5.73
Number of units outstanding (000s) 567
EQ/Putnam Balanced
Unit value $12.56
Number of units outstanding (000s) 1,625
EQ/Putnam Growth & Income Value
Unit value $12.86
Number of units outstanding (000s) 2,347
T. Rowe Price Equity Income
Unit value $13.07
Number of units outstanding (000s) 3,102
T. Rowe Price International Stock
Unit value $10.98
Number of units outstanding (000s) 1,995
Warburg Pincus Small Company Value
Unit value $10.52
Number of units outstanding (000s) 2,984
5
<PAGE>
(4) UPDATED INFORMATION ON EQUITABLE LIFE
- -----------------------------------------
We are The Equitable Life Assurance Society of the United States ("Equitable
Life"), a New York stock life insurance corporation. We have been doing business
since 1859. Equitable Life is a wholly owned subsidiary of The Equitable
Companies Incorporated ("Equitable Companies"), whose majority shareholder is
AXA, a French holding company for an international group of insurance and
related financial services companies. As a majority shareholder, and under its
other arrangements with Equitable Life and Equitable Life's parent, AXA
exercises significant influence over the operations and capital structure of
Equitable Life and its parent. No company other than Equitable Life, however,
has any legal responsibility to pay amounts that Equitable Life owes under the
contracts. During 1999, Equitable Companies plans to change its name to AXA
Financial, Inc.
Equitable Companies and its consolidated subsidiaries managed approximately
$347.5 billion in assets as of December 31, 1998. For over 100 years we have
been among the largest insurance companies in the United States. We are licensed
to sell life insurance and annuities in all fifty states, the District of
Columbia, Puerto Rico, and the U.S. Virgin Islands. Our home office is located
at 1290 Avenue of the Americas, New York, N.Y. 10104.
(5) ABOUT OUR YEAR 2000 PROGRESS
- --------------------------------
Equitable Life relies upon various computer systems in order to
administer your Certificate and operate the Investment Options. Some of these
systems belong to service providers who are not affiliated with Equitable Life.
In 1995, Equitable Life began addressing the question of whether its
computer systems would recognize the year 2000 before, on or after January 1,
2000, and Equitable Life has identified those of its systems critical to
business operations that were not year 2000 compliant. By year end 1998, the
work of modifying or replacing non-compliant systems was substantially
completed. Equitable Life has begun comprehensive testing of its year 2000
compliance and expects that the testing will be substantially completed by June
30, 1999. Equitable Life has contacted third-party service providers to seek
confirmation that they are acting to address the year 2000 issue with the goal
of avoiding any material adverse effect on services provided to Certificate
owners and on operations of the Investment Options. Most third-party service
providers have provided Equitable Life confirmation of their year 2000
compliance. Equitable Life believes it is on schedule for substantially all such
systems and services, including those considered to be mission-critical, to be
confirmed as year 2000 compliant, renovated, replaced or the subject of
contingency plans, by June 30, 1999, except for one investment accounting system
which is scheduled to be replaced by August 31, 1999 and confirmed as year 2000
compliant by September 30, 1999. Additionally, Equitable Life will be
supplementing its existing business continuity and disaster recovery plans to
cover certain categories of contingencies that could arise as a result of year
2000 related failures. Year 2000 specific contingency plans are anticipated to
be in place by June 30, 1999.
There are many risks associated with year 2000 issues, including the
risk that Equitable Life's computer systems will not operate as intended.
Additionally, there can be no assurance that the systems of third parties will
be year 2000 compliant. Any significant unresolved difficulty related to the
year 2000 compliance initiatives could result in an interruption in, or a
failure of, normal business operations and, accordingly, could have a material
adverse effect on our ability to administer your Certificate and operate the
Investment Options.
6
<PAGE>
To the fullest extent permitted by law, the foregoing year 2000
discussion is a "Year 2000 Readiness Disclosure" within the meaning of The Year
2000 Information and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
7
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
----
Custodian and Independent Accountants 2
Yield Information for the Alliance Money Market Fund,
Alliance High Yield Fund, and Alliance Intermediate 2
Government Securities Fund
Financial Statements 2
HOW TO OBTAIN AN INCOME MANAGER STATEMENT OF ADDITIONAL INFORMATION
FOR SEPARATE ACCOUNT NO. 45
Send this request form to:
Equitable Life
P.O. Box 1547
Secaucus, NJ 07096-1547
Please send me an Income Manager SAI dated May 1, 1999 for the Income Manager
Prospectuses dated May 1, 1996 as supplemented on May 1, 1997, December 31,
1997, May 1, 1998, and January 4, 1999:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
8
<PAGE>
EQUITABLE ACCUMULATOR(SM)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
--------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CONTRACTS
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
1290 AVENUE OF THE AMERICAS, NEW YORK, NY 10104
- --------------------------------------------------------------------------------
This statement of additional information ("SAI") is not a prospectus. It should
be read in conjunction with the related Separate Account No. 45 prospectus for
the Equitable Accumulator dated May 1, 1998 as supplemented on January 4, 1999.
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 (Post Office Box 1547, Secaucus, NJ 07096-1547), by calling
1-800-789-7771 toll-free, or by contacting your agent.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------------------------------------------------------
PAGE
<S> <C>
Custodian and Independent Accountants 2
- -------------------------------------------------------------------------------------------------------------------------------
Yield Information for the Alliance Money Market Fund, Alliance High Yield Fund, 2
and Alliance Intermediate Government Securities Fund
- -------------------------------------------------------------------------------------------------------------------------------
Financial Statements 2
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Copyright 1999 The Equitable Life Assurance Society of the United States.
All rights reserved. Accumulator is a service mark of
The Equitable Life Assurance Society of the United States.
(AGTSUPPSAI 5/99)
<PAGE>
- --------------------------------------------------------------------------------
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for the shares of The Hudson River Trust and EQ
Advisors Trust owned by the variable annuity options.
The financial statements of Separate Account No. 45 as at December 31, 1998 and
for the periods ended December 31, 1998 and 1997, and the consolidated financial
statements of Equitable Life as at December 31, 1998 and 1997 and for each of
the three years ended December 31, 1998 included in this SAI have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
- --------------------------------------------------------------------------------
YIELD INFORMATION FOR THE
ALLIANCE MONEY MARKET FUND,
ALLIANCE HIGH YIELD FUND, AND
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES FUND
The yields for the Alliance Money Market Fund, Alliance High Yield Fund, and
Alliance Intermediate Government Securities Fund reflect charges that are not
normally reflected in the yields of other investments. Therefore, they may be
lower when compared with yields of other investments. The yields for the
Alliance Money Market Fund, Alliance High Yield Fund, and Alliance Intermediate
Government Securities Fund should not be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods, such as the
fixed interest options. Nor should the yields be compared to the yields of money
market options made available to the general public.
The yields reflect the deduction of Investment Fund expenses, they are lower
than the corresponding yield figures for the Alliance Money Market, Alliance
High Yield, and Alliance Intermediate Government Securities Portfolios which
reflect only the deduction of The Hudson River Trust-level expenses.
- --------------------------------------------------------------------------------
The seven-day current yield for the Alliance Money Market Fund was 4.19% for the
period ended December 31, 1998. The effective yield for that period was 4.28%.
The 30-day current yield for the Alliance High Yield Fund was 12.89% for the
period ended December 31, 1998.
The 30-day current yield for the Intermediate Government Securities Fund was
3.15% for the period ended December 31, 1998.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the contracts.
2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants ..................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1998 ............ FS-3
Statements of Operations for the Year Ended December 31, 1998 ...... FS-6
Statements of Changes in Net Assets for the Years Ended
December 31, 1998 and 1997 ....................................... FS-9
Notes to Financial Statements ...................................... FS-15
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ..................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1998 and 1997 ............ F-2
Consolidated Statements of Earnings, Years Ended December
31, 1998, 1997 and 1996 .......................................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended
December 31, 1998,
1997 and 1996 ................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31,
1998, 1997 and 1996 .............................................. F-5
Notes to Consolidated Financial Statements ......................... F-6
FS-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 45
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund,
Alliance Growth & Income Fund, Alliance Equity Index Fund, Alliance Common Stock
Fund, Alliance Global Fund, Alliance International Fund, Alliance Aggressive
Stock Fund, Alliance Small Cap Growth Fund, Alliance Conservative Investors
Fund, Alliance Growth Investors Fund, ("Hudson River Trust funds") and T. Rowe
Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, BT Equity 500
Index Fund, Merrill Lynch Basic Value Equity Fund, MFS Research Fund, BT
International Equity Index Fund, T. Rowe Price International Stock Fund, Morgan
Stanley Emerging Markets Equity Fund, Warburg Pincus Small Company Value Fund,
BT Small Company Index Fund, MFS Emerging Growth Companies Fund, EQ/Putnam
Balanced Fund and Merrill Lynch World Strategy Fund ("EQ Advisors Trust funds"),
separate investment funds of The Equitable Life Assurance Society of the United
States ("Equitable Life") Separate Account No. 45 at December 31, 1998 and the
results of each of their operations and changes in each of their net assets for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Equitable
Life's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1998 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $162,642,654 ....................... $162,027,740
38,988,768 ....................... $39,087,424
79,874,329 ....................... $68,956,617
52,351,834 .......................
38,500,311 .......................
179,571,303 .......................
51,702,567 .......................
367,878 .......................
40,156,608 .......................
Receivable for Trust shares sold ............ -- -- --
Receivable for policy-related transactions .. 4,052,521 284,956 281,931
------------ ----------- -----------
Total Assets ................................ 166,080,261 39,372,380 69,238,548
------------ ----------- -----------
LIABILITIES
Payable for Trust shares
purchased ................................ 4,071,280 311,491 285,060
Payable for policy-related
transactions ............................. -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 51,090 37,552 17,444
------------ ----------- -----------
Total Liabilities ........................... 4,122,370 349,043 302,504
------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $161,957,891 $39,023,337 $68,936,044
============ =========== ===========
<CAPTION>
EQUITY SERIES:
------------------------------------------------------------------------------------
MERRILL
T. ROWE EQ/PUTNAM ALLIANCE LYNCH
PRICE GROWTH & ALLIANCE BT EQUITY EQUITY BASIC VALUE
EQUITY INCOME GROWTH & 500 INDEX INDEX EQUITY
INCOME FUND VALUE FUND INCOME FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $162,642,654 .......................
38,988,768 .......................
79,874,329 .......................
52,351,834 ....................... $54,352,075
38,500,311 ....................... $41,327,548
179,571,303 ....................... $194,812,344
51,702,567 ....................... $57,083,310
367,878 ....................... $429,900
40,156,608 ....................... $40,154,990
Receivable for Trust shares sold ............ -- -- -- -- -- --
Receivable for policy-related transactions .. 192,690 169,537 886,818 1,978,165 12,773 297,870
----------- ----------- ------------ ----------- -------- -----------
Total Assets ................................ 54,544,765 41,497,085 195,699,162 59,061,475 442,673 40,452,860
----------- ----------- ------------ ----------- -------- -----------
LIABILITIES
Payable for Trust shares purchased .......... 192,690 169,537 914,736 1,978,218 13,332 297,913
Payable for policy related transactions...... -- -- -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 38,209 31,750 144,163 59,481 8,903 24,813
----------- ----------- ------------ ----------- -------- -----------
Total Liabilities ........................... 230,899 201,287 1,058,899 2,037,699 22,235 322,726
----------- ----------- ------------ ----------- -------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $54,313,866 $41,295,798 $194,640,263 $57,023,776 $420,438 $40,130,134
=========== =========== ============ =========== ======== ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $614,422,976 ....................... $673,522,100
46,867,524 ....................... $53,094,944
62,242,799 ....................... $66,482,102
19,182,262 ....................... $20,109,775
5,069,139 .......................
28,158,931 .......................
5,282,220 .......................
158,195,007 .......................
Receivable for Trust shares sold ............ -- -- -- 1,621,423
Receivable for policy-related transaction ... 3,169,259 789,675 223,087 --
------------ ----------- ----------- -----------
Total Assets ................................ 676,691,359 53,884,619 66,705,189 21,731,198
------------ ----------- ----------- -----------
LIABILITIES
Payable for Trust shares sold ............... 3,174,080 789,704 228,019 --
Payable for policy-related transactions ..... -- -- -- 1,629,516
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 15,873 11,321 69,713 23,074
------------ ----------- ----------- -----------
Total Liabilities ........................... 3,189,953 801,025 297,732 1,652,590
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $673,501,406 $53,083,594 $66,407,457 $20,078,608
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
MORGAN
T. ROWE STANLEY
BT PRICE EMERGING ALLIANCE
INTERNATIONAL INTERNATIONAL MARKETS AGGRESSIVE
EQUITY STOCK EQUITY STOCK
INDEX FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $614,422,976 .......................
46,867,524 .......................
62,242,799 .......................
19,182,262 .......................
5,069,139 ....................... $5,353,580
28,158,931 ....................... $29,654,895
5,282,220 ....................... $4,273,794
158,195,007 ....................... $147,616,537
Receivable for Trust shares sold ............ 228,451 -- -- --
Receivable for policy-related transaction ... -- 158,444 25,127 305,836
---------- ----------- ---------- ------------
Total Assets ................................ 5,582,031 29,813,339 4,298,921 147,922,373
---------- ----------- ---------- ------------
LIABILITIES
Payable for Trust shares sold ............... -- 158,443 26,143 313,060
Payable for policy-related transactions ..... 228,419 -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 6,600 22,436 8,961 11,344
---------- ----------- ---------- ------------
Total Liabilities ........................... 235,019 180,879 35,104 324,404
---------- ----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $5,347,012 $29,632,460 $4,263,817 $147,597,969
========== =========== ========== ============
</TABLE>
- ------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
------------------------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP BT SMALL GROWTH
COMPANY GROWTH COMPANY COMPANIES
VALUE FUND FUND INDEX FUND FUND
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 41,502,596............................... $37,275,602
42,123,172............................. $40,301,314
5,078,731............................. $5,098,116
61,770,493............................. $73,588,750
50,900,433.............................
33,319,831.............................
120,367,795.............................
5,865,231.............................
Receivable for Trust shares sold.................. -- -- -- --
Receivable for policy-related transactions........ 87,152 1,031,150 41,271 834,313
------------ ---------- ----------- ------------
Total Assets...................................... 37,362,754 41,332,464 5,139,387 74,423,063
------------ ---------- ----------- ------------
LIABILITIES
Payable for Trust shares purchased................ 87,151 1,035,757 41,271 834,334
Payable for policy-related transactions.......... -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 25,995 51,378 6,603 24,127
------------ ---------- ----------- ------------
Total Liabilities................................. 113,146 1,087,135 47,874 858,461
------------ ---------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS......... $37,249,608 $40,245,329 $5,091,513 $73,564,602
=========== =========== ========== ============
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 41,502,596.............................
42,123,172.............................
5,078,731.............................
61,770,493.............................
50,900,433............................. $51,458,514
33,319,831............................. $34,637,097
120,367,795............................. $126,599,682
5,865,231............................. $5,947,148
Receivable for Trust shares sold.................. -- -- -- --
Receivable for policy-related transactions........ 445,717 649,638 394,969 45,950
----------- ----------- ------------ ----------
Total Assets...................................... 51,904,231 35,286,735 126,994,651 5,993,098
----------- ----------- ------------ ----------
LIABILITIES
Payable for Trust shares purchased................ 447,264 649,660 435,647 45,950
Payable for policy-related transactions.......... -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 141,475 16,519 79,665 5,185
----------- ----------- ------------ ----------
Total Liabilities................................. 588,739 666,179 515,312 51,135
----------- ----------- ------------ ----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS......... $51,315,492 $34,620,556 $126,479,339 $5,941,963
=========== =========== ============ ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND
----------- ---------- -------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .............$5,658,138 $1,260,940 $ 5,454,605
Expenses (Note 3):
Asset-based charges 737,652 268,963 542,692
---------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ................ 4,920,486 991,977 4,911,913
---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ......
Realized gain distribution from the ...... 149,548 255,764 (1,040,219)
Trusts ................................ 4,257 -- 1,292,662
---------- ---------- -----------
NET REALIZED GAIN (LOSS) .................... 153,805 255,764 252,443
---------- ---------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... (465,201) 21,939 (786,186)
End of period ............................ (614,915) 98,656 (10,917,712)
---------- ---------- -----------
Change in unrealized appreciation ........
(depreciation) during the period ...... (149,714) 76,717 (10,131,526)
---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON ..
INVESTMENTS .............................. 4,091 332,481 (9,879,083)
---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ....
RESULTING FROM OPERATIONS ................$4,924,577 $1,324,458 $(4,967,170)
========== ========== ===========
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------------------------------
T.ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & BT EQUITY EQUITY BASIC VALUE
INCOME INCOME INCOME 500 INDEX INDEX EQUITY
FUND FUND VALUE FUND FUND FUND FUND
---------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .............$ 871,348 $ 348,923 $ 382,870 $ 254,693 $ 2,310 $ 377,168
Expenses (Note 3):
Asset-based charges
394,056 298,502 1,602,233 203,672 2,588 269,948
---------- ---------- ----------- ---------- ------- ----------
NET INVESTMENT INCOME (LOSS) ................ 477,292 50,421 (1,219,363) 51,021 (278) 107,220
---------- ---------- ----------- ---------- ------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ......
Realized gain distribution from the ...... 43,764 (69,351) 2,807,006 (262,278) 5,225 (175,666)
Trusts ................................ 1,120,050 315,112 15,440,331 -- 112 1,307,680
---------- ---------- ----------- ---------- ------- ----------
NET REALIZED GAIN (LOSS) .................... 1,163,814 245,761 18,247,337 (262,278) 5,337 1,132,014
---------- ---------- ----------- ---------- ------- ----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... 980,406 191,128 5,616,378 -- 4,722 (64,333)
End of period ............................ 2,000,241 2,827,238 15,241,041 5,380,743 62,022 (1,617)
---------- ---------- ----------- ---------- ------- ----------
Change in unrealized appreciation ........
(depreciation) during the period ...... 1,019,835 2,636,110 9,624,663 5,380,743 57,300 62,716
---------- ---------- ----------- ---------- ------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON ..
INVESTMENTS .............................. 2,183,649 2,881,871 27,872,000 5,118,465 62,637 1,194,730
---------- ---------- ----------- ---------- ------- ==========
NET INCREASE (DECREASE) IN NET ASSETS ....
RESULTING FROM OPERATIONS ................$2,660,941 $2,932,292 $26,652,637 $5,169,486 $62,359 $1,301,950
========== ========== =========== ========== ======= ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
-----------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ............. $ 2,403,283 $ 131,068 $ 598,042 $ 340,200
Expenses (Note 3):
Asset-based charges ................... 5,424,534 307,489 589,611 215,726
------------ ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ................ (3,021,251) (176,421) 8,431 124,474
------------ ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... 10,230,950 60,560 749,415 (1,566,752)
Realized gain distribution from the Trusts 79,194,636 -- 4,143,459 3,718
------------ ---------- ---------- -----------
NET REALIZED GAIN (LOSS) .................... 89,425,586 60,560 4,892,874 (1,563,034)
------------ ---------- ---------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... 23,451,447 37,510 (244,398) (2,137,851)
End of period ............................ 59,099,124 6,227,419 4,239,304 927,513
------------ ---------- ---------- -----------
Change in unrealized appreciation
(depreciation) during the period ........ 35,647,677 6,189,909 4,483,702 3,065,364
------------ ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. 125,073,263 6,250,469 9,376,576 1,502,330
------------ ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... $122,052,012 $6,074,048 $9,385,007 $ 1,626,804
============ ========== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED):
-------------------------------------------------------
MORGAN
T. ROWE STANLEY
BT PRICE EMERGING ALLIANCE
INTERNATIONAL INTER- MARKETS AGGRESSIVE
EQUITY NATIONAL EQUITY STOCK
INDEX FUND STOCK FUND FUND FUND
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ............. $ 66,107 $ 245,522 $ 16,085 $ 586,576
Expenses (Note 3):
Asset-based charges ................... 22,058 217,929 35,466 1,537,723
-------- ---------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ................ 44,049 27,593 (19,381) (951,147)
-------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... (38,281) 73,956 (337,130) (1,170,454)
Realized gain distribution from the Trusts -- 228 -- 6,889,454
-------- ---------- ----------- -----------
NET REALIZED GAIN (LOSS) .................... (38,281) 74,184 (337,130) 5,719,000
-------- ---------- ----------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... -- (576,978) (238,282) (3,851,402)
End of period ............................ 284,441 1,495,964 (1,008,425) 10,578,470)
-------- ---------- ----------- -----------
Change in unrealized appreciation
(depreciation) during the period ........ 284,441 2,072,942 (770,143) (6,727,068)
-------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. 246,160 2,147,126 (1,107,273) (1,008,068)
-------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... $290,209 $2,174,719 $(1,126,654) $(1,959,215)
======== ========== =========== ===========
</TABLE>
- ------------------
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
---------------------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE BT SMALL EMERGING
COMPANY SMALL CAP COMPANY GROWTH
VALUE GROWTH INDEX COMPANIES
FUND FUND FUND FUND
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .................... $ 172,128 $ 716 $ 34,326 $ 901
Expenses (Note 3):
Asset-based charges .......................... 355,215 336,205 20,638 373,152
----------- ----------- -------- -----------
NET INVESTMENT INCOME (LOSS) ....................... (183,087) (335,489) 13,688 (372,251)
----------- ----------- -------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ............. (395,526) (513,118) (50,161) 163,114
Realized gain distribution from the Trusts ...... -- -- 65,264 --
----------- ----------- -------- -----------
NET REALIZED GAIN (LOSS) ........................... (395,526) (513,118) 15,103 163,114
----------- ----------- -------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ............................. (300,436) (344,436) -- (259,194)
End of period ................................... (4,226,993) (1,821,859) 19,385 11,818,257
----------- ----------- -------- -----------
Change in unrealized appreciation
(depreciation)during the period ................ (3,926,557) (1,477,423) 19,385 12,077,451
----------- ----------- -------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ..................................... (4,322,083) (1,990,541) 34,488 12,240,565
----------- ----------- -------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ...................................... $(4,505,170) $(2,326,030) $ 48,176 $11,868,314
=========== =========== ======== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------------
ALLIANCE MERRILL
CONSERVA- ALLIANCE LYNCH
TIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .................... $1,373,189 $ 593,087 $ 1,887,685 $ 42,482
Expenses (Note 3):
Asset-based charges .......................... 387,733 194,358 1,064,812 31,672
---------- ---------- ----------- ---------
NET INVESTMENT INCOME (LOSS) ....................... 985,456 398,729 822,873 10,810
---------- ---------- ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ............. 568,518 (130,136) 736,026 (38,321)
Realized gain distribution from the Trusts ...... 2,571,769 355,759 9,800,094 --
---------- ---------- ----------- ---------
NET REALIZED GAIN (LOSS) ........................... 3,140,287 225,623 10,536,120 (38,321)
---------- ---------- ----------- ---------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ............................. 482,745 73,582 1,685,711 (129,123)
End of period ................................... 558,081 1,317,266 6,231,888 81,917
---------- ---------- ----------- ---------
Change in unrealized appreciation
(depreciation)during the period ................ 75,336 1,243,684 4,546,177 211,040
---------- ---------- ----------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ..................................... 3,215,623 1,469,307 15,082,297 172,719
---------- ---------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ...................................... $4,201,079 $1,868,036 $15,905,170 $ 183,529
========== ========== =========== =========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
-------------------------------
ALLIANCE
MONEY MARKET FUND
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 4,920,486 $ 2,322,115
Net realized gain (loss)...................................... 153,805 64,275
Change in unrealized appreciation (depreciation) of investments (149,714) (267,302)
------------ ------------
Net increase (decrease) in net assets from operations......... 4,924,577 2,119,088
------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 216,826,115 137,532,670
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 113,746,706 55,819,439
------------ ------------
Total..................................................... 330,572,821 193,352,109
------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 10,986,665 1,577,365
Withdrawal and administrative charges......................... 230,600 618,083
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 243,665,058 144,167,408
------------ ------------
Total....................................................... 254,882,323 146,362,856
------------ ------------
Net increase in net assets from Contractowners
transactions................................................ 75,690,498 46,989,253
------------ ------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (15,545) (46,770)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 80,599,530 49,061,571
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 81,358,361 32,296,790
------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $161,957,891 $ 81,358,361
============ ============
<CAPTION>
FIXED INCOME SERIES:
---------------------------
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES FUND
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 991,977 $ 303,709
Net realized gain (loss)...................................... 255,764 12,754
Change in unrealized appreciation (depreciation) of investments 76,717 58,654
----------- -----------
Net increase (decrease) in net assets from operations......... 1,324,458 375,117
----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 19,720,434 5,416,131
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 20,781,791 3,270,944
----------- -----------
Total..................................................... 40,502,225 8,687,075
----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 1,040,600 189,517
Withdrawal and administrative charges......................... 73,339 128,377
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 12,745,544 1,145,902
----------- -----------
Total....................................................... 13,859,483 1,463,796
----------- -----------
Net increase in net assets from Contractowners
transactions................................................ 26,642,742 7,223,279
----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (6,113) (12,130)
----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 27,961,087 7,586,266
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 11,062,250 3,475,984
----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $39,023,337 $11,062,250
============ ===========
<CAPTION>
FIXED INCOME SERIES:
------------------------------
ALLIANCE
HIGH YIELD FUND (a)
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 4,911,913 $ 601,148
Net realized gain (loss)...................................... 252,443 783,323
Change in unrealized appreciation (depreciation) of investments (10,131,526) (786,186)
------------ -----------
Net increase (decrease) in net assets from operations......... (4,967,170) 598,285
------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 47,559,333 13,779,925
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 47,655,636 22,095,921
------------ -----------
Total..................................................... 95,214,969 35,875,846
------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 2,110,668 161,257
Withdrawal and administrative charges......................... 128,063 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 37,545,562 17,780,088
------------ -----------
Total....................................................... 39,784,293 17,986,890
------------ -----------
Net increase in net assets from Contractowners
transactions................................................ 55,430,676 17,888,956
------------ -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (8,801) (5,902)
------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 50,454,705 18,481,339
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 18,481,339 --
------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $ 68,936,044 $18,481,339
============= ============
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
-------------------------------------------------------
T. ROWE PRICE EQUITY EQ/PUTNAM GROWTH &
INCOME FUND (a) INCOME VALUE FUND (a)
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).......... $ 477,292 $ 78,818 $ 50,421 $ 21,273
Net realized gain (loss).............. 1,163,814 54,535 245,761 54,646
Change in unrealized appreciation
(depreciation) of investments....... 1,019,835 980,406 2,636,110 191,128
----------- ----------- ------------ -----------
Net increase (decrease) in net
assets from operations.............. 2,660,941 1,113,759 2,932,292 267,047
----------- ----------- ------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions....................... 26,813,091 13,813,772 22,432,656 10,975,199
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1).......................... 10,252,099 4,356,204 6,980,421 3,217,543
----------- ----------- ------------ -----------
Total............................. 37,065,190 18,169,976 29,413,077 14,192,742
----------- ----------- ------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 1,205,409 86,052 1,300,000 58,925
Withdrawal and administrative charges.. 109,823 40,797 90,762 32,578
Transfers to other Funds and
Guaranteed Interest
Rate Account (Note 1)................ 3,039,300 183,349 3,822,075 180,506
----------- ----------- ------------ -----------
Total................................ 4,354,532 310,198 5,212,837 272,009
----------- ----------- ------------ -----------
Net increase in net assets from
Contractowners transactions.......... 32,710,658 17,859,778 24,200,240 13,920,733
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5)....... (26,248) (5,022) (22,154) (2,360)
----------- ----------- ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 35,345,351 18,968,515 27,110,378 14,185,420
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 18,968,515 -- 14,185,420 --
----------- ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $54,313,866 $18,968,515 $ 41,295,798 $14,185,420
=========== =========== ============ ===========
<CAPTION>
EQUITY SERIES:
-------------------------------------------------------------
ALLIANCE BT EQUITY ALLIANCE
GROWTH & INCOME 500 INDEX EQUITY INDEX
FUND FUND (b) FUND (a)
------------------------- ---------- ------------------
1998 1997 1998 1998 1997
----------- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).......... $ (1,219,363) $ (95,244) $ 51,021 $ (278) $ 187
Net realized gain (loss).............. 18,247,337 6,014,564 (262,278) 5,337 1,392
Change in unrealized appreciation
(depreciation) of investments....... 9,624,663 4,852,142 5,380,743 57,300 4,722
----------- ---------- ---------- ------- ------
Net increase (decrease) in net
assets from operations.............. 26,652,637 10,771,462 5,169,486 62,359 6,301
----------- ---------- ---------- ------- ------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions....................... 69,137,309 58,696,016 38,685,440 69,113 77,031
Transfers from other Funds and
Guaranteed Interest Rate
Account (Note 1).................. 25,662,665 16,269,895 24,595,843 198,702 15,328
----------- ---------- ---------- ------- ------
Total............................. 94,799,974 74,965,911 63,281,283 267,815 92,359
----------- ---------- ---------- ------- ------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 5,922,537 1,455,357 533,098 -- --
Withdrawal and administrative charges.. 501,695 425,279 13,875 380 --
Transfers to other Funds and
Guaranteed Interest
Rate Account (Note 1)................ 14,167,225 4,907,606 10,862,244 4,913 --
----------- ---------- ---------- ------- ------
Total................................ 20,591,457 6,788,242 11,409,217 5,293 --
----------- ---------- ---------- ------- ------
Net increase in net assets from
Contractowners transactions.......... 74,208,517 68,177,669 51,872,066 262,522 92,359
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5)....... (101,665) (94,285) (17,776) (1,961) (1,142)
----------- ---------- ---------- ------- ------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 100,759,489 78,854,846 57,023,776 322,920 97,518
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 93,880,774 15,025,928 -- 97,518 --
----------- ---------- ---------- ------- ------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $194,640,263 $93,880,774 $57,023,776 $420,438 $97,518
============ =========== =========== ======== =======
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
MERRILL LYNCH ALLIANCE
BASIC VALUE COMMON
EQUITY FUND (a) STOCK FUND
-------------------------- ----------------------------
1998 1997 1998 1997
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)..................... $ 107,220 $ 20,510 $ (3,021,251) $ (1,209,624)
Net realized gain (loss)......................... 1,132,014 47,779 89,425,586 27,433,324
Change in unrealized appreciation (depreciation)
of investments................................. 62,716 (64,333) 35,647,677 22,094,993
----------- ----------- ------------ ------------
Net increase (decrease) in net assets from operations 1,301,950 3,956 122,052,012 48,318,693
----------- ----------- ------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions.................................. 24,093,025 8,075,199 222,706,977 175,880,351
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............... 9,221,650 1,941,071 88,116,261 61,077,537
----------- ----------- ------------ ------------
Total.......................................... 33,314,675 10,016,270 310,823,238 236,957,888
----------- ----------- ------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........... 967,509 9,691 20,666,466 4,271,079
Withdrawal and administrative charges............ 69,854 17,792 1,652,840 1,459,175
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1).......................... 3,287,976 137,464 56,065,697 35,438,036
----------- ----------- ------------ ------------
Total.......................................... 4,325,339 164,947 78,385,003 41,168,290
----------- ----------- ------------ ------------
Net increase in net assets from Contractowners
transactions................................... 28,989,336 9,851,323 232,438,235 195,789,598
----------- ----------- ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (15,592) (839) (298,491) (305,436)
----------- ----------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................... 30,275,694 9,854,440 354,191,756 243,802,855
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.............................. 9,854,440 -- 319,309,650 75,506,795
----------- ----------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD.................................... $40,130,134 $ 9,854,440 $673,501,406 $319,309,650
=========== =========== ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------
MFS RESEARCH ALLIANCE
FUND (a) GLOBAL FUND
------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)..................... $ (176,421) $ (15,339) $ 8,431 $ 328,372
Net realized gain (loss)......................... 60,560 101,923 4,892,874 2,837,865
Change in unrealized appreciation (depreciation)
of investments................................. 6,189,909 37,510 4,483,702 (443,882)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations 6,074,048 124,094 9,385,007 2,722,355
----------- ----------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions.................................. 28,178,818 9,502,168 20,084,493 20,384,580
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............... 10,528,629 2,602,553 7,177,452 7,792,945
----------- ----------- ----------- -----------
Total.......................................... 38,707,447 12,104,721 27,261,945 28,177,525
----------- ----------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........... 1,059,377 28,630 1,765,622 621,118
Withdrawal and administrative charges............ 74,772 23,738 190,033 155,169
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1).......................... 2,504,801 209,610 6,748,641 6,961,429
----------- ----------- ----------- -----------
Total.......................................... 3,638,950 261,978 8,704,296 7,737,716
----------- ----------- ----------- -----------
Net increase in net assets from Contractowners
transactions................................... 35,068,497 11,842,743 18,557,649 20,439,809
----------- ----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (23,737) (2,051) (44,868) (28,799)
----------- ----------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................... 41,118,808 11,964,786 27,897,788 23,133,365
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.............................. 11,964,786 -- 38,509,669 15,376,304
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD.................................... $53,083,594 $11,964,786 $66,407,457 $38,509,669
=========== =========== =========== ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------------
BT
INTER-
NATIONAL
EQUITY T. ROWE PRICE
ALLIANCE INDEX INTERNATIONAL
INTERNATIONAL FUND STOCK
FUND 1998 (c) FUND (a)
------------------------- ---------- -------------------------
1998 1997 1998 1998 1997
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................. $ 124,474 $ 288,466 $ 44,049 $ 27,593 $ (45,798)
Net realized gain (loss)............... (1,563,034) 1,093,826 (38,281) 74,184 (53,503)
Change in unrealized appreciation
(depreciation) of investments........ 3,065,364 (2,169,239) 284,441 2,072,942 (576,978)
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in net
assets from
operations........................... 1,626,804 (786,947) 290,209 2,174,719 (676,279)
----------- ----------- ---------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions........................ 4,384,851 9,574,522 3,655,757 13,036,180 9,658,570
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1)........................... 44,058,459 18,180,472 2,070,284 10,402,147 5,113,170
----------- ----------- ---------- ----------- -----------
Total..................................... 48,443,310 27,754,994 5,726,041 23,438,327 14,771,740
----------- ----------- ---------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 810,093 341,327 22,805 754,896 37,224
Withdrawal and administrative charges.. 82,131 97,083 2,573 64,687 22,024
Transfers to other Funds and
Guaranteed Interest Rate Account
(Note 1)............................. 45,566,819 18,593,662 642,046 7,759,247 1,416,476
----------- ----------- ---------- ----------- -----------
Total................................... 46,459,043 19,032,072 667,424 8,578,830 1,475,724
----------- ----------- ---------- ----------- -----------
Net increase in net assets from
Contractowners transactions.......... 1,984,267 8,722,922 5,058,617 14,859,497 13,296,016
----------- ----------- ---------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT
NO. 45 (NOTE 5)........................ (15,805) (36,637) (1,814) (18,463) (3,030)
----------- ----------- ---------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 3,595,266 7,899,338 5,347,012 17,015,753 12,616,707
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 16,483,342 8,584,004 -- 12,616,707 --
----------- ----------- ---------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $20,078,608 $16,483,342 $5,347,012 $29,632,460 $12,616,707
============ ============ =========== ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
-------------------------------------------------------
MORGAN STANLEY
EMERGING MARKETS ALLIANCE
EQUITY AGGRESSIVE STOCK
FUND (b) FUND
------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................. $ (19,381) $ 1,234 $ (951,147) $ (880,189)
Net realized gain (loss)............... (337,130) (26,406) 5,719,000 9,879,526
Change in unrealized appreciation
(depreciation) of investments........ (770,143) (238,282) (6,727,068) (1,686,216)
----------- ----------- ------------ ------------
Net increase (decrease) in net
assets from
operations........................... (1,126,654) (263,454) (1,959,215) 7,313,121
----------- ----------- ------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions........................ 2,708,321 1,617,148 45,526,795 66,019,813
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1)........................... 1,357,280 889,247 12,684,235 17,726,363
----------- ----------- ------------ ------------
Total..................................... 4,065,601 2,506,395 58,211,030 83,746,176
----------- ----------- ------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 59,492 -- 5,047,753 1,854,804
Withdrawal and administrative charges.. 7,737 394 540,786 482,491
Transfers to other Funds and
Guaranteed Interest Rate Account
(Note 1)............................. 857,518 2,488 20,928,020 11,669,668
----------- ----------- ------------ ------------
Total................................... 924,747 2,882 26,516,559 14,006,963
----------- ----------- ------------ ------------
Net increase in net assets from
Contractowners transactions.......... 3,140,854 2,503,513 31,694,471 69,739,213
----------- ----------- ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT
NO. 45 (NOTE 5)........................ 10,524 (966) 35,035 (111,908)
----------- ----------- ------------ -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 2,024,724 2,239,093 29,770,291 76,940,426
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 2,239,093 -- 117,827,678 40,887,252
----------- ----------- ------------ -------------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $ 4,263,817 $ 2,239,093 $147,597,969 $117,827,678
=========== =========== ============ ============
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
--------------------------------------------------------
WARBURG PINCUS SMALL ALLIANCE
COMPANY VALUE SMALL CAP GROWTH
FUND (a) FUND (a)
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ (183,087) $ (64,437) $ (335,489) $ (49,856)
Net realized gain (loss)...................... (395,526) 338,068 (513,118) 440,546
Change in unrealized appreciation
(depreciation) of investments............... (3,926,557) (300,436) (1,477,423) (344,436)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from
operations.................................. (4,505,170) (26,805) (2,326,030) 46,254
----------- ----------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................... 17,316,209 17,791,841 22,333,800 12,116,331
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............ 10,231,935 11,695,862 10,827,569 5,602,864
----------- ----------- ----------- -----------
Total............................................ 27,548,144 29,487,703 33,161,369 17,719,195
----------- ----------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........ 1,086,279 134,692 1,022,179 20,842
Withdrawal and administrative charges......... 103,922 23,284 78,365 8,570
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).............. 9,358,044 4,520,417 5,823,960 1,504,600
----------- ----------- ----------- -----------
Total............................................ 10,548,245 4,678,393 6,924,504 1,534,012
----------- ----------- ----------- -----------
Net increase in net assets from Contractowners
transactions.................................. 16,999,899 24,809,310 26,236,865 16,185,183
----------- ----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45
(NOTE 5)...................................... (17,047) (10,579) 106,435 (3,378)
----------- ----------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................ 12,477,682 24,771,926 24,017,270 16,228,059
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................... 24,771,926 -- 16,228,059 --
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................. $37,249,608 $24,771,926 $40,245,329 $16,228,059
=========== =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONCLUDED):
----------------------------------------
BT SMALL
COMPANY MFS EMERGING GROWTH
INDEX COMPANIES
FUND (b) FUND (a)
---------- ---------------------------
1998 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ 13,688 $ (372,251) $ (15,821)
Net realized gain (loss)...................... 15,103 163,114 327,209
Change in unrealized appreciation
(depreciation) of investments............... 19,385 12,077,451 (259,194)
---------- ----------- -----------
Net increase (decrease) in net assets from
operations.................................. 48,176 11,868,314 52,194
---------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................... 4,131,338 40,723,333 9,607,211
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............ 1,311,488 16,938,315 3,864,604
---------- ----------- -----------
Total............................................ 5,442,826 57,661,648 13,471,815
---------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........ 21,074 1,543,076 45,537
Withdrawal and administrative charges......... 1,781 76,137 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).............. 375,472 6,249,256 1,527,808
---------- ----------- -----------
Total............................................ 398,327 7,868,469 1,587,690
---------- ----------- -----------
Net increase in net assets from Contractowners
transactions.................................. 5,044,499 49,793,179 11,884,125
---------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45
(NOTE 5)...................................... (1,162) (31,251) (1,959)
---------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................ 5,091,513 61,630,242 11,934,360
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................... -- 11,934,360 --
---------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................. $5,091,513 $73,564,602 $11,934,360
========== ============ ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
ALLIANCE
CONSERVATIVE EQ/PUTNAM
INVESTORS FUND BALANCED FUND (a)
--------------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................. $ 985,456 $ 481,754 $ 398,729 $ 51,548
Net realized gain (loss).......................... 3,140,287 687,695 225,623 45,528
Change in unrealized appreciation (depreciation)
of investments.................................. 75,336 478,094 1,243,684 73,582
----------- ----------- ----------- ----------
Net increase (decrease) in net assets from
operations...................................... 4,201,079 1,647,543 1,868,036 170,658
----------- ----------- ----------- ----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions................................... 21,651,343 10,862,780 20,768,914 4,294,496
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)................ 13,282,997 3,151,066 9,211,559 1,721,220
----------- ----------- ----------- ----------
Total......................................... 34,934,340 14,013,846 29,980,473 6,015,716
----------- ----------- ----------- ----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............ 1,883,884 567,547 567,437 17,533
Withdrawal and administrative charges............. 117,513 138,461 42,998 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).................. 7,120,635 1,428,179 2,636,967 120,099
----------- ----------- ----------- ----------
Total........................................... 9,122,032 2,134,187 3,247,402 152,925
----------- ----------- ----------- ----------
Net increase in net assets from Contractowners
transactions.................................... 25,812,308 11,879,659 26,733,071 5,862,791
----------- ----------- ----------- ----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (26,353) (57,026) (13,517) (483)
----------- ----------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................... 29,987,034 13,470,176 28,587,590 6,032,966
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, BEGINNING OF PERIOD............... 21,328,458 7,858,282 6,032,966 --
----------- ----------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, END OF PERIOD..................... $51,315,492 $21,328,458 $34,620,556 $6,032,966
=========== =========== =========== ==========
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
ALLIANCE
GROWTH MERRILL LYNCH WORLD
INVESTORS FUND STRATEGY FUND (a)
--------------------------- ------------------------
1998 1997 1998 1997
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................. $ 822,873 $ 736,541 $ 10,810 $ 2,974
Net realized gain (loss).......................... 10,536,120 3,620,598 (38,321) 24,219
Change in unrealized appreciation (depreciation)
of investments.................................. 4,546,177 1,844,488 211,040 (129,123)
------------ ----------- ---------- ----------
Net increase (decrease) in net assets from
operations...................................... 15,905,170 6,201,627 183,529 (101,930)
------------ ----------- ---------- ----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions................................... 44,347,044 32,084,069 2,756,653 2,043,811
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)................ 13,494,160 7,981,423 1,208,993 561,601
------------ ----------- ---------- ----------
Total......................................... 57,841,204 40,065,492 3,965,646 2,605,412
------------ ----------- ---------- ----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............ 3,711,360 1,014,211 125,335 3,514
Withdrawal and administrative charges............. 325,958 421,582 13,717 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).................. 9,119,743 2,744,848 463,447 84,455
------------ ----------- ---------- ----------
Total........................................... 13,157,061 4,180,641 602,499 90,566
------------ ----------- ---------- ----------
Net increase in net assets from Contractowners
transactions.................................... 44,684,143 35,884,851 3,363,147 2,514,846
------------ ----------- ---------- ----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (93,008) (111,839) (17,508) (121)
------------ ----------- ---------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................... 60,496,305 41,974,639 3,529,168 2,412,795
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, BEGINNING OF PERIOD............... 65,983,034 24,008,395 2,412,795 --
------------ ----------- ---------- ----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, END OF PERIOD..................... $126,479,339 $65,983,034 $5,941,963 $2,412,795
============ =========== ========== ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 45 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (the 1940
Act). Alliance Capital Management L.P., an indirect majority owned
subsidiary of Equitable Life, manages The Hudson River Trust (HRT) and is
the investment adviser for all of the investment funds of HRT. EQ Financial
Consultants, Inc., ("EQFC") is a wholly owned subsidiary of Equitable Life.
EQFC manages the EQ Advisors Trust (EQAT) and has overall responsibility
for general management and administration of EQAT. The Account consists of
25 investment funds (Funds): Alliance Money Market Fund, Alliance
Intermediate Government Securities Fund, Alliance High Yield Fund, T. Rowe
Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, BT Equity 500 Index Fund, Alliance Equity Index Fund,
Merrill Lynch Basic Value Equity Fund, Alliance Common Stock Fund, MFS
Research Fund, Alliance Global Fund, Alliance International Fund, BT
International Equity Index Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock
Fund, Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth
Fund, BT Small Company Index Fund, MFS Emerging Growth Companies Fund,
Alliance Conservative Investors Fund, EQ/Putnam Balanced Fund, Alliance
Growth Investors Fund and Merrill Lynch World Strategy Fund. The assets in
each Fund are invested in shares of a corresponding portfolio (Portfolio)
of a mutual fund, Class 1A and 1B shares of HRT or Class 1B shares of EQAT
(collectively, the "Trusts"). Class 1A and 1B shares are offered by the
Trusts at net asset value. Both classes of shares are subject to fees for
investment management and advisory services and other Trust expenses. Class
1B shares are subject to distribution fees imposed under a distribution
plan (herein the "Rule 12b-1 Plans") adopted pursuant to Rule 12b-1 under
the 1940 Act, as amended. The Rule 12b-1 Plans provide that the Trusts, on
behalf of each Fund, may charge annually up to 0.25% of the average daily
net assets of a Fund attributable to its Class 1B shares in respect of
activities primarily intended to result in the sale of the Class 1B shares.
These fees are reflected in the net asset value of the shares. Class 1A
shares of HRT continue to be purchased by contracts in-force prior to May
1, 1997. The Trusts are open-ended, diversified management investment
companies that sell their shares to separate accounts of insurance
companies. Each Portfolio has separate investment objectives.
EQFC earns fees from both Trusts under distribution agreements held with
the Trusts. EQFC also earns fees under an investment management agreement
with EQAT. Alliance earns fees under an investment advisory agreement
with the HRT.
The Account is used to fund benefits for the Equitable Accumulator and
Income Manager Accumulator non-qualified deferred variable annuities which
combine the portfolios in the Account with guaranteed fixed rate options,
and the Equitable Accumulator IRA and Income Manager Accumulator IRA, which
offer the same investment options as Equitable Accumulator and Income
Manager Accumulator for the non-qualified market. The Equitable Accumulator
and Income Manager Accumulator are also available for purchase by certain
types of qualified plans. The Equitable Accumulator (IRA, NQ and QP) and
Income Manager Accumulator (IRA, NQ and QP), collectively referred to as
the Contracts, are offered under group and individual variable annuity
forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Receivable/Payable for policy-related transactions represent amounts due
to/from general account predominately related to premiums, surrenders and
death benefit.
Contractowners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate of
the Contractowners' accounts allocated to that Fund. Additional assets are
set aside in Equitable Life's General Account to provide for other policy
benefits, as required under the state insurance law. Equitable Life's
General Account is subject to creditor rights.
Included in the Withdrawal and Administrative Charges line of the
Statements of Changes in Net Assets are certain administrative charges
which are deducted from the Contractowners account value.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trust using the market or fair value of the underlying
assets of the Portfolio less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth quarter on the
ex-dividend date. Capital gains are distributed by the Trust at the end of
each year.
No federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code and
no federal income tax payable by Equitable Life is expected to affect the
unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required. However, Equitable Life retains the
right to charge for any federal income tax incurred which is attributable
to the Account if the law is changed.
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life charges for mortality and expense risks
at an annual rate of 1.10% of daily net assets for Equitable Accumulator
Contracts (0.90% for Income Manager Accumulator Contracts). In addition,
asset-based administrative charges are also charged to the account at an
annual rate of 0.25% of daily net assets. The charges may be retained in
the Account by Equitable Life and participate in the net investment results
of the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.35% for Equitable Accumulator (1.15% for Income
Manager Accumulator). Trust shares are valued at their net asset value with
investment advisory or management fees, the 12b-1 fee, and other expenses
of the Trust, in effect, passed on to the Account and reflected in the
accumulation unit values of the Contracts.
4. Contributions, Transfers and Charges
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
-------------------------- --------------
Net Issued (Redeemed) Class A 115bp .......... (89) (374)
Net Issued (Redeemed) Class B 0bp ............ 853 1,178
Net Issued (Redeemed) Class B 115bp .......... 399 794
Net Issued (Redeemed) Class B 135bp .......... 1,566 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- --------------------------------------------------
Net Issued (Redeemed) Class A 115bp .......... 111 161
Net Issued (Redeemed) Class B 115bp .......... 734 345
Net Issued (Redeemed) Class B 135bp .......... 928 --
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
ALLIANCE HIGH YIELD FUND (a) (IN THOUSANDS)
----------------------------
Net Issued (Redeemed) Class A 115bp..... 75 98
Net Issued (Redeemed) Class B 115bp..... 946 505
Net Issued (Redeemed) Class B 135bp..... 801 --
T. ROWE PRICE EQUITY INCOME FUND (a)
------------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,537 1,565
Net Issued (Redeemed) Class B 135bp..... 1,059 --
EQ/PUTNAM GROWTH & INCOME FUND (a)
----------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,117 1,230
Net Issued (Redeemed) Class B 135bp..... 867 --
ALLIANCE GROWTH & INCOME FUND
-----------------------------
Net Issued (Redeemed) Class A 115bp..... 48 2,377
Net Issued (Redeemed) Class B 115bp..... 2,016 1,829
Net Issued (Redeemed) Class B 135bp..... 1,854 --
BT EQUITY 500 INDEX (c)
------------------------
Net Issued (Redeemed) Class B 115bp..... 2,189 --
Net Issued (Redeemed) Class B 135bp..... 2,246 --
ALLIANCE EQUITY INDEX FUND (a)
------------------------------
Net Issued (Redeemed) Class A 115bp..... -- --
Net Issued (Redeemed) Class B 115bp..... 9 5
Net Issued (Redeemed) Class B 135bp..... 2 --
MERRILL LYNCH BASIC VALUE FUND (a)
----------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,278 849
Net Issued (Redeemed) Class B 135bp..... 1,010 --
ALLIANCE COMMON STOCK FUND
--------------------------
Net Issued (Redeemed) Class A 115bp..... (35) 620
Net Issued (Redeemed) Class B 115bp..... 582 519
Net Issued (Redeemed) Class B 135bp..... 550 --
- ----------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
MFS RESEARCH FUND (a) (IN THOUSANDS)
---------------------
Net Issued (Redeemed) Class B 115bp .... 1,244 1,039
Net Issued (Redeemed) Class B 135bp .... 1,479 --
ALLIANCE GLOBAL FUND
--------------------
Net Issued (Redeemed) Class A 115bp .... (103) 444
Net Issued (Redeemed) Class B 115bp .... 360 308
Net Issued (Redeemed) Class B 135bp .... 354 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Net Issued (Redeemed) Class A 115bp .... (150) 438
Net Issued (Redeemed) Class B 115bp .... 153 285
Net Issued (Redeemed) Class B 135bp .... 166 --
BT INTERNATIONAL EQUITY INDEX (c)
---------------------------------
Net Issued (Redeemed) Class B 115bp .... 209 --
Net Issued (Redeemed) Class B 135bp .... 242 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (a)
------------------------------------------
Net Issued (Redeemed) Class B 115bp .... 704 1,291
Net Issued (Redeemed) Class B 113bp .... 705 --
MORGAN STANLEY EMERGING MARKETS FUND (b)
----------------------------------------
Net Issued (Redeemed) Class B 115bp .... 285 282
Net Issued (Redeemed) Class B 135bp .... 177 --
ALLIANCE AGGRESSIVE STOCK FUND
------------------------------
Net Issued (Redeemed) Class A 115bp .... (160) 641
Net Issued (Redeemed) Class B 115bp .... 311 369
Net Issued (Redeemed) Class B 135bp .... 293 --
- ------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Concluded)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------
WARBURG PINCUS SMALL COMPANY FUND (a) (IN THOUSANDS)
-------------------------------------
Net Issued (Redeemed) Class B 115bp........... 888 2,096
Net Issued (Redeemed) Class B 135bp........... 560 --
Net Issued (Redeemed) Class B 135bp........... 1,448 --
ALLIANCE SMALL CAP GROWTH FUND (a)
--------------------------------------
Net Issued (Redeemed) Class A 115bp........... 106 208
Net Issued (Redeemed) Class B 115bp........... 1,222 1,084
Net Issued (Redeemed) Class B 135bp........... 775 --
MFS EMERGING GROWTH COMPANIES FUND (a)
-------------------------------------
Net Issued (Redeemed) Class B 115bp........... 1,637 982
Net Issued (Redeemed) Class B 135bp........... 1,942 --
BT SMALL COMPANY INDEX FUND (b)
------------------------------------
Net Issued (Redeemed) Class B 115bp........... 243 --
Net Issued (Redeemed) Class B 135bp........... 284 --
ALLIANCE CONSERVATIVE INVESTORS FUND
--------------------------------------
Net Issued (Redeemed) Class A 115bp........... 52 356
Net Issued (Redeemed) Class B 115bp........... 565 295
Net Issued (Redeemed) Class B 135bp........... 659 --
EQ/PUTNAM BALANCED FUND (a)
--------------------------------
Net Issued (Redeemed) Class B 115bp........... 1,094 531
Net Issued (Redeemed) Class B 135bp........... 1,136 --
ALLIANCE GROWTH INVESTORS FUND
---------------------------------
Net Issued (Redeemed) Class A 115bp........... (81) 682
Net Issued (Redeemed) Class B 115bp........... 778 581
Net Issued (Redeemed) Class B 135bp........... 694 --
MERRILL LYNCH WORLD STRATEGY FUND (a)
----------------------------------------
Net Issued (Redeemed) Class B 115bp........... 170 232
Net Issued (Redeemed) Class B 135bp........... 140 --
- ------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1998.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. Amounts retained by Equitable Life in Separate Account No. 45
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset-based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and asset-based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at any
time by Equitable Life to its General Account.
The following table shows the contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
YEARS ENDED DECEMBER 31,
------------------------------
INVESTMENT FUND 1998 1997
--------------- ------------------------------
Alliance Money Market Fund ..................... $ (908,916) $(240,000)
Alliance Intermediate Government Securities Fund (293,270) (60,000)
Alliance High Yield Fund(1) .................... (593,703) 10,000
T. Rowe Price Equity Income Fund(1) ............ (397,541) --
EQ/Putnam Growth & Income Value Fund(1) ........ (300,588) --
Alliance Growth & Income Fund .................. (1,926,708) (250,000)
BT Equity 500 Index Fund(3) .................... (161,967) --
Alliance Equity Index Fund ..................... (2,128) 5,000
Merrill Lynch Basic Value Equity Fund(1) ....... (268,189) --
Alliance Common Stock Fund ..................... (6,883,461) (840,000)
MFS Research Fund(1) ........................... (329,924) --
Alliance Global Fund ........................... (708,300) (185,000)
Alliance International Fund .................... (298,470) (120,000)
BT International Equity Index Fund(3) .......... (17,272) --
T. Rowe Price International Stock Fund(1) ...... (223,491) --
Morgan Stanley Emerging Markets Equity Fund(2) . (17,574) --
Alliance Aggressive Stock Fund ................. (1,947,808) (435,000)
Warburg Pincus Small Company Value Fund(1) ..... (365,698) --
Alliance Small Cap Growth Fund(1) .............. (232,599) 10,000
BT Small Company Index Fund(3) ................. (15,197) --
MFS Emerging Growth Companies Fund(1) .......... (389,504) --
Alliance Conservative Investors Fund ........... (415,465) (87,000)
EQ/Putnam Balanced Fund(1) ..................... (196,023) --
Alliance Growth Investors Fund ................. (1,444,473) (185,000)
Merrill Lynch World Strategy Fund(1) ........... (45,763) --
- -------------------
(1) Commenced operations on May 1, 1997.-
(2) Commenced operations on August 20, 1997.
(3) Commenced operations on January 1, 1998.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE MONEY MARKET FUND
- --------------------------
Class A 115bp Unit value, beginning of period.............. $25.85 $24.81 $23.83
Class A 115bp Unit value, end of period.................... $26.92 $25.85 $24.81
Class B 0bp Unit value, beginning of period (a)............ $31.27 $30.25 --
Class B 0bp Unit value, end of period (a) ................. $32.86 $31.27 --
Class B 115bp Unit value, beginning of period (b).......... $25.85 $25.17 --
Class B 115bp Unit value, end of period (b)................ $26.85 $25.85 --
Class B 135bp Unit value, beginning of period (c).......... $25.31 -- --
Class B 135bp Unit value, end of period (c)................ $25.92 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 839 928 1,302
Class B 0bp............................................. 2,031 1,178 --
Class B 115bp........................................... 1,193 794 --
Class B 135bp........................................... 1,566 -- --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A 115bp Unit value, beginning of period.............. $14.60 $13.77 $13.42
Class A 115bp Unit value, end of period.................... $15.55 $14.60 $13.77
Class B 115bp Unit value, beginning of period (b).......... $14.58 $13.88 --
Class B 115bp Unit value, end of period (b)................ $15.49 $14.58 --
Class B 135bp Unit value, beginning of period (c).......... $14.59 -- --
Class B 135bp Unit value, end of period (c)................ $15.25 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 524 413 252
Class B 115bp........................................... 1,079 345 --
Class B 135bp........................................... 929 -- --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A 115bp Unit value, beginning of period (a).......... $30.73 $26.95 --
Class A 115bp Unit value, end of period (a)................ $28.81 $30.73 --
Class B 115bp Unit value, beginning of period (a).......... $30.63 $26.91 --
Class B 115bp Unit value, end of period (a)................ $28.65 $30.63 --
Class B 135bp Unit value, beginning of period (c).......... $31.54 -- --
Class B 135bp Unit value, end of period (c)................ $27.96 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 173 98 --
Class B 115bp........................................... 1,451 505 --
Class B 135bp........................................... 801 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> C>
T. ROWE PRICE EQUITY INCOME FUND (a)
- ------------------------------------
Class B 115bp Unit value, beginning of period.............. $12.12 $10.00 --
Class B 115bp Unit value, end of period.................... $13.07 $12.12 --
Class B 135bp Unit value, beginning of period (c).......... $13.19 -- --
Class B 135bp Unit value, end of period (c)................ $13.02 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 3,102 1,565 --
Class B 135bp........................................... 1,059 -- --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (a)
- ----------------------------------------
Class B 115bp Unit value, beginning of period.............. $11.53 $10.00 --
Class B 115bp Unit value, end of period.................... $12.86 $11.53 --
Class B 135bp Unit value, beginning of period (c) ......... $12.86 -- --
Class B 135bp Unit value, end of period (c) ............... $12.82 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,347 1,230 --
Class B 135bp........................................... 867 -- --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A 115bp Unit value, beginning of period.............. $17.83 $14.23 $11.99
Class A 115bp Unit value, end of period.................... $21.30 $17.83 $14.23
Class B 115bp Unit value, beginning of period (b).......... $17.80 $14.67 --
Class B 115bp Unit value, end of period (b)................ $21.22 $17.80 --
Class B 135bp Unit value, beginning of period (c).......... $19.99 -- --
Class B 135bp Unit value, end of period (c)................ $20.99 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 3,481 3,433 1,056
Class B 115bp........................................... 3,845 1,829 --
Class B 135bp........................................... 1,853 -- --
BT EQUITY 500 INDEX FUND (c)
- ----------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $12.37 -- --
Class B 135bp Unit value, beginning of period (c).......... $11.28 -- --
Class B 135bp Unit value, end of period (c)................ $12.34 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,189 -- --
Class B 135bp........................................... 2,426 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE EQUITY INDEX FUND (a)
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $21.41 $17.62 --
Class A 115bp Unit value, end of period.................... $27.11 $21.41 --
Class B 115bp Unit value, beginning of period.............. $21.38 $17.62 --
Class B 115bp Unit value, end of period.................... $26.99 $21.38 --
Class B 135bp Unit value, beginning of period (d).......... $24.44 -- --
Class B 135bp Unit value, end of period (d)................ $26.73 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... -- -- --
Class B 115bp........................................... 14 5 --
Class B 135bp........................................... 2 -- --
MERRILL LYNCH BASIC VALUE EQUITY FUND (a)
- -----------------------------------------
Class B 115bp Unit value, beginning of period (b).......... $11.61 $10.00 --
Class B 115bp Unit value, end of period (b)................ $12.81 $11.61 --
Class B 135bp Unit value, beginning of period (d).......... $13.70 -- --
Class B 135bp Unit value, end of period (d)................ $12.76 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,127 849 --
Class B 135bp........................................... 1,009 -- --
ALLIANCE COMMON STOCK FUND
- --------------------------
Class A 115bp Unit value, beginning of period.............. $195.37 $152.96 $124.52
Class A 115bp Unit value, end of period.................... $249.88 $195.37 $152.96
Class B 115bp Unit value, beginning of period (b).......... $194.74 $153.35 --
Class B 115bp Unit value, end of period (b)................ $248.45 $194.74 --
Class B 135bp Unit value, beginning of period (d).......... $211.50 -- --
Class B 135bp Unit value, end of period (d)................ $237.18 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,079 1,114 494
Class B 115bp........................................... 1,101 519 --
Class B 135bp........................................... 550 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Commenced operations on January 1, 1998.
(d) Units were made available for sale on May 1, 1998.
FS-23
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
MFS RESEARCH FUND (a)
- ---------------------
Class B 115bp Unit value, beginning of period.............. $11.52 $10.00 --
Class B 115bp Unit value, end of period.................... $14.13 $11.52 --
Class B 135bp Unit value, beginning of period (d).......... $13.53 -- --
Class B 135bp Unit value, end of period (d)................ $14.08 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,283 1,039 --
Class B 135bp........................................... 1,479 -- --
ALLIANCE GLOBAL FUND
- --------------------
Class A 115bp Unit value, beginning of period.............. $27.85 $25.25 $22.29
Class A 115bp Unit value, end of period.................... $33.53 $27.85 $25.25
Class B 115bp Unit value, beginning of period (c).......... $27.76 $24.87 --
Class B 115bp Unit value, end of period (c)................ $33.34 $27.76 --
Class B 135bp Unit value, beginning of period (d).......... $31.57 -- --
Class B 135bp Unit value, end of period (d)................ $32.58 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 971 1,074 609
Class B 115bp........................................... 668 308 --
Class B 135bp........................................... 354 -- --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A 115bp Unit value, beginning of period.............. $11.48 $11.98 $11.03
Class A 115bp Unit value, end of period.................... $12.54 $11.48 $11.98
Class B 115bp Unit value, beginning of period (c).......... $11.46 $11.86 --
Class B 115bp Unit value, end of period (c)................ $12.49 $11.46 --
Class B 135bp Unit value, beginning of period (d).......... $13.41 -- --
Class B 135bp Unit value, end of period (d)................ $12.40 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,001 1,151 717
Class B 115bp........................................... 438 285 --
Class B 135bp........................................... 166 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1997.
(d) Units were made available for sale on May 1, 1998.
FS-24
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
BT INTERNATIONAL EQUITY INDEX FUND (c)
- --------------------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $11.87 -- --
Class B 135bp Unit value, beginning of period (e).......... $11.50 -- --
Class B 135bp Unit value, end of period (e)................ $11.85 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 209 -- --
Class B 135bp........................................... 242 -- --
T. ROWE PRICE INTERNATIONAL STOCK FUND (a)
- ------------------------------------------
Class B 115bp Unit value, beginning of period.............. $9.77 $10.00 --
Class B 115bp Unit value, end of period.................... $10.98 $9.77 --
Class B 135bp Unit value, beginning of period (e).......... $11.13 -- --
Class B 135bp Unit value, end of period (e)................ $10.95 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 1,995 1,291 --
Class B 135bp........................................... 705 -- --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (b)
- -----------------------------------------------
Class B 115bp Unit value, beginning of period.............. $7.95 $10.00 --
Class B 115bp Unit value, end of period.................... $5.73 $7.95 --
Class B 135bp Unit value, beginning of period(e)........... $8.23 -- --
Class B 135bp Unit value, end of period (e)................ $5.72 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 567 282 --
Class B 135bp........................................... 177 -- --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $72.23 $65.94 $54.59
Class A 115bp Unit value, end of period.................... $71.60 $72.23 $65.94
Class B 115bp Unit value, beginning of period (d).......... $72.00 $62.84 --
Class B 115bp Unit value, end of period (d)................ $71.21 $72.00 --
Class B 135bp Unit value, beginning of period (e).......... $79.87 -- --
Class B 135bp Unit value, end of period (e)................ $69.37 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,101 1,261 620
Class B 115bp........................................... 680 369 --
Class B 135bp........................................... 293 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
(d) Units were made available for sale May 1, 1997.
(e) Units were made available for sale on May 1, 1998.
FS-25
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
WARBURG PINCUS SMALL COMPANY VALUE FUND (a)
- -------------------------------------------
Class B 115bp Unit value, beginning of period.............. $11.82 $10.00 --
Class B 115bp Unit value, end of period.................... $10.52 $11.82 --
Class B 135bp Unit value, beginning of period (c).......... $12.72 -- --
Class B 135bp Unit value, end of period (c)................ $10.48 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,984 2,096 --
Class B 135bp........................................... 560 -- --
ALLIANCE SMALL CAP GROWTH FUND (a)
- ----------------------------------
Class A 115bp Unit value, beginning of period.............. $12.57 $10.00 --
Class A 115bp Unit value, end of period.................... $11.90 $12.57 --
Class B 115bp Unit value, beginning of period.............. $12.55 $10.00 --
Class B 115bp Unit value, end of period.................... $11.86 $12.55 --
Class B 135bp Unit value, beginning of period (c).......... $14.29 -- --
Class B 135bp Unit value, end of period (c)................ $11.82 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 314 208 --
Class B 115bp........................................... 2,306 1,084 --
Class B 135bp........................................... 775 -- --
BT SMALL COMPANY INDEX FUND (b)
- -------------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $9.66 -- --
Class B 135bp Unit value, beginning of period (c).......... $10.97 -- --
Class B 135bp Unit value, end of period (c)................ $9.64 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 244 -- --
Class B 135bp........................................... 284 -- --
MFS EMERGING GROWTH FUND (a)
- ----------------------------
Class B 115bp Unit value, beginning of period.............. $12.15 $10.00 --
Class B 115bp Unit value, end of period.................... $16.16 $12.15 --
Class B 135bp Unit value, beginning of period (c).......... $14.42 -- --
Class B 135bp Unit value, end of period (c)................ $16.10 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,619 982 --
Class B 135bp........................................... 1,942 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1998.
FS-26
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A 115bp Unit value, beginning of period.............. $19.26 $17.21 $16.55
Class A 115bp Unit value, end of period.................... $21.68 $19.26 $17.21
Class B 115bp Unit value, beginning of period (b).......... $19.23 $17.33 --
Class B 115bp Unit value, end of period (b)................ $21.60 $19.23 --
Class B 135bp Unit value, beginning of period (c).......... $20.06 -- --
Class B 135bp Unit value, end of period (c)................ $21.20 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 865 813 457
Class B 115bp........................................... 860 295 --
Class B 135bp........................................... 659 -- --
EQ/PUTNAM BALANCED FUND (a)
- ---------------------------
Class B 115bp Unit value, beginning of period.............. $11.36 $10.00 --
Class B 115bp Unit value, end of period.................... $12.56 $11.36 --
Class B 135bp Unit value, beginning of period (c).......... $12.29 -- --
Class B 135bp Unit value, end of period (c)................ $12.51 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 1,625 531 --
Class B 135bp........................................... 1,136 -- --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $30.31 $26.26 $23.59
Class A 115bp Unit value, end of period.................... $35.70 $30.31 $26.26
Class B 115bp Unit value, beginning of period (b).......... $30.22 $26.23 --
Class B 115bp Unit value, end of period (b)................ $35.50 $30.22 --
Class B 135bp Unit value, beginning of period (c).......... $32.93 -- --
Class B 135bp Unit value, end of period (c)................ $34.84 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,515 1,596 914
Class B 115bp........................................... 1,359 581 --
Class B 135bp........................................... 694 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-27
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Concluded)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
MERRILL LYNCH WORLD STRATEGY FUND (a)
- -------------------------------------
Class B 115bp Unit value, beginning of period.............. $10.39 $10.00 --
Class B 115bp Unit value, end of period.................... $10.97 $10.39 --
Class B 135bp Unit value, beginning of period (b).......... $11.31 -- --
Class B 135bp Unit value, end of period (b)................ $10.94 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 402 232 --
Class B 135bp........................................... 140 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1998.
FS-28
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of The Equitable Life Assurance Society of the United States and its
subsidiaries ("Equitable Life") at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Equitable
Life's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its method of accounting for long-lived assets in 1996.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,993.7 $ 19,630.9
Held to maturity, at amortized cost..................................... 125.0 -
Mortgage loans on real estate............................................. 2,809.9 2,611.4
Equity real estate........................................................ 1,676.9 2,495.1
Policy loans.............................................................. 2,086.7 2,422.9
Other equity investments.................................................. 713.3 951.5
Investment in and loans to affiliates..................................... 928.5 731.1
Other invested assets..................................................... 808.2 612.2
----------------- -----------------
Total investments..................................................... 28,142.2 29,455.1
Cash and cash equivalents................................................... 1,245.5 300.5
Deferred policy acquisition costs........................................... 3,563.8 3,236.6
Amounts due from discontinued operations.................................... 2.7 572.8
Other assets................................................................ 3,051.9 2,687.4
Closed Block assets......................................................... 8,632.4 8,566.6
Separate Accounts assets.................................................... 43,302.3 36,538.7
----------------- -----------------
Total Assets................................................................ $ 87,940.8 $ 81,357.7
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,889.7 $ 21,579.5
Future policy benefits and other policyholders' liabilities................. 4,694.2 4,553.8
Short-term and long-term debt............................................... 1,181.7 1,716.7
Other liabilities........................................................... 3,474.3 3,267.2
Closed Block liabilities.................................................... 9,077.0 9,073.7
Separate Accounts liabilities............................................... 43,211.3 36,306.3
----------------- -----------------
Total liabilities..................................................... 82,528.2 76,497.2
----------------- -----------------
Commitments and contingencies (Notes 11, 13, 14, 15 and 16)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued
and outstanding........................................................... 2.5 2.5
Capital in excess of par value.............................................. 3,110.2 3,105.8
Retained earnings........................................................... 1,944.1 1,235.9
Accumulated other comprehensive income...................................... 355.8 516.3
----------------- -----------------
Total shareholder's equity............................................ 5,412.6 4,860.5
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 87,940.8 $ 81,357.7
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,056.2 $ 950.6 $ 874.0
Premiums...................................................... 588.1 601.5 597.6
Net investment income......................................... 2,228.1 2,282.8 2,203.6
Investment gains (losses), net................................ 100.2 (45.2) (9.8)
Commissions, fees and other income............................ 1,503.0 1,227.2 1,081.8
Contribution from the Closed Block............................ 87.1 102.5 125.0
----------------- ----------------- -----------------
Total revenues.......................................... 5,562.7 5,119.4 4,872.2
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,153.0 1,266.2 1,270.2
Policyholders' benefits....................................... 1,024.7 978.6 1,317.7
Other operating costs and expenses............................ 2,201.2 2,203.9 2,075.7
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,378.9 4,448.7 4,663.6
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 1,183.8 670.7 208.6
Federal income taxes.......................................... 353.1 91.5 9.7
Minority interest in net income of consolidated subsidiaries.. 125.2 54.8 81.7
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 705.5 524.4 117.2
Discontinued operations, net of Federal income taxes.......... 2.7 (87.2) (83.8)
Cumulative effect of accounting change, net of Federal
income taxes................................................ - - (23.1)
----------------- ----------------- -----------------
Net Earnings.................................................. $ 708.2 $ 437.2 $ 10.3
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............. 3,105.8 3,105.8 3,105.8
Additional capital in excess of par value..................... 4.4 - -
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,110.2 3,105.8 3,105.8
Retained earnings, beginning of year.......................... 1,235.9 798.7 788.4
Net earnings.................................................. 708.2 437.2 10.3
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,944.1 1,235.9 798.7
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year........................................... 516.3 177.0 361.4
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year........... 355.8 516.3 177.0
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 5,412.6 $ 4,860.5 $ 4,084.0
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment.................................................. (149.5) 343.7 (206.6)
Minimum pension liability adjustment.......................... (11.0) (4.4) 22.2
----------------- ----------------- -----------------
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Comprehensive Income.......................................... $ 547.7 $ 776.5 $ (174.1)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,153.0 1,266.2 1,270.2
Universal life and investment-type product
policy fee income......................................... (1,056.2) (950.6) (874.0)
Investment (gains) losses................................... (100.2) 45.2 9.8
Change in Federal income tax payable........................ 123.1 (74.4) (197.1)
Other, net.................................................. (324.9) 169.4 330.2
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 503.0 893.0 549.4
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,289.0 2,702.9 2,275.1
Sales....................................................... 16,972.1 10,385.9 8,964.3
Purchases................................................... (18,578.5) (13,205.4) (12,559.6)
Decrease (increase) in short-term investments............... 102.4 (555.0) 450.3
Decrease in loans to discontinued operations................ 660.0 420.1 1,017.0
Sale of subsidiaries........................................ - 261.0 -
Other, net.................................................. (341.8) (612.6) (281.0)
----------------- ----------------- -----------------
Net cash provided (used) by investing activities.............. 1,103.2 (603.1) (133.9)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,508.1 1,281.7 1,925.4
Withdrawals............................................... (1,724.6) (1,886.8) (2,385.2)
Net (decrease) increase in short-term financings............ (243.5) 419.9 (.3)
Repayments of long-term debt................................ (24.5) (196.4) (124.8)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (87.2) (83.9) -
Other, net.................................................. (89.5) (62.7) (66.5)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (661.2) (528.2) (651.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 945.0 (238.3) (235.9)
Cash and cash equivalents, beginning of year.................. 300.5 538.8 774.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,245.5 $ 300.5 $ 538.8
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 130.7 $ 217.1 $ 109.9
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 254.3 $ 170.0 $ (10.0)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly owned
life insurance subsidiaries, Equitable of Colorado ("EOC"), and, prior
to December 31, 1996, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which continues to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), in which Equitable Life has a
57.7% ownership interest, and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate in which
Equitable Life has a 32.5% ownership interest. AXA ("AXA"), a French
holding company for an international group of insurance and related
financial services companies, is the Holding Company's largest
shareholder, owning approximately 58.5% at December 31, 1998 (53.4% if
all securities convertible into, and options on, common stock were to be
converted or exercised).
The Insurance segment offers a variety of traditional, variable and
interest-sensitive life insurance products, disability income, annuity
products, mutual fund and other investment products to individuals and
small groups. It also administers traditional participating group
annuity contracts with conversion features, generally for corporate
qualified pension plans, and association plans which provide full
service retirement programs for individuals affiliated with professional
and trade associations. This segment includes Separate Accounts for
individual insurance and annuity products.
The Investment Services segment includes Alliance, the results of DLJ
which are accounted for on an equity basis, and, through June 10, 1997,
Equitable Real Estate Investment Management, Inc. ("EREIM"), a real
estate investment management subsidiary which was sold. Alliance
provides diversified investment fund management services to a variety of
institutional clients, including pension funds, endowments, and foreign
financial institutions, as well as to individual investors, principally
through a broad line of mutual funds. This segment includes
institutional Separate Accounts which provide various investment options
for large group pension clients, primarily deferred benefit contribution
plans, through pooled or single group accounts. DLJ's businesses include
securities underwriting, sales and trading, merchant banking, financial
advisory services, investment research, venture capital, correspondent
brokerage services, online interactive brokerage services and asset
management. DLJ serves institutional, corporate, governmental and
individual clients both domestically and internationally. EREIM provided
real estate investment management services, property management
services, mortgage servicing and loan asset management, and agricultural
investment management.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance and EREIM (see Note 5); and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
F-6
<PAGE>
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets,
liabilities and results of operations are presented in the consolidated
financial statements as single line items (see Note 7). Unless
specifically stated, all other footnote disclosures contained herein
exclude the Closed Block related amounts.
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been
eliminated in consolidation. The years "1998," "1997" and "1996" refer
to the years ended December 31, 1998, 1997 and 1996, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1998 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force
on that date. The assets allocated to the Closed Block, together with
anticipated revenues from policies included in the Closed Block, were
reasonably expected to be sufficient to support such business, including
provision for payment of claims, certain expenses and taxes, and for
continuation of dividend scales payable in 1991, assuming the experience
underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or any
affiliate of Equitable Life without the approval of the New York
Superintendent of Insurance (the "Superintendent"). Closed Block assets
and liabilities are carried on the same basis as similar assets and
liabilities held in the General Account. The excess of Closed Block
liabilities over Closed Block assets represents the expected future
post-tax contribution from the Closed Block which would be recognized in
income over the period the policies and contracts in the Closed Block
remain in force.
Discontinued Operations
Discontinued operations include the Group Non-Participating Wind-Up
Annuities ("Wind-Up Annuities") and the Guaranteed Interest Contract
("GIC") lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and believes the allowance for future losses at
December 31, 1998 is adequate to provide for all future losses; however,
the quarterly allowance review continues to involve numerous estimates
and subjective judgments regarding the expected performance of
Discontinued Operations Investment Assets. There can be no assurance the
losses provided for will not differ from the losses ultimately realized.
To the extent actual results or future projections of the discontinued
operations differ from management's current best estimates and
assumptions underlying the allowance for future losses, the difference
would be reflected in the consolidated statements of earnings in
discontinued operations. In particular, to the extent income, sales
proceeds and holding periods for equity real estate differ from
management's previous assumptions, periodic adjustments to the allowance
are likely to result (see Note 8).
Accounting Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for public companies to report
information about operating segments in annual and interim financial
statements issued to shareholders. It also specifies related disclosure
requirements for products and services, geographic areas and major
customers. Generally, financial information must be reported using the
basis management uses to make operating decisions and to evaluate
business performance. The Company implemented SFAS No. 131 effective
December 31, 1998 and continues to identify two operating segments to
reflect its major businesses: Insurance and Investment Services. While
the segment descriptions are the same as those previously reported,
certain amounts have been reattributed between the two reportable
segments. Prior period comparative segment information has been
restated.
F-7
<PAGE>
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of external and certain internal costs
incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP
98-1 prospectively effective January 1, 1998. The adoption of SOP 98-1
did not have a material impact on the Company's consolidated financial
statements. Capitalized internal-use software is amortized on a
straight-line basis over the estimated useful life of the software.
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of
January 1, 1996. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held for production of income. Real estate
which management intends to sell or abandon is classified as real estate
held for sale. Valuation allowances on real estate held for sale
continue to be computed using the lower of depreciated cost or estimated
fair value, net of disposition costs. Initial adoption of the impairment
requirements of SFAS No. 121 to other assets to be disposed of resulted
in a charge for the cumulative effect of an accounting change of $23.1
million, net of a Federal income tax benefit of $12.4 million, due to
the writedown to fair value of building improvements relating to
facilities vacated in 1996.
New Accounting Pronouncements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," which amends
existing accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. This statement is effective for the first
fiscal quarter beginning after December 15, 1998. This statement is not
expected to have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and for hedging activities. It
requires all derivatives to be recognized on the balance sheet at fair
value. The accounting for changes in the fair value of a derivative
depends on its intended use. Derivatives not used in hedging activities
must be adjusted to fair value through earnings. Changes in the fair
value of derivatives used in hedging activities will, depending on the
nature of the hedge, either be offset in earnings against the change in
fair value of the hedged item attributable to the risk being hedged or
recognized in other comprehensive income until the hedged item affects
earnings. For all hedging activities, the ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings.
SFAS No. 133 requires adoption in fiscal years beginning after June 15,
1999 and permits early adoption as of the beginning of any fiscal
quarter following issuance of the statement. Retroactive application to
financial statements of prior periods is prohibited. The Company expects
to adopt SFAS No. 133 effective January 1, 2000. Adjustments resulting
from initial adoption of the new requirements will be reported in a
manner similar to the cumulative effect of a change in accounting
principle and will be reflected in net income or accumulated other
comprehensive income based upon existing hedging relationships, if any.
Management currently is assessing the impact of adoption. However,
Alliance's adoption is not expected to have a significant impact on the
Company's consolidated balance sheet or statement of earnings. Also,
since most of DLJ's derivatives are carried at fair values, the
Company's consolidated earnings and financial position are not expected
to be significantly affected by DLJ's adoption of the new requirements.
F-8
<PAGE>
In late 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts that Do Not Transfer Insurance
Risk". This SOP, effective for fiscal years beginning after June 15,
1999, provides guidance to both the insured and insurer on how to apply
the deposit method of accounting when it is required for insurance and
reinsurance contracts that do not transfer insurance risk. The SOP does
not address or change the requirements as to when deposit accounting
should be applied. SOP 98-7 applies to all entities and all insurance
and reinsurance contracts that do not transfer insurance risk except for
long-duration life and health insurance contracts. This SOP is not
expected to have a material impact on the Company's consolidated
financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments". SOP 97-3
provides guidance for assessments related to insurance activities and
requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which the Company has both the
ability and the intent to hold to maturity, are stated principally at
amortized cost. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
F-9
<PAGE>
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains (losses).
Unrealized investment gains and losses on equity securities and fixed
maturities available for sale held by the Company are accounted for as a
separate component of accumulated comprehensive income, net of related
deferred Federal income taxes, amounts attributable to discontinued
operations, participating group annuity contracts and deferred policy
acquisition costs ("DAC") related to universal life and investment-type
products and participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 25 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to accumulated other comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
F-10
<PAGE>
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1998, the expected investment yield, excluding
policy loans, generally ranged from 7.29% grading to 6.5% over a 20 year
period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated comprehensive income in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
includes a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996 a loss recognition study of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
F-11
<PAGE>
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its Pension Par
and DI reserves have been calculated on a reasonable basis and are
adequate, there can be no assurance reserves will be sufficient to
provide for future liabilities.
Claim reserves and associated liabilities for individual DI and major
medical policies were $938.6 million and $886.7 million at December 31,
1998 and 1997, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 202.1 $ 190.2 $ 189.0
Incurred benefits related to prior years........... 22.2 2.1 69.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 224.3 $ 192.3 $ 258.1
================= ================ =================
Benefits paid related to current year.............. $ 17.0 $ 28.8 $ 32.6
Benefits paid related to prior years............... 155.4 146.2 153.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 172.4 $ 175.0 $ 185.9
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1998, participating policies, including those in the
Closed Block, represent approximately 19.9% ($49.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account; therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1998, 1997 and 1996, investment results of
such Separate Accounts were $4,591.0 million, $3,411.1 million and
$2,970.6 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the Statement, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds
the option price. See Note 22 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------------- ----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C> <C>
December 31, 1998
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,520.8 $ 793.6 $ 379.6 $ 14,934.8
Mortgage-backed.................... 1,807.9 23.3 .9 1,830.3
U.S. Treasury securities and
U.S. government and
agency securities................ 1,464.1 107.6 .7 1,571.0
States and political subdivisions.. 55.0 9.9 - 64.9
Foreign governments................ 363.3 20.9 30.0 354.2
Redeemable preferred stock......... 242.7 7.0 11.2 238.5
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,453.8 $ 962.3 $ 422.4 $ 18,993.7
================= ================= ================ =================
Held to Maturity: Corporate......... $ 125.0 $ - $ - $ 125.0
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 58.3 $ 114.9 $ 22.5 $ 150.7
================= ================= ================ =================
December 31, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,850.5 $ 785.0 $ 74.5 $ 15,561.0
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 52.8 6.8 .1 59.5
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
determines an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1998 and 1997, securities
without a readily ascertainable market value having an amortized cost of
$3,539.9 million and $3,759.2 million, respectively, had estimated fair
values of $3,748.5 million and $3,903.9 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 324.8 $ 323.4
Due in years two through five.......................................... 3,778.2 3,787.9
Due in years six through ten........................................... 6,543.4 6,594.1
Due after ten years.................................................... 5,756.8 6,219.5
Mortgage-backed securities............................................. 1,807.9 1,830.3
---------------- -----------------
Total.................................................................. $ 18,211.1 $ 18,755.2
================ =================
</TABLE>
Corporate bonds held to maturity with an amortized cost and estimated
fair value of $125.0 million are due in one year or less.
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
concentrations in any single issuer or a particular industry group.
Certain of these corporate high yield securities are classified as other
than investment grade by the various rating agencies, i.e., a rating
below Baa or National Association of Insurance Commissioners ("NAIC")
designation of 3 (medium grade), 4 or 5 (below investment grade) or 6
(in or near default). At December 31, 1998, approximately 15.1% of the
$18,336.1 million aggregate amortized cost of bonds held by the Company
was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to
be other than investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 384.5 $ 137.1 $ 325.3
SFAS No. 121 release............................... - - (152.4)
Additions charged to income........................ 86.2 334.6 125.0
Deductions for writedowns and
asset dispositions............................... (240.1) (87.2) (160.8)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 34.3 $ 55.8 $ 50.4
Equity real estate............................... 196.3 328.7 86.7
----------------- ---------------- -----------------
Total.............................................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
</TABLE>
F-15
<PAGE>
At December 31, 1998, the carrying value of fixed maturities which are
non-income producing for the twelve months preceding the consolidated
balance sheet date was $60.8 million.
At December 31, 1998 and 1997, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $7.0 million (0.2% of total
mortgage loans on real estate) and $23.4 million (0.9% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $115.1
million and $183.4 million at December 31, 1998 and 1997, respectively.
Gross interest income on restructured mortgage loans on real estate that
would have been recorded in accordance with the original terms of such
loans amounted to $10.3 million, $17.2 million and $35.5 million in
1998, 1997 and 1996, respectively. Gross interest income on these loans
included in net investment income aggregated $8.3 million, $12.7 million
and $28.2 million in 1998, 1997 and 1996, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 125.4 $ 196.7
Impaired mortgage loans without provision for losses............... 8.6 3.6
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 134.0 200.3
Provision for losses............................................... (29.0) (51.8)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 105.0 $ 148.5
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
During 1998, 1997 and 1996, respectively, the Company's average recorded
investment in impaired mortgage loans was $161.3 million, $246.9 million
and $552.1 million. Interest income recognized on these impaired
mortgage loans totaled $12.3 million, $15.2 million and $38.8 million
($.9 million, $2.3 million and $17.9 million recognized on a cash basis)
for 1998, 1997 and 1996, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1998 and 1997, the carrying value of equity real estate
held for sale amounted to $836.2 million and $1,023.5 million,
respectively. For 1998, 1997 and 1996, respectively, real estate of $7.1
million, $152.0 million and $58.7 million was acquired in satisfaction
of debt. At December 31, 1998 and 1997, the Company owned $552.3 million
and $693.3 million, respectively, of real estate acquired in
satisfaction of debt.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years. Accumulated
depreciation on real estate was $374.8 million and $541.1 million at
December 31, 1998 and 1997, respectively. Depreciation expense on real
estate totaled $30.5 million, $74.9 million and $91.8 million for 1998,
1997 and 1996, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 and 29 individual ventures as of December 31, 1998 and 1997,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater, is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 913.7 $ 1,700.9
Investments in securities, generally at estimated fair value........... 636.9 1,374.8
Cash and cash equivalents.............................................. 85.9 105.4
Other assets........................................................... 279.8 584.9
---------------- -----------------
Total Assets........................................................... $ 1,916.3 $ 3,766.0
================ =================
Borrowed funds - third party........................................... $ 367.1 $ 493.4
Borrowed funds - the Company........................................... 30.1 31.2
Other liabilities...................................................... 197.2 284.0
---------------- -----------------
Total liabilities...................................................... 594.4 808.6
---------------- -----------------
Partners' capital...................................................... 1,321.9 2,957.4
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 1,916.3 $ 3,766.0
================ =================
Equity in partners' capital included above............................. $ 312.9 $ 568.5
Equity in limited partnership interests not included above............. 442.1 331.8
Other.................................................................. .7 4.3
---------------- -----------------
Carrying Value......................................................... $ 755.7 $ 904.6
================ =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 246.1 $ 310.5 $ 348.9
Revenues of other limited partnership interests.... 128.9 506.3 386.1
Interest expense - third party..................... (33.3) (91.8) (111.0)
Interest expense - the Company..................... (2.6) (7.2) (30.0)
Other expenses..................................... (197.0) (263.6) (282.5)
----------------- ---------------- -----------------
Net Earnings....................................... $ 142.1 $ 454.2 $ 311.5
================= ================ =================
Equity in net earnings included above.............. $ 59.6 $ 76.7 $ 73.9
Equity in net earnings of limited partnership
interests not included above..................... 22.7 69.5 35.8
Other.............................................. - (.9) .9
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 82.3 $ 145.3 $ 110.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,489.0 $ 1,459.4 $ 1,307.4
Mortgage loans on real estate...................... 235.4 260.8 303.0
Equity real estate................................. 356.1 390.4 442.4
Other equity investments........................... 83.8 156.9 122.0
Policy loans....................................... 144.9 177.0 160.3
Other investment income............................ 185.7 181.7 217.4
----------------- ---------------- -----------------
Gross investment income.......................... 2,494.9 2,626.2 2,552.5
Investment expenses.............................. (266.8) (343.4) (348.9)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,228.1 $ 2,282.8 $ 2,203.6
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ (24.3) $ 88.1 $ 60.5
Mortgage loans on real estate...................... (10.9) (11.2) (27.3)
Equity real estate................................. 74.5 (391.3) (79.7)
Other equity investments........................... 29.9 14.1 18.9
Sale of subsidiaries............................... (2.6) 252.1 -
Issuance and sales of Alliance Units............... 19.8 - 20.6
Issuance and sale of DLJ common stock.............. 18.2 3.0 -
Other.............................................. (4.4) - (2.8)
----------------- ---------------- -----------------
Investment Gains (Losses), Net..................... $ 100.2 $ (45.2) $ (9.8)
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $101.6 million, $11.7 million
and $29.9 million for 1998, 1997 and 1996, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million for 1997. In the fourth quarter of 1997, the
Company reclassified $1,095.4 million depreciated cost of equity real
estate from real estate held for the production of income to real estate
held for sale. Additions to valuation allowances of $227.6 million were
recorded upon these transfers. Additionally, in fourth quarter 1997,
$132.3 million of writedowns on real estate held for production of
income were recorded.
For 1998, 1997 and 1996, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $15,961.0
million, $9,789.7 million and $8,353.5 million. Gross gains of $149.3
million, $166.0 million and $154.2 million and gross losses of $95.1
million, $108.8 million and $92.7 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 1998,
1997 and 1996 amounted to $(331.7) million, $513.4 million and $(258.0)
million, respectively.
For 1998, 1997 and 1996, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.9 million, $137.5
million and $136.7 million, respectively.
F-18
<PAGE>
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note which was paid in 1998. The Company recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE continues to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and for the year ended December 31, 1996,
respectively, the businesses sold reported combined revenues of $91.6
million and $226.1 million and combined net earnings of $10.7 million
and $30.7 million.
In 1996, Alliance acquired the business of Cursitor Holdings L.P. and
Cursitor Holdings Limited (collectively, "Cursitor") for approximately
$159.0 million. The purchase price consisted of $94.3 million in cash,
1.8 million of Alliance's publicly traded units ("Alliance Units"), 6%
notes aggregating $21.5 million payable ratably over four years, and
additional consideration to be determined at a later date but currently
estimated to not exceed $10.0 million. The excess of the purchase price,
including acquisition costs and minority interest, over the fair value
of Cursitor's net assets acquired resulted in the recognition of
intangible assets consisting of costs assigned to contracts acquired and
goodwill of approximately $122.8 million and $38.3 million,
respectively. The Company recognized an investment gain of $20.6 million
as a result of the issuance of Alliance Units in this transaction. On
June 30, 1997, Alliance reduced the recorded value of goodwill and
contracts associated with Alliance's acquisition of Cursitor by $120.9
million. This charge reflected Alliance's view that Cursitor's
continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1998, the Company's ownership of Alliance Units was approximately 56.7%.
F-19
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and
the changes for the corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 533.6 $ 189.9 $ 396.5
Changes in unrealized investment gains (losses).... (242.4) 543.3 (297.6)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... (5.7) 53.2 -
DAC............................................ 13.2 (89.0) 42.3
Deferred Federal income taxes.................. 85.4 (163.8) 48.7
----------------- ---------------- -----------------
Balance, End of Year............................... $ 384.1 $ 533.6 $ 189.9
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 539.9 $ 871.2 $ 357.8
Other equity investments....................... 92.4 33.7 31.6
Other, principally Closed Block................ 111.1 80.9 53.1
----------------- ---------------- -----------------
Total........................................ 743.4 985.8 442.5
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (24.7) (19.0) (72.2)
DAC.......................................... (127.8) (141.0) (52.0)
Deferred Federal income taxes................ (206.8) (292.2) (128.4)
----------------- ---------------- -----------------
Total.............................................. $ 384.1 $ 533.6 $ 189.9
================= ================ =================
</TABLE>
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents cumulative gains and
losses on items that are not reflected in earnings. The balances for the
years 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Unrealized gains on investments.................... $ 384.1 $ 533.6 $ 189.9
Minimum pension liability.......................... (28.3) (17.3) (12.9)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive Income............................. $ 355.8 $ 516.3 $ 177.0
================= ================ =================
</TABLE>
F-20
<PAGE>
The components of other comprehensive income for the years 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment
securities:
Net unrealized gains (losses) arising during
the period..................................... $ (186.1) $ 564.0 $ (249.8)
Reclassification adjustment for (gains) losses
included in net earnings....................... (56.3) (20.7) (47.8)
----------------- ---------------- -----------------
Net unrealized gains (losses) on investment
securities....................................... (242.4) 543.3 (297.6)
Adjustments for policyholder liabilities,
DAC and deferred
Federal income taxes............................. 92.9 (199.6) 91.0
----------------- ---------------- -----------------
Change in unrealized gains (losses), net of
reclassification and adjustments................. (149.5) 343.7 (206.6)
Change in minimum pension liability................ (11.0) (4.4) 22.2
----------------- ---------------- -----------------
Total Other Comprehensive Income................... $ (160.5) $ 339.3 $ (184.4)
================= ================ =================
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,149.0 and $4,059.4)........................................... $ 4,373.2 $ 4,231.0
Mortgage loans on real estate........................................ 1,633.4 1,341.6
Policy loans......................................................... 1,641.2 1,700.2
Cash and other invested assets....................................... 86.5 282.0
DAC.................................................................. 676.5 775.2
Other assets......................................................... 221.6 236.6
----------------- -----------------
Total Assets......................................................... $ 8,632.4 $ 8,566.6
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,013.1 $ 8,993.2
Other liabilities.................................................... 63.9 80.5
----------------- -----------------
Total Liabilities.................................................... $ 9,077.0 $ 9,073.7
================= =================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 661.7 $ 687.1 $ 724.8
Investment income (net of investment
expenses of $15.5, $27.0 and $27.3).............. 569.7 574.9 546.6
Investment losses, net............................. .5 (42.4) (5.5)
----------------- ---------------- -----------------
Total revenues............................... 1,231.9 1,219.6 1,265.9
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,082.0 1,066.7 1,106.3
Other operating costs and expenses................. 62.8 50.4 34.6
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,144.8 1,117.1 1,140.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 87.1 $ 102.5 $ 125.0
================= ================ =================
</TABLE>
At December 31, 1998 and 1997, problem mortgage loans on real estate had
an amortized cost of $5.1 million and $8.1 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $26.0 million and $70.5 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 55.5 $ 109.1
Impaired mortgage loans without provision for losses................... 7.6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 63.1 109.7
Provision for losses................................................... (10.1) (17.4)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 53.0 $ 92.3
================ =================
</TABLE>
During 1998, 1997 and 1996, the Closed Block's average recorded
investment in impaired mortgage loans was $85.5 million, $110.2 million
and $153.8 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $4.7 million, $9.4 million and $10.9
million ($1.5 million, $4.1 million and $4.7 million recognized on a
cash basis) for 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $11.1 million and $18.5 million on
mortgage loans on real estate and $15.4 million and $16.8 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million and $12.8 million for 1997 and 1996, respectively. Writedowns of
equity real estate subsequent to the adoption of SFAS No. 121 amounted
to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in fourth
quarter 1997, $28.8 million of writedowns on real estate held for
production of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 553.9 $ 635.2
Equity real estate................................................... 611.0 874.5
Other equity investments............................................. 115.1 209.3
Other invested assets................................................ 24.9 152.4
----------------- -----------------
Total investments.................................................. 1,304.9 1,871.4
Cash and cash equivalents............................................ 34.7 106.8
Other assets......................................................... 219.0 243.8
----------------- -----------------
Total Assets......................................................... $ 1,558.6 $ 2,222.0
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,021.7 $ 1,048.3
Allowance for future losses.......................................... 305.1 259.2
Amounts due to continuing operations................................. 2.7 572.8
Other liabilities.................................................... 229.1 341.7
----------------- -----------------
Total Liabilities.................................................... $ 1,558.6 $ 2,222.0
================= =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $63.3, $97.3 and $127.5)............. $ 160.4 $ 188.6 $ 245.4
Investment gains (losses), net..................... 35.7 (173.7) (18.9)
Policy fees, premiums and other income............. (4.3) .2 .2
----------------- ---------------- -----------------
Total revenues..................................... 191.8 15.1 226.7
Benefits and other deductions...................... 141.5 169.5 250.4
Earnings added (losses charged) to allowance
for future losses................................ 50.3 (154.4) (23.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing (loss from
strengthening) of the allowance for future
losses........................................... 4.2 (134.1) (129.0)
Federal income tax (expense) benefit............... (1.5) 46.9 45.2
----------------- ---------------- -----------------
Earnings (Loss) from Discontinued Operations....... $ 2.7 $ (87.2) $ (83.8)
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in a release of allowance in
1998 and strengthening of allowance in 1997 and 1996.
F-23
<PAGE>
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in fourth quarter 1997, $92.5 million of writedowns on
real estate held for production of income were recognized.
Benefits and other deductions includes $26.6 million, $53.3 million and
$114.3 million of interest expense related to amounts borrowed from
continuing operations in 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $3.0 million and $28.4 million on
mortgage loans on real estate and $34.8 million and $88.4 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1998 and 1997, problem mortgage loans on real estate had
amortized costs of $1.1 million and $11.0 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $3.5 million and $109.4 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 6.7 $ 101.8
Impaired mortgage loans without provision for losses................... 8.5 .2
---------------- -----------------
Recorded investment in impaired mortgages.............................. 15.2 102.0
Provision for losses................................................... (2.1) (27.3)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 13.1 $ 74.7
================ =================
</TABLE>
During 1998, 1997 and 1996, the discontinued operations' average
recorded investment in impaired mortgage loans was $73.3 million, $89.2
million and $134.8 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.7 million, $6.6 million and
$10.1 million ($3.4 million, $5.3 million and $7.5 million recognized on
a cash basis) for 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, discontinued operations had carrying
values of $50.0 million and $156.2 million, respectively, of real estate
acquired in satisfaction of debt.
F-24
<PAGE>
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 179.3 $ 422.2
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.7
Other.............................................................. .3 .3
----------------- -----------------
Total Equitable Life........................................... 599.4 599.4
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.91% - 12.00%, due through 2017................... 392.2 676.6
----------------- -----------------
Alliance:
Other.............................................................. 10.8 18.5
----------------- -----------------
Total long-term debt................................................. 1,002.4 1,294.5
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,181.7 $ 1,716.7
================= =================
</TABLE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in September
2000. The interest rates are based on external indices dependent on the
type of borrowing and at December 31, 1998 range from 5.23% to 7.75%.
There were no borrowings outstanding under this bank credit facility at
December 31, 1998.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1998, there were no borrowings outstanding under this
program.
During July 1998, Alliance entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which
replaced a $250.0 million revolving credit facility. Under the facility,
the interest rate, at the option of Alliance, is a floating rate
generally based upon a defined prime rate, a rate related to the London
Interbank Offered Rate ("LIBOR") or the Federal Funds Rate. A facility
fee is payable on the total facility. During September 1998, Alliance
increased the size of its commercial paper program from $250.0 million
to $425.0 million. Borrowings from these two sources may not exceed
$425.0 million in the aggregate. The revolving credit facility provides
backup liquidity for commercial paper issued under Alliance's commercial
paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants which require Alliance to,
among other things, meet certain financial ratios. As of December 31,
1998, Alliance had commercial paper outstanding totaling $179.5 million
at an effective interest rate of 5.5% and there were no borrowings
outstanding under Alliance's revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
F-25
<PAGE>
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $640.2 million and $1,164.0 million at December 31, 1998
and 1997, respectively, as collateral for certain short-term and
long-term debt.
At December 31, 1998, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1999 and the succeeding
four years are $322.8 million, $6.9 million, $1.7 million, $1.8 million
and $2.0 million, respectively, and $668.0 million thereafter.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 283.3 $ 186.5 $ 97.9
Deferred......................................... 69.8 (95.0) (88.2)
----------------- ---------------- -----------------
Total.............................................. $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 414.3 $ 234.7 $ 73.0
Non-taxable minority interest...................... (33.2) (38.0) (28.6)
Adjustment of tax audit reserves................... 16.0 (81.7) 6.9
Equity in unconsolidated subsidiaries.............. (39.3) (45.1) (32.3)
Other.............................................. (4.7) 21.6 (9.3)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 235.3 $ - $ 257.9 $ -
Other.................................. 27.8 - 30.7 -
DAC, reserves and reinsurance.......... - 231.4 - 222.8
Investments............................ - 364.4 - 405.7
--------------- ---------------- --------------- ---------------
Total.................................. $ 263.1 $ 595.8 $ 288.6 $ 628.5
=============== ================ =============== ===============
</TABLE>
F-26
<PAGE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ (7.7) $ 46.2 $ (156.2)
Investments........................................ 46.8 (113.8) 78.6
Compensation and related benefits.................. 28.6 3.7 22.3
Other.............................................. 2.1 (31.1) (32.9)
----------------- ---------------- -----------------
Deferred Federal Income Tax
Expense (Benefit)................................ $ 69.8 $ (95.0) $ (88.2)
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Holding Company's consolidated Federal income tax returns for the
years 1992 through 1996. Management believes these audits will have no
material adverse effect on the Company's results of operations.
11) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 438.8 $ 448.6 $ 461.4
Reinsurance assumed................................ 203.6 198.3 177.5
Reinsurance ceded.................................. (54.3) (45.4) (41.3)
----------------- ---------------- -----------------
Premiums........................................... $ 588.1 $ 601.5 $ 597.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 75.7 $ 61.0 $ 48.2
================= ================ =================
Policyholders' Benefits Ceded...................... $ 85.9 $ 70.6 $ 54.1
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 39.5 $ 36.4 $ 32.3
================= ================ =================
</TABLE>
Beginning in May 1997, the Company began reinsuring on a yearly renewal
term basis 90% of the mortality risk on new issues of certain term,
universal and variable life products. During 1996, the Company's
retention limit on joint survivorship policies was increased to $15.0
million. Effective January 1, 1994, all in force business above $5.0
million was reinsured. The Insurance Group also reinsures the entire
risk on certain substandard underwriting risks as well as in certain
other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $1.3 million,
$1.6 million and $2.4 million for 1998, 1997 and 1996, respectively.
Ceded death and disability benefits totaled $15.6 million, $4.3 million
and $21.2 million for 1998, 1997 and 1996, respectively. Insurance
liabilities ceded totaled $560.3 million and $593.8 million at December
31, 1998 and 1997, respectively.
F-27
<PAGE>
12) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 33.2 $ 32.5 $ 33.8
Interest cost on projected benefit obligations..... 129.2 128.2 120.8
Actual return on assets............................ (175.6) (307.6) (181.4)
Net amortization and deferrals..................... 6.1 166.6 43.4
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ (7.1) $ 19.7 $ 16.6
================= ================ =================
</TABLE>
The plan's projected benefit obligation under the qualified and
non-qualified plans was comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Benefit obligation, beginning of year.................................. $ 1,801.3 $ 1,765.5
Service cost........................................................... 33.2 32.5
Interest cost.......................................................... 129.2 128.2
Actuarial (gains) losses............................................... 108.4 (15.5)
Benefits paid.......................................................... (138.7) (109.4)
---------------- -----------------
Benefit Obligation, End of Year........................................ $ 1,933.4 $ 1,801.3
================ =================
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Plan assets at fair value, beginning of year........................... $ 1,867.4 $ 1,626.0
Actual return on plan assets........................................... 338.9 307.5
Contributions.......................................................... - 30.0
Benefits paid and fees................................................. (123.2) (96.1)
---------------- -----------------
Plan assets at fair value, end of year................................. 2,083.1 1,867.4
Projected benefit obligations.......................................... 1,933.4 1,801.3
---------------- -----------------
Projected benefit obligations less than plan assets.................... 149.7 66.1
Unrecognized prior service cost........................................ (7.5) (9.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 38.7 95.0
Unrecognized net asset at transition................................... 1.5 3.1
---------------- -----------------
Prepaid Pension Cost.................................................. $ 182.4 $ 154.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.0% and 3.83%, respectively, at December 31, 1998 and
7.25% and 4.07%, respectively, at December 31, 1997. As of January 1,
1998 and 1997, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
F-28
<PAGE>
The Company recorded, as a reduction of shareholders' equity an
additional minimum pension liability of $28.3 million and $17.3 million,
net of Federal income taxes, at December 31, 1998 and 1997,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $31.8 million,
$33.2 million and $34.7 million for 1998, 1997 and 1996, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1998, 1997 and 1996, the Company made
estimated postretirement benefits payments of $28.4 million, $18.7
million and $18.9 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.6 $ 4.5 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 33.6 34.7 34.6
Net amortization and deferrals..................... .5 1.9 2.4
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 38.7 $ 41.1 $ 42.3
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation, beginning
of year.............................................................. $ 490.8 $ 388.5
Service cost........................................................... 4.6 4.5
Interest cost.......................................................... 33.6 34.7
Contributions and benefits paid........................................ (28.4) 72.1
Actuarial (gains) losses............................................... (10.2) (9.0)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 490.4 490.8
Unrecognized prior service cost........................................ 31.8 40.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (121.2) (140.6)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 401.0 $ 390.5
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and medical benefits will be limited to 200%
of 1993 costs for all participants.
F-29
<PAGE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 8.0% in 1998,
gradually declining to 2.5% in the year 2009, and in 1997 was 8.75%,
gradually declining to 2.75% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.0%
and 7.25% at December 31, 1998 and 1997, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1998
would be increased 4.83%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 4.57%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 1998
would be decreased by 5.6%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 5.4%.
13) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1998 and 1997, respectively, was $880.9 million and
$1,353.4 million. The average unexpired terms at December 31, 1998
ranged from 1 month to 4.3 years. At December 31, 1998, the cost of
terminating swaps in a loss position was $8.0 million. Equitable Life
has implemented an interest rate cap program designed to hedge crediting
rates on interest-sensitive individual annuities contracts. The
outstanding notional amounts at December 31, 1998 of contracts purchased
and sold were $8,450.0 million and $875.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $54.8 million and
is being amortized ratably over the contract periods ranging from 1 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1998 and 1997.
F-30
<PAGE>
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 7 and 8:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,809.9 $ 2,961.8 $ 2,611.4 $ 2,822.8
Other limited partnership interests.... 562.6 562.6 509.4 509.4
Policy loans........................... 2,086.7 2,370.7 2,422.9 2,493.9
Policyholders' account balances -
investment contracts................. 12,892.0 13,396.0 12,611.0 12,714.0
Long-term debt......................... 1,002.4 1,025.2 1,294.5 1,257.0
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,633.4 1,703.5 1,341.6 1,420.7
Other equity investments............... 56.4 56.4 86.3 86.3
Policy loans........................... 1,641.2 1,929.7 1,700.2 1,784.2
SCNILC liability....................... 25.0 25.0 27.6 30.3
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 553.9 599.9 655.5 779.9
Fixed maturities....................... 24.9 24.9 38.7 38.7
Other equity investments............... 115.1 115.1 209.3 209.3
Guaranteed interest contracts.......... 37.0 34.0 37.0 34.0
Long-term debt......................... 147.1 139.8 296.4 297.6
</TABLE>
F-31
<PAGE>
14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $142.9 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $287.3 million at December 31, 1998, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $24.7 million of letters of credit outstanding
at December 31, 1998.
15) LITIGATION
Major Medical Insurance Cases
Equitable Life agreed to settle, subject to court approval, previously
disclosed cases involving lifetime guaranteed renewable major medical
insurance policies issued by Equitable Life in five states. Plaintiffs
in these cases claimed that Equitable Life's method for determining
premium increases breached the terms of certain forms of the policies
and was misrepresented. In certain cases plaintiffs also claimed that
Equitable Life misrepresented to policyholders that premium increases
had been approved by insurance departments, and that it determined
annual rate increases in a manner that discriminated against the
policyholders.
In December 1997, Equitable Life entered into a settlement agreement,
subject to court approval, which would result in creation of a
nationwide class consisting of all persons holding, and paying premiums
on, the policies at any time since January 1, 1988 and the dismissal
with prejudice of the pending actions and the resolution of all similar
claims on a nationwide basis. Under the terms of the settlement, which
involves approximately 127,000 former and current policyholders,
Equitable Life would pay $14.2 million in exchange for release of all
claims and will provide future relief to certain current policyholders
by restricting future premium increases, estimated to have a present
value of $23.3 million. This estimate is based upon assumptions about
future events that cannot be predicted with certainty and accordingly
the actual value of the future relief may vary. In October 1998, the
court entered a judgment approving the settlement agreement and, in
November, a member of the national class filed a notice of appeal of the
judgment. In January 1999, the Court of Appeals granted Equitable Life's
motion to dismiss the appeal.
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported
class actions against Equitable Life and its subsidiary insurance
companies Equitable Variable Life Insurance Company ("EVLICO," which was
merged into Equitable Life effective January 1, 1997) and The Equitable
of Colorado, Inc. ("EOC"). These actions involve, among other things,
sales of life and annuity products for varying periods from 1980 to the
present, and allege, among other things, sales practice
misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the
propriety of a product as a replacement of an existing policy; and
failure to disclose a product as life insurance. Some actions are in
state courts and others are in U.S. District Courts in varying
jurisdictions, and are in varying stages of discovery and motions for
class certification.
F-32
<PAGE>
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition
against cancellation of policies for non-payment of premium or other
remedies, as well as attorneys' fees and expenses. Similar actions have
been filed against other life and health insurers and have resulted in
the award of substantial judgments, including material amounts of
punitive damages, or in substantial settlements. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of these cases should not have a material adverse
effect on the financial position of The Equitable. The Equitable's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on The
Equitable's results of operations in any particular period.
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action
in September 1997, in the United States District Court for the Northern
District of Alabama, Southern Division, involving alleged discrimination
on the basis of race against African-American applicants and potential
applicants in hiring individuals as sales agents. Plaintiffs seek a
declaratory judgment and affirmative and negative injunctive relief,
including the payment of back-pay, pension and other compensation.
Although the outcome of litigation cannot be predicted with certainty,
The Equitable's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of The Equitable. The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on The Equitable's results of operations
in any particular period.
Alliance Capital
In July 1995, a class action complaint was filed against Alliance North
American Government Income Trust, Inc. (the "Fund"), Alliance and
certain other defendants affiliated with Alliance, including the Holding
Company, alleging violations of Federal securities laws, fraud and
breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. The original complaint was dismissed
in 1996; on appeal, the dismissal was affirmed. In October 1996,
plaintiffs filed a motion for leave to file an amended complaint,
alleging the Fund failed to hedge against currency risk despite
representations that it would do so, the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
two Fund advertisements misrepresented the risks of investing in the
Fund. In October 1998, the U.S. Court of Appeals for the Second Circuit
issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended
complaint containing the other allegations. Alliance believes that the
allegations in the amended complaint, which was filed in February 1999,
are without merit and intends to defend itself vigorously against these
claims. While the ultimate outcome of this matter cannot be determined
at this time, Alliance's management does not expect that it will have a
material adverse effect on Alliance's results of operations or financial
condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and
warrants to purchase common shares, of Rickel Home Centers, Inc.
("Rickel"), which filed a voluntary petition for reorganization pursuant
to Chapter 11 of the Bankruptcy Code. The complaint seeks unspecified
compensatory and punitive damages from DLJSC, as an underwriter and as
an owner of 7.3% of the common stock, for alleged violation of Federal
securities laws and common law fraud for alleged misstatements and
omissions contained in the prospectus and registration statement used in
the offering of the units. DLJSC is defending itself vigorously against
all the allegations contained in the complaint. Although there can be no
assurance, DLJ's management does not believe that the ultimate outcome
of this litigation will have a material adverse effect on DLJ's
consolidated financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot predict whether or not such litigation will have a
material adverse effect on DLJ's results of operations in any particular
period.
F-33
<PAGE>
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of
subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC"). The debentures were canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
litigation seeks compensatory and punitive damages for DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
proceedings. Trial is expected in early May 1999. DLJSC intends to
defend itself vigorously against all the allegations contained in the
complaint. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant in a complaint which alleges that DLJSC and a
number of other financial institutions and several individual defendants
violated civil provisions of RICO by inducing plaintiffs to invest over
$40 million in The Securities Groups, a number of tax shelter limited
partnerships, during the years 1978 through 1982. The plaintiffs seek
recovery of the loss of their entire investment and an approximately
equivalent amount of tax-related damages. Judgment for damages under
RICO are subject to trebling. Discovery is complete. Trial has been
scheduled for May 17, 1999. DLJSC believes that it has meritorious
defenses to the complaints and will continue to contest the suits
vigorously. Although there can be no assurance, DLJ's management does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant along with certain other parties in four actions
involving Mid-American Waste Systems, Inc. ("Mid-American"), which filed
a voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code in January 1997. Three actions seek rescission,
compensatory and punitive damages for DLJSC's role in underwriting notes
of Mid-American. The other action, filed by the Plan Administrator for
the bankruptcy estate of Mid-American, alleges that DLJSC is liable as
an underwriter for alleged misrepresentations and omissions in the
prospectus for the notes, and liable as financial advisor to
Mid-American for allegedly failing to advise Mid-American about its
financial condition. DLJSC believes that it has meritorious defenses to
the complaints and will continue to contest the suits vigorously.
Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon
information currently available to it, DLJ's management cannot predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
Other Matters
In addition to the matters described above, the Holding Company and its
subsidiaries are involved in various legal actions and proceedings in
connection with their businesses. Some of the actions and proceedings
have been brought on behalf of various alleged classes of claimants and
certain of these claimants seek damages of unspecified amounts. While
the ultimate outcome of such matters cannot be predicted with certainty,
in the opinion of management no such matter is likely to have a material
adverse effect on the Company's consolidated financial position or
results of operations.
16) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1999 and the succeeding four years are $98.7 million, $92.7
million, $73.4 million, $59.9 million, $55.8 million and $550.1 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1999 and the succeeding four years is $7.6 million, $5.6
million, $4.6 million, $2.3 million, $2.3 million and $25.4 million
thereafter.
F-34
<PAGE>
At December 31, 1998, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1999
and the succeeding four years is $189.2 million, $177.0 million, $165.5
million, $145.4 million, $122.8 million and $644.7 million thereafter.
17) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 772.0 $ 721.5 $ 704.8
Commissions........................................ 478.1 409.6 329.5
Short-term debt interest expense................... 26.1 31.7 8.0
Long-term debt interest expense.................... 84.6 121.2 137.3
Amortization of policy acquisition costs........... 292.7 287.3 405.2
Capitalization of policy acquisition costs......... (609.1) (508.0) (391.9)
Rent expense, net of sublease income............... 100.0 101.8 113.7
Cursitor intangible assets writedown............... - 120.9 -
Other.............................................. 1,056.8 917.9 769.1
----------------- ---------------- -----------------
Total.............................................. $ 2,201.2 $ 2,203.9 $ 2,075.7
================= ================ =================
</TABLE>
During 1997 and 1996, the Company restructured certain operations in
connection with cost reduction programs and recorded pre-tax provisions
of $42.4 million and $24.4 million, respectively. The amounts paid
during 1998, associated with cost reduction programs, totaled $22.6
million. At December 31, 1998, the liabilities associated with cost
reduction programs amounted to $39.4 million. The 1997 cost reduction
program included costs related to employee termination and exit costs.
The 1996 cost reduction program included restructuring costs related to
the consolidation of insurance operations' service centers. Amortization
of DAC in 1996 included a $145.0 million writeoff of DAC related to DI
contracts.
18) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1998, 1997 and 1996, statutory net
income (loss) totaled $384.4 million, $(351.7) million and $(351.1)
million, respectively. Statutory surplus, capital stock and Asset
Valuation Reserve ("AVR") totaled $4,728.0 million and $3,907.1 million
at December 31, 1998 and 1997, respectively. No dividends have been paid
by Equitable Life to the Holding Company to date.
At December 31, 1998, the Insurance Group, in accordance with various
government and state regulations, had $25.6 million of securities
deposited with such government or state agencies.
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' equity on a GAAP basis are primarily attributable to: (a)
inclusion in SAP of an AVR intended to stabilize surplus from
fluctuations in the value of the investment portfolio; (b) future policy
benefits and policyholders' account balances under SAP differ from GAAP
due to differences between actuarial assumptions and reserving
methodologies; (c) certain policy acquisition costs are expensed under
SAP but deferred under GAAP and amortized over future periods to achieve
a matching of revenues and expenses; (d) Federal income taxes are
generally accrued under SAP based upon revenues and expenses in the
Federal income tax return while under GAAP deferred taxes are provided
for timing differences between recognition of revenues and expenses for
financial reporting and income tax purposes; (e) valuation of assets
under SAP and GAAP differ due to different investment valuation and
depreciation methodologies, as well as the deferral of interest-related
realized capital gains and losses on fixed income investments; and (f)
differences in the accrual methodologies for post-employment and
retirement benefit plans.
F-35
<PAGE>
19) BUSINESS SEGMENT INFORMATION
The Company's operations consist of Insurance and Investment Services.
The Company's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment. Management evaluates the
performance of each segment based upon operating results adjusted to
exclude the effect of unusual or non-recurring events and transactions
and certain revenue and expense categories not related to the base
operations of the particular business net of minority interest.
Information for all periods is presented on a comparable basis.
Intersegment investment advisory and other fees of approximately $61.8
million, $84.1 million and $129.2 million for 1998, 1997 and 1996,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to discontinued
operations of $.5 million, $4.2 million and $13.3 million for 1998, 1997
and 1996, respectively, are eliminated in consolidation.
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations
before Federal income taxes and cumulative effect of accounting change
as reported on the consolidated statements of earnings and the segments'
assets to total assets on the consolidated balance sheets, respectively.
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Segment revenues..................... $ 4,029.8 $ 1,438.4 $ (5.7) $ 5,462.5
Investment gains..................... 64.8 35.4 - 100.2
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 4,094.6 $ 1,473.8 $ (5.7) $ 5,562.7
=============== ================= =============== ================
Pre-tax operating earnings........... $ 688.6 $ 284.3 $ - $ 972.9
Investment gains , net of
DAC and other charges.............. 41.7 27.7 - 69.4
Pre-tax minority interest............ - 141.5 - 141.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 730.3 $ 453.5 $ - $ 1,183.8
=============== ================= =============== ================
Total Assets......................... $ 75,626.0 $ 12,379.2 $ (64.4) $ 87,940.8
=============== ================= =============== ================
1997
Segment revenues..................... $ 3,990.8 $ 1,200.0 $ (7.7) $ 5,183.1
Investment gains (losses)............ (318.8) 255.1 - (63.7)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,672.0 $ 1,455.1 $ (7.7) $ 5,119.4
=============== ================= =============== ================
Pre-tax operating earnings........... $ 507.0 $ 258.3 $ - $ 765.3
Investment gains (losses), net of
DAC and other charges.............. (292.5) 252.7 - (39.8)
Non-recurring costs and expenses..... (41.7) (121.6) - (163.3)
Pre-tax minority interest............ - 108.5 - 108.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 172.8 $ 497.9 $ - $ 670.7
=============== ================= =============== ================
Total Assets......................... $ 67,762.4 $ 13,691.4 $ (96.1) $ 81,357.7
=============== ================= =============== ================
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1996
Segment revenues..................... $ 3,789.1 $ 1,105.5 $ (12.6) $ 4,882.0
Investment gains (losses)............ (30.3) 20.5 - (9.8)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,758.8 $ 1,126.0 $ (12.6) $ 4,872.2
=============== ================= =============== ================
Pre-tax operating earnings........... $ 337.1 $ 224.6 $ - $ 561.7
Investment gains (losses), net of
DAC and other charges.............. (37.2) 16.9 - (20.3)
Reserve strengthening and DAC
writeoff........................... (393.0) - - (393.0)
Non-recurring costs and
expenses........................... (22.3) (1.1) - (23.4)
Pre-tax minority interest............ - 83.6 - 83.6
--------------- ----------------- --------------- ----------------
Earnings (Loss) from
Continuing Operations.............. $ (115.4) $ 324.0 $ - $ 208.6
=============== ================= =============== ================
</TABLE>
20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1998 and 1997 are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Total Revenues................ $ 1,470.2 $ 1,422.9 $ 1,297.6 $ 1,372.0
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 212.8 $ 197.0 $ 136.8 $ 158.9
================= ================= ================== ==================
Net Earnings.................. $ 213.3 $ 198.3 $ 137.5 $ 159.1
================= ================= ================== ==================
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million.
F-37
<PAGE>
21) INVESTMENT IN DLJ
At December 31, 1998, the Company's ownership of DLJ interest was
approximately 32.5%. The Company's ownership interest will be further
reduced upon the issuance of common stock after the vesting of
forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 13,195.1 $ 16,535.7
Securities purchased under resale agreements........................... 20,063.3 22,628.8
Broker-dealer related receivables...................................... 34,264.5 28,159.3
Other assets........................................................... 4,759.3 3,182.0
---------------- -----------------
Total Assets........................................................... $ 72,282.2 $ 70,505.8
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 35,775.6 $ 36,006.7
Broker-dealer related payables......................................... 26,161.5 26,127.2
Short-term and long-term debt.......................................... 3,997.6 3,249.5
Other liabilities...................................................... 3,219.8 2,860.9
---------------- -----------------
Total liabilities...................................................... 69,154.5 68,244.3
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,927.7 2,061.5
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 72,282.2 $ 70,505.8
================ =================
DLJ's equity as reported............................................... $ 2,927.7 $ 2,061.5
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.7 23.5
The Holding Company's equity ownership in DLJ.......................... (1,002.4) (740.2)
Minority interest in DLJ............................................... (1,118.2) (729.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 830.8 $ 615.5
================ =================
</TABLE>
F-38
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 3,184.7 $ 2,430.7
Net investment income.................................................. 2,189.1 1,652.1
Dealer, trading and investment gains, net.............................. 33.2 557.7
---------------- -----------------
Total revenues......................................................... 5,407.0 4,640.5
Total expenses including income taxes.................................. 5,036.2 4,232.2
---------------- -----------------
Net earnings........................................................... 370.8 408.3
Dividends on preferred stock........................................... 21.3 12.2
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 349.5 $ 396.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 349.5 $ 396.1
Amortization of cost in excess of net assets acquired in 1985.......... (.8) (1.3)
The Holding Company's equity in DLJ's earnings......................... (136.8) (156.8)
Minority interest in DLJ............................................... (99.5) (109.1)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 112.4 $ 128.9
================ =================
</TABLE>
22) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1998, 1997 and 1996 would have
been:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As reported............................................. $ 708.2 $ 437.2 $ 10.3
Pro forma............................................... 678.4 426.3 3.3
</TABLE>
The fair values of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, were estimated as of the
dates of grant using the Black-Scholes option pricing model. The option
pricing assumptions for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ---------- --------- ---------- -------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield...... 0.32% 0.48% 0.80% 0.69% 0.86% 1.54% 6.50% 8.00% 8.00%
Expected volatility. 28% 20% 20% 40% 33% 25% 29% 26% 23%
Risk-free interest
rate.............. 5.48% 5.99% 5.92% 5.53% 5.96% 6.07% 4.40% 5.70% 5.80%
Expected life
in years.......... 5 5 5 5 5 5 7.2 7.2 7.4
Weighted average
fair value per
option at
grant-date........ $22.64 $12.25 $6.94 $16.27 $10.81 $4.03 $3.86 $2.18 $1.35
</TABLE>
F-39
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price of Price of Price of
Shares Options Shares Options Units Options
(In Millions) Outstanding (In Millions) Outstanding (In Millions) Outstanding
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1996........ 6.7 $20.27 18.4 $13.50 9.6 $ 8.86
Granted................ .7 $24.94 4.2 $16.27 1.4 $12.56
Exercised.............. (.1) $19.91 - (.8) $ 6.82
Expired................ - - -
Forfeited.............. (.6) $20.21 (.4) $13.50 (.2) $ 9.66
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 22.2 $14.03 10.0 $ 9.54
Granted................ 3.2 $41.85 6.4 $30.54 2.2 $18.28
Exercised.............. (1.6) $20.26 (.2) $16.01 (1.2) $ 8.06
Forfeited.............. (.4) $23.43 (.2) $13.79 (.4) $10.64
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 28.2 $17.78 10.6 $11.41
Granted................ 4.3 $66.26 1.5 $38.59 2.8 $26.28
Exercised.............. (1.1) $21.18 (1.4) $14.91 (.9) $ 8.91
Forfeited.............. (.4) $47.01 (.1) $17.31 (.2) $13.14
--------------- ------------- ---------------
Balance as of
December 31, 1998...... 10.7 $44.00 28.2 $19.04 12.3 $14.94
=============== ============= ===============
</TABLE>
F-40
<PAGE>
Information about options outstanding and exercisable at December 31,
1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------------------------- ----------------- ---------------- ------------------- ---------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 3.7 5.19 $20.97 3.0 $20.33
$28.50 -$45.25 3.0 8.68 $41.79 -
$50.63 -$66.75 2.1 9.21 $52.73 -
$81.94 -$82.56 1.9 9.62 $82.56 -
----------------- -------------------
$18.125 -$82.56 10.7 7.75 $44.00 3.0 $20.33
================= ================= ================ ==================== ==============
DLJ
----------------------
$13.50 -$25.99 22.3 7.1 $14.59 21.4 $15.05
$26.00 -$38.99 5.0 8.8 $33.94 -
$39.00 -$52.875 .9 9.4 $44.65 -
----------------- -------------------
$13.50 -$52.875 28.2 7.5 $19.04 21.4 $15.05
================= ================== ============== ===================== =============
Alliance
----------------------
$ 3.03 -$ 9.69 3.1 4.5 $ 8.03 2.4 $ 7.57
$ 9.81 -$10.69 2.0 5.3 $10.05 1.6 $10.07
$11.13 -$13.75 2.4 7.5 $11.92 1.0 $11.77
$18.47 -$18.78 2.0 9.0 $18.48 .4 $18.48
$22.50 -$26.31 2.8 9.9 $26.28 - -
----------------- -------------------
$ 3.03 -$26.31 12.3 7.2 $14.94 5.4 $ 9.88
================= =================== ============= ===================== =============
</TABLE>
F-41
<PAGE>
INCOME MANAGER(R)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
-----------------------------
COMBINATION VARIABLE AND
FIXED DEFERRED ANNUITY CONTRACTS
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
1290 AVENUE OF THE AMERICAS, NEW YORK, NY 10104
- --------------------------------------------------------------------------------
This statement of additional information ("SAI") is not a prospectus. It should
be read in conjunction with the related Separate Account No. 45 Income Manager
prospectuses as follows:
- --------------------------------------------------------------------------------
Prospectuses dated May 1, 1996 as supplemented on May 1, 1997, December 31,
1997, May 1, 1998 and January 4, 1999.
- --------------------------------------------------------------------------------
Prospectuses dated October 17, 1996 as supplemented on May 1, 1997, December 31,
1997, May 1, 1998, and January 4, 1999.
- --------------------------------------------------------------------------------
Prospectuses dated December 31, 1997 as supplemented on May 1, 1998 and
January 4, 1999.
- --------------------------------------------------------------------------------
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 (Post Office Box 1547, Secaucus, NJ 07096-1547), by calling
1-800-789-7771 toll-free, or by contacting your agent.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Custodian and Independent Accountants 2
- --------------------------------------------------------------------------------
Yield Information for the Alliance Money Market Fund, 2
Alliance High Yield Fund, and Alliance Intermediate
Government Securities Fund
- --------------------------------------------------------------------------------
Financial Statements 2
- --------------------------------------------------------------------------------
Copyright 1999 The Equitable Life Assurance Society of the United States.
All rights reserved.
(AGTSUPPSAIB 5/99)
<PAGE>
- --------------------------------------------------------------------------------
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Equitable Life is the custodian for the shares of The Hudson River Trust and EQ
Advisors Trust owned by the variable annuity options.
The financial statements of Separate Account No. 45 as at December 31, 1998 and
for the periods ended December 31, 1998 and 1997, and the consolidated financial
statements of Equitable Life as at December 31, 1998 and 1997 and for each of
the three years ended December 31, 1998 included in this SAI have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
- --------------------------------------------------------------------------------
YIELD INFORMATION FOR THE ALLIANCE MONEY MARKET FUND, ALLIANCE HIGH YIELD FUND,
AND ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
The yields for the Alliance Money Market Fund, Alliance High Yield Fund, and
Alliance Intermediate Government Securities Fund reflect charges that are not
normally reflected in the yields of other investments. Therefore, they may be
lower when compared with yields of other investments. The yields for the
Alliance Money Market Fund, Alliance High Yield Fund, and Alliance Intermediate
Government Securities Fund should not be compared to the return on fixed rate
investments which guarantee rates of interest for specified periods, such as the
fixed interest options. Nor should the yields be compared to the yields of money
market options made available to the general public.
The yields reflect the deduction of Investment Fund expenses, they are lower
than the corresponding yield figures for the Alliance Money Market, Alliance
High Yield, and Alliance Intermediate Government Securities Portfolios which
reflect only the deduction of The Hudson River Trust-level expenses.
The seven-day current yield for the Alliance Money Market Fund was 4.65% for the
period ended December 31, 1998. The effective yield for that period was 4.75%.
The 30-day current yield for the Alliance High Yield Fund was 13.38% for the
period ended December 31, 1998.
The 30-day current yield for the Intermediate Government Securities Fund was
3.62% for the period ended December 31, 1998.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The consolidated financial statements of Equitable Life included herein should
be considered only as bearing upon the ability of Equitable Life to meet its
obligations under the contracts.
2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants ..................................... FS-2
Financial Statements:
Statements of Assets and Liabilities, December 31, 1998 ............ FS-3
Statements of Operations for the Year Ended December 31, 1998 ...... FS-6
Statements of Changes in Net Assets for the Years Ended
December 31, 1998 and 1997 ....................................... FS-9
Notes to Financial Statements ...................................... FS-15
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ..................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1998 and 1997 ............ F-2
Consolidated Statements of Earnings, Years Ended December
31, 1998, 1997 and 1996 .......................................... F-3
Consolidated Statements of Shareholder's Equity, Years Ended
December 31, 1998,
1997 and 1996 ................................................... F-4
Consolidated Statements of Cash Flows, Years Ended December 31,
1998, 1997 and 1996 .............................................. F-5
Notes to Consolidated Financial Statements ......................... F-6
FS-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The Equitable Life Assurance Society of the United States
and Contractowners of Separate Account No. 45
of The Equitable Life Assurance Society of the United States
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Alliance Money Market Fund,
Alliance Intermediate Government Securities Fund, Alliance High Yield Fund,
Alliance Growth & Income Fund, Alliance Equity Index Fund, Alliance Common Stock
Fund, Alliance Global Fund, Alliance International Fund, Alliance Aggressive
Stock Fund, Alliance Small Cap Growth Fund, Alliance Conservative Investors
Fund, Alliance Growth Investors Fund, ("Hudson River Trust funds") and T. Rowe
Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, BT Equity 500
Index Fund, Merrill Lynch Basic Value Equity Fund, MFS Research Fund, BT
International Equity Index Fund, T. Rowe Price International Stock Fund, Morgan
Stanley Emerging Markets Equity Fund, Warburg Pincus Small Company Value Fund,
BT Small Company Index Fund, MFS Emerging Growth Companies Fund, EQ/Putnam
Balanced Fund and Merrill Lynch World Strategy Fund ("EQ Advisors Trust funds"),
separate investment funds of The Equitable Life Assurance Society of the United
States ("Equitable Life") Separate Account No. 45 at December 31, 1998 and the
results of each of their operations and changes in each of their net assets for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Equitable
Life's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Hudson River Trust and in The EQ Advisors
Trust at December 31, 1998 with the transfer agent, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
FS-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
------------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE
MONEY GOVERNMENT ALLIANCE
MARKET SECURITIES HIGH
FUND FUND YIELD FUND
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $162,642,654 ....................... $162,027,740
38,988,768 ....................... $39,087,424
79,874,329 ....................... $68,956,617
52,351,834 .......................
38,500,311 .......................
179,571,303 .......................
51,702,567 .......................
367,878 .......................
40,156,608 .......................
Receivable for Trust shares sold ............ -- -- --
Receivable for policy-related transactions .. 4,052,521 284,956 281,931
------------ ----------- -----------
Total Assets ................................ 166,080,261 39,372,380 69,238,548
------------ ----------- -----------
LIABILITIES
Payable for Trust shares
purchased ................................ 4,071,280 311,491 285,060
Payable for policy-related
transactions ............................. -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 51,090 37,552 17,444
------------ ----------- -----------
Total Liabilities ........................... 4,122,370 349,043 302,504
------------ ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $161,957,891 $39,023,337 $68,936,044
============ =========== ===========
<CAPTION>
EQUITY SERIES:
------------------------------------------------------------------------------------
MERRILL
T. ROWE EQ/PUTNAM ALLIANCE LYNCH
PRICE GROWTH & ALLIANCE BT EQUITY EQUITY BASIC VALUE
EQUITY INCOME GROWTH & 500 INDEX INDEX EQUITY
INCOME FUND VALUE FUND INCOME FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $162,642,654 .......................
38,988,768 .......................
79,874,329 .......................
52,351,834 ....................... $54,352,075
38,500,311 ....................... $41,327,548
179,571,303 ....................... $194,812,344
51,702,567 ....................... $57,083,310
367,878 ....................... $429,900
40,156,608 ....................... $40,154,990
Receivable for Trust shares sold ............ -- -- -- -- -- --
Receivable for policy-related transactions .. 192,690 169,537 886,818 1,978,165 12,773 297,870
----------- ----------- ------------ ----------- -------- -----------
Total Assets ................................ 54,544,765 41,497,085 195,699,162 59,061,475 442,673 40,452,860
----------- ----------- ------------ ----------- -------- -----------
LIABILITIES
Payable for Trust shares purchased .......... 192,690 169,537 914,736 1,978,218 13,332 297,913
Payable for policy related transactions...... -- -- -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 38,209 31,750 144,163 59,481 8,903 24,813
----------- ----------- ------------ ----------- -------- -----------
Total Liabilities ........................... 230,899 201,287 1,058,899 2,037,699 22,235 322,726
----------- ----------- ------------ ----------- -------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $54,313,866 $41,295,798 $194,640,263 $57,023,776 $420,438 $40,130,134
=========== =========== ============ =========== ======== ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $614,422,976 ....................... $673,522,100
46,867,524 ....................... $53,094,944
62,242,799 ....................... $66,482,102
19,182,262 ....................... $20,109,775
5,069,139 .......................
28,158,931 .......................
5,282,220 .......................
158,195,007 .......................
Receivable for Trust shares sold ............ -- -- -- 1,621,423
Receivable for policy-related transaction ... 3,169,259 789,675 223,087 --
------------ ----------- ----------- -----------
Total Assets ................................ 676,691,359 53,884,619 66,705,189 21,731,198
------------ ----------- ----------- -----------
LIABILITIES
Payable for Trust shares sold ............... 3,174,080 789,704 228,019 --
Payable for policy-related transactions ..... -- -- -- 1,629,516
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 15,873 11,321 69,713 23,074
------------ ----------- ----------- -----------
Total Liabilities ........................... 3,189,953 801,025 297,732 1,652,590
------------ ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $673,501,406 $53,083,594 $66,407,457 $20,078,608
============ =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
MORGAN
T. ROWE STANLEY
BT PRICE EMERGING ALLIANCE
INTERNATIONAL INTERNATIONAL MARKETS AGGRESSIVE
EQUITY STOCK EQUITY STOCK
INDEX FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $614,422,976 .......................
46,867,524 .......................
62,242,799 .......................
19,182,262 .......................
5,069,139 ....................... $5,353,580
28,158,931 ....................... $29,654,895
5,282,220 ....................... $4,273,794
158,195,007 ....................... $147,616,537
Receivable for Trust shares sold ............ 228,451 -- -- --
Receivable for policy-related transaction ... -- 158,444 25,127 305,836
---------- ----------- ---------- ------------
Total Assets ................................ 5,582,031 29,813,339 4,298,921 147,922,373
---------- ----------- ---------- ------------
LIABILITIES
Payable for Trust shares sold ............... -- 158,443 26,143 313,060
Payable for policy-related transactions ..... 228,419 -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5) .................. 6,600 22,436 8,961 11,344
---------- ----------- ---------- ------------
Total Liabilities ........................... 235,019 180,879 35,104 324,404
---------- ----------- ---------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ... $5,347,012 $29,632,460 $4,263,817 $147,597,969
========== =========== ========== ============
</TABLE>
- ------------------
See Notes to Financial Statements.
FS-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
------------------------------------------------------
WARBURG MFS
PINCUS ALLIANCE EMERGING
SMALL SMALL CAP BT SMALL GROWTH
COMPANY GROWTH COMPANY COMPANIES
VALUE FUND FUND INDEX FUND FUND
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 41,502,596............................... $37,275,602
42,123,172............................. $40,301,314
5,078,731............................. $5,098,116
61,770,493............................. $73,588,750
50,900,433.............................
33,319,831.............................
120,367,795.............................
5,865,231.............................
Receivable for Trust shares sold.................. -- -- -- --
Receivable for policy-related transactions........ 87,152 1,031,150 41,271 834,313
------------ ---------- ----------- ------------
Total Assets...................................... 37,362,754 41,332,464 5,139,387 74,423,063
------------ ---------- ----------- ------------
LIABILITIES
Payable for Trust shares purchased................ 87,151 1,035,757 41,271 834,334
Payable for policy-related transactions.......... -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 25,995 51,378 6,603 24,127
------------ ---------- ----------- ------------
Total Liabilities................................. 113,146 1,087,135 47,874 858,461
------------ ---------- ----------- ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS......... $37,249,608 $40,245,329 $5,091,513 $73,564,602
=========== =========== ========== ============
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
MERRILL
ALLIANCE ALLIANCE LYNCH
CONSERVATIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of the Trusts --
at market value (Note 1)
Cost: $ 41,502,596.............................
42,123,172.............................
5,078,731.............................
61,770,493.............................
50,900,433............................. $51,458,514
33,319,831............................. $34,637,097
120,367,795............................. $126,599,682
5,865,231............................. $5,947,148
Receivable for Trust shares sold.................. -- -- -- --
Receivable for policy-related transactions........ 445,717 649,638 394,969 45,950
----------- ----------- ------------ ----------
Total Assets...................................... 51,904,231 35,286,735 126,994,651 5,993,098
----------- ----------- ------------ ----------
LIABILITIES
Payable for Trust shares purchased................ 447,264 649,660 435,647 45,950
Payable for policy-related transactions.......... -- -- -- --
Amount retained by Equitable Life in Separate
Account No. 45 (Note 5)........................ 141,475 16,519 79,665 5,185
----------- ----------- ------------ ----------
Total Liabilities................................. 588,739 666,179 515,312 51,135
----------- ----------- ------------ ----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS......... $51,315,492 $34,620,556 $126,479,339 $5,941,963
=========== =========== ============ ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
----------------------------------------
ALLIANCE
ALLIANCE INTERMEDIATE ALLIANCE
MONEY GOVERNMENT HIGH
MARKET SECURITIES YIELD
FUND FUND FUND
----------- ---------- -------------
<S> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .............$5,658,138 $1,260,940 $ 5,454,605
Expenses (Note 3):
Asset-based charges 737,652 268,963 542,692
---------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ................ 4,920,486 991,977 4,911,913
---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ......
Realized gain distribution from the ...... 149,548 255,764 (1,040,219)
Trusts ................................ 4,257 -- 1,292,662
---------- ---------- -----------
NET REALIZED GAIN (LOSS) .................... 153,805 255,764 252,443
---------- ---------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... (465,201) 21,939 (786,186)
End of period ............................ (614,915) 98,656 (10,917,712)
---------- ---------- -----------
Change in unrealized appreciation ........
(depreciation) during the period ...... (149,714) 76,717 (10,131,526)
---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON ..
INVESTMENTS .............................. 4,091 332,481 (9,879,083)
---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ....
RESULTING FROM OPERATIONS ................$4,924,577 $1,324,458 $(4,967,170)
========== ========== ===========
<CAPTION>
EQUITY SERIES:
-----------------------------------------------------------------------------------
T.ROWE MERRILL
PRICE EQ/PUTNAM ALLIANCE ALLIANCE LYNCH
EQUITY GROWTH & GROWTH & BT EQUITY EQUITY BASIC VALUE
INCOME INCOME INCOME 500 INDEX INDEX EQUITY
FUND FUND VALUE FUND FUND FUND FUND
---------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .............$ 871,348 $ 348,923 $ 382,870 $ 254,693 $ 2,310 $ 377,168
Expenses (Note 3):
Asset-based charges
394,056 298,502 1,602,233 203,672 2,588 269,948
---------- ---------- ----------- ---------- ------- ----------
NET INVESTMENT INCOME (LOSS) ................ 477,292 50,421 (1,219,363) 51,021 (278) 107,220
---------- ---------- ----------- ---------- ------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ......
Realized gain distribution from the ...... 43,764 (69,351) 2,807,006 (262,278) 5,225 (175,666)
Trusts ................................ 1,120,050 315,112 15,440,331 -- 112 1,307,680
---------- ---------- ----------- ---------- ------- ----------
NET REALIZED GAIN (LOSS) .................... 1,163,814 245,761 18,247,337 (262,278) 5,337 1,132,014
---------- ---------- ----------- ---------- ------- ----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... 980,406 191,128 5,616,378 -- 4,722 (64,333)
End of period ............................ 2,000,241 2,827,238 15,241,041 5,380,743 62,022 (1,617)
---------- ---------- ----------- ---------- ------- ----------
Change in unrealized appreciation ........
(depreciation) during the period ...... 1,019,835 2,636,110 9,624,663 5,380,743 57,300 62,716
---------- ---------- ----------- ---------- ------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON ..
INVESTMENTS .............................. 2,183,649 2,881,871 27,872,000 5,118,465 62,637 1,194,730
---------- ---------- ----------- ---------- ------- ==========
NET INCREASE (DECREASE) IN NET ASSETS ....
RESULTING FROM OPERATIONS ................$2,660,941 $2,932,292 $26,652,637 $5,169,486 $62,359 $1,301,950
========== ========== =========== ========== ======= ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-6
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
-----------------------------------------------------------
ALLIANCE
COMMON MFS ALLIANCE ALLIANCE
STOCK RESEARCH GLOBAL INTERNATIONAL
FUND FUND FUND FUND
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ............. $ 2,403,283 $ 131,068 $ 598,042 $ 340,200
Expenses (Note 3):
Asset-based charges ................... 5,424,534 307,489 589,611 215,726
------------ ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS) ................ (3,021,251) (176,421) 8,431 124,474
------------ ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... 10,230,950 60,560 749,415 (1,566,752)
Realized gain distribution from the Trusts 79,194,636 -- 4,143,459 3,718
------------ ---------- ---------- -----------
NET REALIZED GAIN (LOSS) .................... 89,425,586 60,560 4,892,874 (1,563,034)
------------ ---------- ---------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... 23,451,447 37,510 (244,398) (2,137,851)
End of period ............................ 59,099,124 6,227,419 4,239,304 927,513
------------ ---------- ---------- -----------
Change in unrealized appreciation
(depreciation) during the period ........ 35,647,677 6,189,909 4,483,702 3,065,364
------------ ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. 125,073,263 6,250,469 9,376,576 1,502,330
------------ ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... $122,052,012 $6,074,048 $9,385,007 $ 1,626,804
============ ========== ========== ===========
<CAPTION>
EQUITY SERIES (CONTINUED):
-------------------------------------------------------
MORGAN
T. ROWE STANLEY
BT PRICE EMERGING ALLIANCE
INTERNATIONAL INTER- MARKETS AGGRESSIVE
EQUITY NATIONAL EQUITY STOCK
INDEX FUND STOCK FUND FUND FUND
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts ............. $ 66,107 $ 245,522 $ 16,085 $ 586,576
Expenses (Note 3):
Asset-based charges ................... 22,058 217,929 35,466 1,537,723
-------- ---------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ................ 44,049 27,593 (19,381) (951,147)
-------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ...... (38,281) 73,956 (337,130) (1,170,454)
Realized gain distribution from the Trusts -- 228 -- 6,889,454
-------- ---------- ----------- -----------
NET REALIZED GAIN (LOSS) .................... (38,281) 74,184 (337,130) 5,719,000
-------- ---------- ----------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ...................... -- (576,978) (238,282) (3,851,402)
End of period ............................ 284,441 1,495,964 (1,008,425) 10,578,470)
-------- ---------- ----------- -----------
Change in unrealized appreciation
(depreciation) during the period ........ 284,441 2,072,942 (770,143) (6,727,068)
-------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS .............................. 246,160 2,147,126 (1,107,273) (1,008,068)
-------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... $290,209 $2,174,719 $(1,126,654) $(1,959,215)
======== ========== =========== ===========
</TABLE>
- ------------------
See Notes to Financial Statements.
FS-7
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF OPERATIONS (CONCLUDED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
---------------------------------------------------
WARBURG
PINCUS MFS
SMALL ALLIANCE BT SMALL EMERGING
COMPANY SMALL CAP COMPANY GROWTH
VALUE GROWTH INDEX COMPANIES
FUND FUND FUND FUND
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .................... $ 172,128 $ 716 $ 34,326 $ 901
Expenses (Note 3):
Asset-based charges .......................... 355,215 336,205 20,638 373,152
----------- ----------- -------- -----------
NET INVESTMENT INCOME (LOSS) ....................... (183,087) (335,489) 13,688 (372,251)
----------- ----------- -------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ............. (395,526) (513,118) (50,161) 163,114
Realized gain distribution from the Trusts ...... -- -- 65,264 --
----------- ----------- -------- -----------
NET REALIZED GAIN (LOSS) ........................... (395,526) (513,118) 15,103 163,114
----------- ----------- -------- -----------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ............................. (300,436) (344,436) -- (259,194)
End of period ................................... (4,226,993) (1,821,859) 19,385 11,818,257
----------- ----------- -------- -----------
Change in unrealized appreciation
(depreciation)during the period ................ (3,926,557) (1,477,423) 19,385 12,077,451
----------- ----------- -------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ..................................... (4,322,083) (1,990,541) 34,488 12,240,565
----------- ----------- -------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ...................................... $(4,505,170) $(2,326,030) $ 48,176 $11,868,314
=========== =========== ======== ===========
<CAPTION>
ASSET ALLOCATION SERIES:
----------------------------------------------------
ALLIANCE MERRILL
CONSERVA- ALLIANCE LYNCH
TIVE EQ/PUTNAM GROWTH WORLD
INVESTORS BALANCED INVESTORS STRATEGY
FUND FUND FUND FUND
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
INCOME AND EXPENSES:
Investment Income (Note 2):
Dividends from the Trusts .................... $1,373,189 $ 593,087 $ 1,887,685 $ 42,482
Expenses (Note 3):
Asset-based charges .......................... 387,733 194,358 1,064,812 31,672
---------- ---------- ----------- ---------
NET INVESTMENT INCOME (LOSS) ....................... 985,456 398,729 822,873 10,810
---------- ---------- ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 2):
Realized gain (loss) on investments ............. 568,518 (130,136) 736,026 (38,321)
Realized gain distribution from the Trusts ...... 2,571,769 355,759 9,800,094 --
---------- ---------- ----------- ---------
NET REALIZED GAIN (LOSS) ........................... 3,140,287 225,623 10,536,120 (38,321)
---------- ---------- ----------- ---------
Unrealized appreciation (depreciation)
on investments:
Beginning of period ............................. 482,745 73,582 1,685,711 (129,123)
End of period ................................... 558,081 1,317,266 6,231,888 81,917
---------- ---------- ----------- ---------
Change in unrealized appreciation
(depreciation)during the period ................ 75,336 1,243,684 4,546,177 211,040
---------- ---------- ----------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS ..................................... 3,215,623 1,469,307 15,082,297 172,719
---------- ---------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ...................................... $4,201,079 $1,868,036 $15,905,170 $ 183,529
========== ========== =========== =========
</TABLE>
- -------------------
See Notes to Financial Statements.
FS-8
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
FIXED INCOME SERIES:
-------------------------------
ALLIANCE
MONEY MARKET FUND
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 4,920,486 $ 2,322,115
Net realized gain (loss)...................................... 153,805 64,275
Change in unrealized appreciation (depreciation) of investments (149,714) (267,302)
------------ ------------
Net increase (decrease) in net assets from operations......... 4,924,577 2,119,088
------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 216,826,115 137,532,670
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 113,746,706 55,819,439
------------ ------------
Total..................................................... 330,572,821 193,352,109
------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 10,986,665 1,577,365
Withdrawal and administrative charges......................... 230,600 618,083
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 243,665,058 144,167,408
------------ ------------
Total....................................................... 254,882,323 146,362,856
------------ ------------
Net increase in net assets from Contractowners
transactions................................................ 75,690,498 46,989,253
------------ ------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (15,545) (46,770)
------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 80,599,530 49,061,571
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 81,358,361 32,296,790
------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $161,957,891 $ 81,358,361
============ ============
<CAPTION>
FIXED INCOME SERIES:
---------------------------
ALLIANCE INTERMEDIATE
GOVERNMENT SECURITIES FUND
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 991,977 $ 303,709
Net realized gain (loss)...................................... 255,764 12,754
Change in unrealized appreciation (depreciation) of investments 76,717 58,654
----------- -----------
Net increase (decrease) in net assets from operations......... 1,324,458 375,117
----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 19,720,434 5,416,131
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 20,781,791 3,270,944
----------- -----------
Total..................................................... 40,502,225 8,687,075
----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 1,040,600 189,517
Withdrawal and administrative charges......................... 73,339 128,377
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 12,745,544 1,145,902
----------- -----------
Total....................................................... 13,859,483 1,463,796
----------- -----------
Net increase in net assets from Contractowners
transactions................................................ 26,642,742 7,223,279
----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (6,113) (12,130)
----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 27,961,087 7,586,266
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 11,062,250 3,475,984
----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $39,023,337 $11,062,250
============ ===========
<CAPTION>
FIXED INCOME SERIES:
------------------------------
ALLIANCE
HIGH YIELD FUND (a)
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................... $ 4,911,913 $ 601,148
Net realized gain (loss)...................................... 252,443 783,323
Change in unrealized appreciation (depreciation) of investments (10,131,526) (786,186)
------------ -----------
Net increase (decrease) in net assets from operations......... (4,967,170) 598,285
------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................................... 47,559,333 13,779,925
Transfers from other Funds and Guaranteed Interest Rate
Account (Note 1).......................................... 47,655,636 22,095,921
------------ -----------
Total..................................................... 95,214,969 35,875,846
------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........................ 2,110,668 161,257
Withdrawal and administrative charges......................... 128,063 45,545
Transfers to other Funds and Guaranteed Interest Rate
Account (Note 1)............................................ 37,545,562 17,780,088
------------ -----------
Total....................................................... 39,784,293 17,986,890
------------ -----------
Net increase in net assets from Contractowners
transactions................................................ 55,430,676 17,888,956
------------ -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY EQUITABLE LIFE
IN SEPARATE ACCOUNT NO. 45 (NOTE 5)........................... (8,801) (5,902)
------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS ........... 50,454,705 18,481,339
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................................... 18,481,339 --
------------ -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................................. $ 68,936,044 $18,481,339
============= ============
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-9
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES:
-------------------------------------------------------
T. ROWE PRICE EQUITY EQ/PUTNAM GROWTH &
INCOME FUND (a) INCOME VALUE FUND (a)
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).......... $ 477,292 $ 78,818 $ 50,421 $ 21,273
Net realized gain (loss).............. 1,163,814 54,535 245,761 54,646
Change in unrealized appreciation
(depreciation) of investments....... 1,019,835 980,406 2,636,110 191,128
----------- ----------- ------------ -----------
Net increase (decrease) in net
assets from operations.............. 2,660,941 1,113,759 2,932,292 267,047
----------- ----------- ------------ -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions....................... 26,813,091 13,813,772 22,432,656 10,975,199
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1).......................... 10,252,099 4,356,204 6,980,421 3,217,543
----------- ----------- ------------ -----------
Total............................. 37,065,190 18,169,976 29,413,077 14,192,742
----------- ----------- ------------ -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 1,205,409 86,052 1,300,000 58,925
Withdrawal and administrative charges.. 109,823 40,797 90,762 32,578
Transfers to other Funds and
Guaranteed Interest
Rate Account (Note 1)................ 3,039,300 183,349 3,822,075 180,506
----------- ----------- ------------ -----------
Total................................ 4,354,532 310,198 5,212,837 272,009
----------- ----------- ------------ -----------
Net increase in net assets from
Contractowners transactions.......... 32,710,658 17,859,778 24,200,240 13,920,733
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5)....... (26,248) (5,022) (22,154) (2,360)
----------- ----------- ------------ -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 35,345,351 18,968,515 27,110,378 14,185,420
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 18,968,515 -- 14,185,420 --
----------- ----------- ------------ -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $54,313,866 $18,968,515 $ 41,295,798 $14,185,420
=========== =========== ============ ===========
<CAPTION>
EQUITY SERIES:
-------------------------------------------------------------
ALLIANCE BT EQUITY ALLIANCE
GROWTH & INCOME 500 INDEX EQUITY INDEX
FUND FUND (b) FUND (a)
------------------------- ---------- ------------------
1998 1997 1998 1998 1997
----------- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).......... $ (1,219,363) $ (95,244) $ 51,021 $ (278) $ 187
Net realized gain (loss).............. 18,247,337 6,014,564 (262,278) 5,337 1,392
Change in unrealized appreciation
(depreciation) of investments....... 9,624,663 4,852,142 5,380,743 57,300 4,722
----------- ---------- ---------- ------- ------
Net increase (decrease) in net
assets from operations.............. 26,652,637 10,771,462 5,169,486 62,359 6,301
----------- ---------- ---------- ------- ------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions....................... 69,137,309 58,696,016 38,685,440 69,113 77,031
Transfers from other Funds and
Guaranteed Interest Rate
Account (Note 1).................. 25,662,665 16,269,895 24,595,843 198,702 15,328
----------- ---------- ---------- ------- ------
Total............................. 94,799,974 74,965,911 63,281,283 267,815 92,359
----------- ---------- ---------- ------- ------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 5,922,537 1,455,357 533,098 -- --
Withdrawal and administrative charges.. 501,695 425,279 13,875 380 --
Transfers to other Funds and
Guaranteed Interest
Rate Account (Note 1)................ 14,167,225 4,907,606 10,862,244 4,913 --
----------- ---------- ---------- ------- ------
Total................................ 20,591,457 6,788,242 11,409,217 5,293 --
----------- ---------- ---------- ------- ------
Net increase in net assets from
Contractowners transactions.......... 74,208,517 68,177,669 51,872,066 262,522 92,359
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT NO. 45 (NOTE 5)....... (101,665) (94,285) (17,776) (1,961) (1,142)
----------- ---------- ---------- ------- ------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 100,759,489 78,854,846 57,023,776 322,920 97,518
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 93,880,774 15,025,928 -- 97,518 --
----------- ---------- ---------- ------- ------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $194,640,263 $93,880,774 $57,023,776 $420,438 $97,518
============ =========== =========== ======== =======
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
FS-10
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
---------------------------------------------------------
MERRILL LYNCH ALLIANCE
BASIC VALUE COMMON
EQUITY FUND (a) STOCK FUND
-------------------------- ----------------------------
1998 1997 1998 1997
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)..................... $ 107,220 $ 20,510 $ (3,021,251) $ (1,209,624)
Net realized gain (loss)......................... 1,132,014 47,779 89,425,586 27,433,324
Change in unrealized appreciation (depreciation)
of investments................................. 62,716 (64,333) 35,647,677 22,094,993
----------- ----------- ------------ ------------
Net increase (decrease) in net assets from operations 1,301,950 3,956 122,052,012 48,318,693
----------- ----------- ------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions.................................. 24,093,025 8,075,199 222,706,977 175,880,351
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............... 9,221,650 1,941,071 88,116,261 61,077,537
----------- ----------- ------------ ------------
Total.......................................... 33,314,675 10,016,270 310,823,238 236,957,888
----------- ----------- ------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........... 967,509 9,691 20,666,466 4,271,079
Withdrawal and administrative charges............ 69,854 17,792 1,652,840 1,459,175
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1).......................... 3,287,976 137,464 56,065,697 35,438,036
----------- ----------- ------------ ------------
Total.......................................... 4,325,339 164,947 78,385,003 41,168,290
----------- ----------- ------------ ------------
Net increase in net assets from Contractowners
transactions................................... 28,989,336 9,851,323 232,438,235 195,789,598
----------- ----------- ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (15,592) (839) (298,491) (305,436)
----------- ----------- ------------ ------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................... 30,275,694 9,854,440 354,191,756 243,802,855
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.............................. 9,854,440 -- 319,309,650 75,506,795
----------- ----------- ------------ ------------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD.................................... $40,130,134 $ 9,854,440 $673,501,406 $319,309,650
=========== =========== ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
------------------------------------------------------
MFS RESEARCH ALLIANCE
FUND (a) GLOBAL FUND
------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)..................... $ (176,421) $ (15,339) $ 8,431 $ 328,372
Net realized gain (loss)......................... 60,560 101,923 4,892,874 2,837,865
Change in unrealized appreciation (depreciation)
of investments................................. 6,189,909 37,510 4,483,702 (443,882)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations 6,074,048 124,094 9,385,007 2,722,355
----------- ----------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions.................................. 28,178,818 9,502,168 20,084,493 20,384,580
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............... 10,528,629 2,602,553 7,177,452 7,792,945
----------- ----------- ----------- -----------
Total.......................................... 38,707,447 12,104,721 27,261,945 28,177,525
----------- ----------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........... 1,059,377 28,630 1,765,622 621,118
Withdrawal and administrative charges............ 74,772 23,738 190,033 155,169
Transfers to other Funds and Guaranteed Interest
Rate Account (Note 1).......................... 2,504,801 209,610 6,748,641 6,961,429
----------- ----------- ----------- -----------
Total.......................................... 3,638,950 261,978 8,704,296 7,737,716
----------- ----------- ----------- -----------
Net increase in net assets from Contractowners
transactions................................... 35,068,497 11,842,743 18,557,649 20,439,809
----------- ----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (23,737) (2,051) (44,868) (28,799)
----------- ----------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................... 41,118,808 11,964,786 27,897,788 23,133,365
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD.............................. 11,964,786 -- 38,509,669 15,376,304
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD.................................... $53,083,594 $11,964,786 $66,407,457 $38,509,669
=========== =========== =========== ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-11
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONTINUED):
----------------------------------------------------------------------
BT
INTER-
NATIONAL
EQUITY T. ROWE PRICE
ALLIANCE INDEX INTERNATIONAL
INTERNATIONAL FUND STOCK
FUND 1998 (c) FUND (a)
------------------------- ---------- -------------------------
1998 1997 1998 1998 1997
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................. $ 124,474 $ 288,466 $ 44,049 $ 27,593 $ (45,798)
Net realized gain (loss)............... (1,563,034) 1,093,826 (38,281) 74,184 (53,503)
Change in unrealized appreciation
(depreciation) of investments........ 3,065,364 (2,169,239) 284,441 2,072,942 (576,978)
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in net
assets from
operations........................... 1,626,804 (786,947) 290,209 2,174,719 (676,279)
----------- ----------- ---------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions........................ 4,384,851 9,574,522 3,655,757 13,036,180 9,658,570
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1)........................... 44,058,459 18,180,472 2,070,284 10,402,147 5,113,170
----------- ----------- ---------- ----------- -----------
Total..................................... 48,443,310 27,754,994 5,726,041 23,438,327 14,771,740
----------- ----------- ---------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 810,093 341,327 22,805 754,896 37,224
Withdrawal and administrative charges.. 82,131 97,083 2,573 64,687 22,024
Transfers to other Funds and
Guaranteed Interest Rate Account
(Note 1)............................. 45,566,819 18,593,662 642,046 7,759,247 1,416,476
----------- ----------- ---------- ----------- -----------
Total................................... 46,459,043 19,032,072 667,424 8,578,830 1,475,724
----------- ----------- ---------- ----------- -----------
Net increase in net assets from
Contractowners transactions.......... 1,984,267 8,722,922 5,058,617 14,859,497 13,296,016
----------- ----------- ---------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT
NO. 45 (NOTE 5)........................ (15,805) (36,637) (1,814) (18,463) (3,030)
----------- ----------- ---------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 3,595,266 7,899,338 5,347,012 17,015,753 12,616,707
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 16,483,342 8,584,004 -- 12,616,707 --
----------- ----------- ---------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $20,078,608 $16,483,342 $5,347,012 $29,632,460 $12,616,707
============ ============ =========== ============ ============
<CAPTION>
EQUITY SERIES (CONTINUED):
-------------------------------------------------------
MORGAN STANLEY
EMERGING MARKETS ALLIANCE
EQUITY AGGRESSIVE STOCK
FUND (b) FUND
------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................. $ (19,381) $ 1,234 $ (951,147) $ (880,189)
Net realized gain (loss)............... (337,130) (26,406) 5,719,000 9,879,526
Change in unrealized appreciation
(depreciation) of investments........ (770,143) (238,282) (6,727,068) (1,686,216)
----------- ----------- ------------ ------------
Net increase (decrease) in net
assets from
operations........................... (1,126,654) (263,454) (1,959,215) 7,313,121
----------- ----------- ------------ ------------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions........................ 2,708,321 1,617,148 45,526,795 66,019,813
Transfers from other Funds and
Guaranteed Interest Rate Account
(Note 1)........................... 1,357,280 889,247 12,684,235 17,726,363
----------- ----------- ------------ ------------
Total..................................... 4,065,601 2,506,395 58,211,030 83,746,176
----------- ----------- ------------ ------------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy
transactions......................... 59,492 -- 5,047,753 1,854,804
Withdrawal and administrative charges.. 7,737 394 540,786 482,491
Transfers to other Funds and
Guaranteed Interest Rate Account
(Note 1)............................. 857,518 2,488 20,928,020 11,669,668
----------- ----------- ------------ ------------
Total................................... 924,747 2,882 26,516,559 14,006,963
----------- ----------- ------------ ------------
Net increase in net assets from
Contractowners transactions.......... 3,140,854 2,503,513 31,694,471 69,739,213
----------- ----------- ------------ ------------
NET (INCREASE) DECREASE IN AMOUNT
RETAINED BY EQUITABLE LIFE IN
SEPARATE ACCOUNT
NO. 45 (NOTE 5)........................ 10,524 (966) 35,035 (111,908)
----------- ----------- ------------ -------------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS......................... 2,024,724 2,239,093 29,770,291 76,940,426
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
BEGINNING OF PERIOD.................... 2,239,093 -- 117,827,678 40,887,252
----------- ----------- ------------ -------------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS,
END OF PERIOD.......................... $ 4,263,817 $ 2,239,093 $147,597,969 $117,827,678
=========== =========== ============ ============
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-12
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
EQUITY SERIES (CONCLUDED):
--------------------------------------------------------
WARBURG PINCUS SMALL ALLIANCE
COMPANY VALUE SMALL CAP GROWTH
FUND (a) FUND (a)
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ (183,087) $ (64,437) $ (335,489) $ (49,856)
Net realized gain (loss)...................... (395,526) 338,068 (513,118) 440,546
Change in unrealized appreciation
(depreciation) of investments............... (3,926,557) (300,436) (1,477,423) (344,436)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from
operations.................................. (4,505,170) (26,805) (2,326,030) 46,254
----------- ----------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................... 17,316,209 17,791,841 22,333,800 12,116,331
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............ 10,231,935 11,695,862 10,827,569 5,602,864
----------- ----------- ----------- -----------
Total............................................ 27,548,144 29,487,703 33,161,369 17,719,195
----------- ----------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........ 1,086,279 134,692 1,022,179 20,842
Withdrawal and administrative charges......... 103,922 23,284 78,365 8,570
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).............. 9,358,044 4,520,417 5,823,960 1,504,600
----------- ----------- ----------- -----------
Total............................................ 10,548,245 4,678,393 6,924,504 1,534,012
----------- ----------- ----------- -----------
Net increase in net assets from Contractowners
transactions.................................. 16,999,899 24,809,310 26,236,865 16,185,183
----------- ----------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45
(NOTE 5)...................................... (17,047) (10,579) 106,435 (3,378)
----------- ----------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................ 12,477,682 24,771,926 24,017,270 16,228,059
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................... 24,771,926 -- 16,228,059 --
----------- ----------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................. $37,249,608 $24,771,926 $40,245,329 $16,228,059
=========== =========== =========== ===========
<CAPTION>
EQUITY SERIES (CONCLUDED):
----------------------------------------
BT SMALL
COMPANY MFS EMERGING GROWTH
INDEX COMPANIES
FUND (b) FUND (a)
---------- ---------------------------
1998 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ 13,688 $ (372,251) $ (15,821)
Net realized gain (loss)...................... 15,103 163,114 327,209
Change in unrealized appreciation
(depreciation) of investments............... 19,385 12,077,451 (259,194)
---------- ----------- -----------
Net increase (decrease) in net assets from
operations.................................. 48,176 11,868,314 52,194
---------- ----------- -----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions............................... 4,131,338 40,723,333 9,607,211
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)............ 1,311,488 16,938,315 3,864,604
---------- ----------- -----------
Total............................................ 5,442,826 57,661,648 13,471,815
---------- ----------- -----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions........ 21,074 1,543,076 45,537
Withdrawal and administrative charges......... 1,781 76,137 14,345
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).............. 375,472 6,249,256 1,527,808
---------- ----------- -----------
Total............................................ 398,327 7,868,469 1,587,690
---------- ----------- -----------
Net increase in net assets from Contractowners
transactions.................................. 5,044,499 49,793,179 11,884,125
---------- ----------- -----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45
(NOTE 5)...................................... (1,162) (31,251) (1,959)
---------- ----------- -----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS................................ 5,091,513 61,630,242 11,934,360
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
BEGINNING OF PERIOD........................... -- 11,934,360 --
---------- ----------- -----------
NET ASSETS ATTRIBUTABLE TO CONTRACTOWNERS,
END OF PERIOD................................. $5,091,513 $73,564,602 $11,934,360
========== ============ ===========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
FS-13
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
ALLIANCE
CONSERVATIVE EQ/PUTNAM
INVESTORS FUND BALANCED FUND (a)
--------------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................. $ 985,456 $ 481,754 $ 398,729 $ 51,548
Net realized gain (loss).......................... 3,140,287 687,695 225,623 45,528
Change in unrealized appreciation (depreciation)
of investments.................................. 75,336 478,094 1,243,684 73,582
----------- ----------- ----------- ----------
Net increase (decrease) in net assets from
operations...................................... 4,201,079 1,647,543 1,868,036 170,658
----------- ----------- ----------- ----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions................................... 21,651,343 10,862,780 20,768,914 4,294,496
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)................ 13,282,997 3,151,066 9,211,559 1,721,220
----------- ----------- ----------- ----------
Total......................................... 34,934,340 14,013,846 29,980,473 6,015,716
----------- ----------- ----------- ----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............ 1,883,884 567,547 567,437 17,533
Withdrawal and administrative charges............. 117,513 138,461 42,998 15,293
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).................. 7,120,635 1,428,179 2,636,967 120,099
----------- ----------- ----------- ----------
Total........................................... 9,122,032 2,134,187 3,247,402 152,925
----------- ----------- ----------- ----------
Net increase in net assets from Contractowners
transactions.................................... 25,812,308 11,879,659 26,733,071 5,862,791
----------- ----------- ----------- ----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (26,353) (57,026) (13,517) (483)
----------- ----------- ----------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................... 29,987,034 13,470,176 28,587,590 6,032,966
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, BEGINNING OF PERIOD............... 21,328,458 7,858,282 6,032,966 --
----------- ----------- ----------- ----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, END OF PERIOD..................... $51,315,492 $21,328,458 $34,620,556 $6,032,966
=========== =========== =========== ==========
<CAPTION>
ASSET ALLOCATION SERIES:
-------------------------------------------------------
ALLIANCE
GROWTH MERRILL LYNCH WORLD
INVESTORS FUND STRATEGY FUND (a)
--------------------------- ------------------------
1998 1997 1998 1997
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................. $ 822,873 $ 736,541 $ 10,810 $ 2,974
Net realized gain (loss).......................... 10,536,120 3,620,598 (38,321) 24,219
Change in unrealized appreciation (depreciation)
of investments.................................. 4,546,177 1,844,488 211,040 (129,123)
------------ ----------- ---------- ----------
Net increase (decrease) in net assets from
operations...................................... 15,905,170 6,201,627 183,529 (101,930)
------------ ----------- ---------- ----------
FROM CONTRACTOWNERS TRANSACTIONS:
Contributions and Transfers:
Contributions................................... 44,347,044 32,084,069 2,756,653 2,043,811
Transfers from other Funds and Guaranteed
Interest Rate Account (Note 1)................ 13,494,160 7,981,423 1,208,993 561,601
------------ ----------- ---------- ----------
Total......................................... 57,841,204 40,065,492 3,965,646 2,605,412
------------ ----------- ---------- ----------
WITHDRAWAL AND TRANSFERS:
Benefits and other policy transactions............ 3,711,360 1,014,211 125,335 3,514
Withdrawal and administrative charges............. 325,958 421,582 13,717 2,597
Transfers to other Funds and Guaranteed
Interest Rate Account (Note 1).................. 9,119,743 2,744,848 463,447 84,455
------------ ----------- ---------- ----------
Total........................................... 13,157,061 4,180,641 602,499 90,566
------------ ----------- ---------- ----------
Net increase in net assets from Contractowners
transactions.................................... 44,684,143 35,884,851 3,363,147 2,514,846
------------ ----------- ---------- ----------
NET (INCREASE) DECREASE IN AMOUNT RETAINED BY
EQUITABLE LIFE IN SEPARATE ACCOUNT NO. 45 (NOTE 5) (93,008) (111,839) (17,508) (121)
------------ ----------- ---------- ----------
INCREASE IN NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS.................................... 60,496,305 41,974,639 3,529,168 2,412,795
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, BEGINNING OF PERIOD............... 65,983,034 24,008,395 2,412,795 --
------------ ----------- ---------- ----------
NET ASSETS ATTRIBUTABLE TO
CONTRACTOWNERS, END OF PERIOD..................... $126,479,339 $65,983,034 $5,941,963 $2,412,795
============ =========== ========== ==========
</TABLE>
- -------------------
See Notes to Financial Statements.
(a) Commenced operations on May 1, 1997.
FS-14
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
The Equitable Life Assurance Society of the United States (Equitable Life)
Separate Account No. 45 (the Account) is organized as a unit investment
trust, a type of investment company, and is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (the 1940
Act). Alliance Capital Management L.P., an indirect majority owned
subsidiary of Equitable Life, manages The Hudson River Trust (HRT) and is
the investment adviser for all of the investment funds of HRT. EQ Financial
Consultants, Inc., ("EQFC") is a wholly owned subsidiary of Equitable Life.
EQFC manages the EQ Advisors Trust (EQAT) and has overall responsibility
for general management and administration of EQAT. The Account consists of
25 investment funds (Funds): Alliance Money Market Fund, Alliance
Intermediate Government Securities Fund, Alliance High Yield Fund, T. Rowe
Price Equity Income Fund, EQ/Putnam Growth & Income Value Fund, Alliance
Growth & Income Fund, BT Equity 500 Index Fund, Alliance Equity Index Fund,
Merrill Lynch Basic Value Equity Fund, Alliance Common Stock Fund, MFS
Research Fund, Alliance Global Fund, Alliance International Fund, BT
International Equity Index Fund, T. Rowe Price International Stock Fund,
Morgan Stanley Emerging Markets Equity Fund, Alliance Aggressive Stock
Fund, Warburg Pincus Small Company Value Fund, Alliance Small Cap Growth
Fund, BT Small Company Index Fund, MFS Emerging Growth Companies Fund,
Alliance Conservative Investors Fund, EQ/Putnam Balanced Fund, Alliance
Growth Investors Fund and Merrill Lynch World Strategy Fund. The assets in
each Fund are invested in shares of a corresponding portfolio (Portfolio)
of a mutual fund, Class 1A and 1B shares of HRT or Class 1B shares of EQAT
(collectively, the "Trusts"). Class 1A and 1B shares are offered by the
Trusts at net asset value. Both classes of shares are subject to fees for
investment management and advisory services and other Trust expenses. Class
1B shares are subject to distribution fees imposed under a distribution
plan (herein the "Rule 12b-1 Plans") adopted pursuant to Rule 12b-1 under
the 1940 Act, as amended. The Rule 12b-1 Plans provide that the Trusts, on
behalf of each Fund, may charge annually up to 0.25% of the average daily
net assets of a Fund attributable to its Class 1B shares in respect of
activities primarily intended to result in the sale of the Class 1B shares.
These fees are reflected in the net asset value of the shares. Class 1A
shares of HRT continue to be purchased by contracts in-force prior to May
1, 1997. The Trusts are open-ended, diversified management investment
companies that sell their shares to separate accounts of insurance
companies. Each Portfolio has separate investment objectives.
EQFC earns fees from both Trusts under distribution agreements held with
the Trusts. EQFC also earns fees under an investment management agreement
with EQAT. Alliance earns fees under an investment advisory agreement
with the HRT.
The Account is used to fund benefits for the Equitable Accumulator and
Income Manager Accumulator non-qualified deferred variable annuities which
combine the portfolios in the Account with guaranteed fixed rate options,
and the Equitable Accumulator IRA and Income Manager Accumulator IRA, which
offer the same investment options as Equitable Accumulator and Income
Manager Accumulator for the non-qualified market. The Equitable Accumulator
and Income Manager Accumulator are also available for purchase by certain
types of qualified plans. The Equitable Accumulator (IRA, NQ and QP) and
Income Manager Accumulator (IRA, NQ and QP), collectively referred to as
the Contracts, are offered under group and individual variable annuity
forms.
All Contracts are issued by Equitable Life. The assets of the Account are
the property of Equitable Life. However, the portion of the Account's
assets attributable to the Contracts will not be chargeable with
liabilities arising out of any other business Equitable Life may conduct.
Receivable/Payable for policy-related transactions represent amounts due
to/from general account predominately related to premiums, surrenders and
death benefit.
Contractowners may allocate amounts in their individual accounts to the
Funds of the Account, and/or to the guaranteed interest account of
Equitable Life's General Account, and/or to other Separate Accounts. The
net assets of any Fund of the Account may not be less than the aggregate of
the Contractowners' accounts allocated to that Fund. Additional assets are
set aside in Equitable Life's General Account to provide for other policy
benefits, as required under the state insurance law. Equitable Life's
General Account is subject to creditor rights.
Included in the Withdrawal and Administrative Charges line of the
Statements of Changes in Net Assets are certain administrative charges
which are deducted from the Contractowners account value.
FS-15
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
2. Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments are made in shares of the Trust and are valued at the net asset
values per share of the respective Portfolios. The net asset value is
determined by the Trust using the market or fair value of the underlying
assets of the Portfolio less liabilities.
Investment transactions in the Trusts are recorded on the trade date.
Realized gains and losses include (1) gains and losses on redemptions of
the Trust's shares (determined on the identified cost basis) and (2) Trust
distributions representing the net realized gains on Trust investment
transactions which are distributed by the Trusts at the end of each year
and automatically reinvested in additional shares. Dividends are recorded
by HRT at the end of each quarter and by EQAT in the fourth quarter on the
ex-dividend date. Capital gains are distributed by the Trust at the end of
each year.
No federal income tax based on net income or realized and unrealized
capital gains is currently applicable to Contracts participating in the
Account by reason of applicable provisions of the Internal Revenue Code and
no federal income tax payable by Equitable Life is expected to affect the
unit value of Contracts participating in the Account. Accordingly, no
provision for income taxes is required. However, Equitable Life retains the
right to charge for any federal income tax incurred which is attributable
to the Account if the law is changed.
3. Asset Charges
Charges are made directly against the net assets of the Account and are
reflected daily in the computation of the unit values of the Contracts.
Under the Contracts, Equitable Life charges for mortality and expense risks
at an annual rate of 1.10% of daily net assets for Equitable Accumulator
Contracts (0.90% for Income Manager Accumulator Contracts). In addition,
asset-based administrative charges are also charged to the account at an
annual rate of 0.25% of daily net assets. The charges may be retained in
the Account by Equitable Life and participate in the net investment results
of the Trusts. The aggregate of these charges may not exceed a total
effective annual rate of 1.35% for Equitable Accumulator (1.15% for Income
Manager Accumulator). Trust shares are valued at their net asset value with
investment advisory or management fees, the 12b-1 fee, and other expenses
of the Trust, in effect, passed on to the Account and reflected in the
accumulation unit values of the Contracts.
4. Contributions, Transfers and Charges
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
ALLIANCE MONEY MARKET FUND (IN THOUSANDS)
-------------------------- --------------
Net Issued (Redeemed) Class A 115bp .......... (89) (374)
Net Issued (Redeemed) Class B 0bp ............ 853 1,178
Net Issued (Redeemed) Class B 115bp .......... 399 794
Net Issued (Redeemed) Class B 135bp .......... 1,566 --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- --------------------------------------------------
Net Issued (Redeemed) Class A 115bp .......... 111 161
Net Issued (Redeemed) Class B 115bp .......... 734 345
Net Issued (Redeemed) Class B 135bp .......... 928 --
FS-16
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
ALLIANCE HIGH YIELD FUND (a) (IN THOUSANDS)
----------------------------
Net Issued (Redeemed) Class A 115bp..... 75 98
Net Issued (Redeemed) Class B 115bp..... 946 505
Net Issued (Redeemed) Class B 135bp..... 801 --
T. ROWE PRICE EQUITY INCOME FUND (a)
------------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,537 1,565
Net Issued (Redeemed) Class B 135bp..... 1,059 --
EQ/PUTNAM GROWTH & INCOME FUND (a)
----------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,117 1,230
Net Issued (Redeemed) Class B 135bp..... 867 --
ALLIANCE GROWTH & INCOME FUND
-----------------------------
Net Issued (Redeemed) Class A 115bp..... 48 2,377
Net Issued (Redeemed) Class B 115bp..... 2,016 1,829
Net Issued (Redeemed) Class B 135bp..... 1,854 --
BT EQUITY 500 INDEX (c)
------------------------
Net Issued (Redeemed) Class B 115bp..... 2,189 --
Net Issued (Redeemed) Class B 135bp..... 2,246 --
ALLIANCE EQUITY INDEX FUND (a)
------------------------------
Net Issued (Redeemed) Class A 115bp..... -- --
Net Issued (Redeemed) Class B 115bp..... 9 5
Net Issued (Redeemed) Class B 135bp..... 2 --
MERRILL LYNCH BASIC VALUE FUND (a)
----------------------------------
Net Issued (Redeemed) Class B 115bp..... 1,278 849
Net Issued (Redeemed) Class B 135bp..... 1,010 --
ALLIANCE COMMON STOCK FUND
--------------------------
Net Issued (Redeemed) Class A 115bp..... (35) 620
Net Issued (Redeemed) Class B 115bp..... 582 519
Net Issued (Redeemed) Class B 135bp..... 550 --
- ----------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-17
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Continued)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
MFS RESEARCH FUND (a) (IN THOUSANDS)
---------------------
Net Issued (Redeemed) Class B 115bp .... 1,244 1,039
Net Issued (Redeemed) Class B 135bp .... 1,479 --
ALLIANCE GLOBAL FUND
--------------------
Net Issued (Redeemed) Class A 115bp .... (103) 444
Net Issued (Redeemed) Class B 115bp .... 360 308
Net Issued (Redeemed) Class B 135bp .... 354 --
ALLIANCE INTERNATIONAL FUND
---------------------------
Net Issued (Redeemed) Class A 115bp .... (150) 438
Net Issued (Redeemed) Class B 115bp .... 153 285
Net Issued (Redeemed) Class B 135bp .... 166 --
BT INTERNATIONAL EQUITY INDEX (c)
---------------------------------
Net Issued (Redeemed) Class B 115bp .... 209 --
Net Issued (Redeemed) Class B 135bp .... 242 --
T. ROWE PRICE INTERNATIONAL STOCK FUND (a)
------------------------------------------
Net Issued (Redeemed) Class B 115bp .... 704 1,291
Net Issued (Redeemed) Class B 113bp .... 705 --
MORGAN STANLEY EMERGING MARKETS FUND (b)
----------------------------------------
Net Issued (Redeemed) Class B 115bp .... 285 282
Net Issued (Redeemed) Class B 135bp .... 177 --
ALLIANCE AGGRESSIVE STOCK FUND
------------------------------
Net Issued (Redeemed) Class A 115bp .... (160) 641
Net Issued (Redeemed) Class B 115bp .... 311 369
Net Issued (Redeemed) Class B 135bp .... 293 --
- ------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
FS-18
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. Contributions, Transfers and Charges (Concluded)
Net accumulation units issued and redeemed during the periods indicated
were:
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------
WARBURG PINCUS SMALL COMPANY FUND (a) (IN THOUSANDS)
-------------------------------------
Net Issued (Redeemed) Class B 115bp........... 888 2,096
Net Issued (Redeemed) Class B 135bp........... 560 --
Net Issued (Redeemed) Class B 135bp........... 1,448 --
ALLIANCE SMALL CAP GROWTH FUND (a)
--------------------------------------
Net Issued (Redeemed) Class A 115bp........... 106 208
Net Issued (Redeemed) Class B 115bp........... 1,222 1,084
Net Issued (Redeemed) Class B 135bp........... 775 --
MFS EMERGING GROWTH COMPANIES FUND (a)
-------------------------------------
Net Issued (Redeemed) Class B 115bp........... 1,637 982
Net Issued (Redeemed) Class B 135bp........... 1,942 --
BT SMALL COMPANY INDEX FUND (b)
------------------------------------
Net Issued (Redeemed) Class B 115bp........... 243 --
Net Issued (Redeemed) Class B 135bp........... 284 --
ALLIANCE CONSERVATIVE INVESTORS FUND
--------------------------------------
Net Issued (Redeemed) Class A 115bp........... 52 356
Net Issued (Redeemed) Class B 115bp........... 565 295
Net Issued (Redeemed) Class B 135bp........... 659 --
EQ/PUTNAM BALANCED FUND (a)
--------------------------------
Net Issued (Redeemed) Class B 115bp........... 1,094 531
Net Issued (Redeemed) Class B 135bp........... 1,136 --
ALLIANCE GROWTH INVESTORS FUND
---------------------------------
Net Issued (Redeemed) Class A 115bp........... (81) 682
Net Issued (Redeemed) Class B 115bp........... 778 581
Net Issued (Redeemed) Class B 135bp........... 694 --
MERRILL LYNCH WORLD STRATEGY FUND (a)
----------------------------------------
Net Issued (Redeemed) Class B 115bp........... 170 232
Net Issued (Redeemed) Class B 135bp........... 140 --
- ------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1998.
FS-19
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. Amounts retained by Equitable Life in Separate Account No. 45
The amount retained by Equitable Life in the Account arises principally
from (1) contributions from Equitable Life, (2) mortality and expense
charges and asset-based administrative charges accumulated in the account,
and (3) that portion, determined ratably, of the Account's investment
results applicable to those assets in the Account in excess of the net
assets for the Contracts. Amounts retained by Equitable Life are not
subject to charges for mortality and expense risks and asset-based
administrative expenses.
Amounts retained by Equitable Life in the Account may be transferred at any
time by Equitable Life to its General Account.
The following table shows the contributions (withdrawals) in net amounts
retained by Equitable Life by investment fund:
YEARS ENDED DECEMBER 31,
------------------------------
INVESTMENT FUND 1998 1997
--------------- ------------------------------
Alliance Money Market Fund ..................... $ (908,916) $(240,000)
Alliance Intermediate Government Securities Fund (293,270) (60,000)
Alliance High Yield Fund(1) .................... (593,703) 10,000
T. Rowe Price Equity Income Fund(1) ............ (397,541) --
EQ/Putnam Growth & Income Value Fund(1) ........ (300,588) --
Alliance Growth & Income Fund .................. (1,926,708) (250,000)
BT Equity 500 Index Fund(3) .................... (161,967) --
Alliance Equity Index Fund ..................... (2,128) 5,000
Merrill Lynch Basic Value Equity Fund(1) ....... (268,189) --
Alliance Common Stock Fund ..................... (6,883,461) (840,000)
MFS Research Fund(1) ........................... (329,924) --
Alliance Global Fund ........................... (708,300) (185,000)
Alliance International Fund .................... (298,470) (120,000)
BT International Equity Index Fund(3) .......... (17,272) --
T. Rowe Price International Stock Fund(1) ...... (223,491) --
Morgan Stanley Emerging Markets Equity Fund(2) . (17,574) --
Alliance Aggressive Stock Fund ................. (1,947,808) (435,000)
Warburg Pincus Small Company Value Fund(1) ..... (365,698) --
Alliance Small Cap Growth Fund(1) .............. (232,599) 10,000
BT Small Company Index Fund(3) ................. (15,197) --
MFS Emerging Growth Companies Fund(1) .......... (389,504) --
Alliance Conservative Investors Fund ........... (415,465) (87,000)
EQ/Putnam Balanced Fund(1) ..................... (196,023) --
Alliance Growth Investors Fund ................. (1,444,473) (185,000)
Merrill Lynch World Strategy Fund(1) ........... (45,763) --
- -------------------
(1) Commenced operations on May 1, 1997.-
(2) Commenced operations on August 20, 1997.
(3) Commenced operations on January 1, 1998.
FS-20
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE MONEY MARKET FUND
- --------------------------
Class A 115bp Unit value, beginning of period.............. $25.85 $24.81 $23.83
Class A 115bp Unit value, end of period.................... $26.92 $25.85 $24.81
Class B 0bp Unit value, beginning of period (a)............ $31.27 $30.25 --
Class B 0bp Unit value, end of period (a) ................. $32.86 $31.27 --
Class B 115bp Unit value, beginning of period (b).......... $25.85 $25.17 --
Class B 115bp Unit value, end of period (b)................ $26.85 $25.85 --
Class B 135bp Unit value, beginning of period (c).......... $25.31 -- --
Class B 135bp Unit value, end of period (c)................ $25.92 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 839 928 1,302
Class B 0bp............................................. 2,031 1,178 --
Class B 115bp........................................... 1,193 794 --
Class B 135bp........................................... 1,566 -- --
ALLIANCE INTERMEDIATE GOVERNMENT SECURITIES FUND
- ------------------------------------------------
Class A 115bp Unit value, beginning of period.............. $14.60 $13.77 $13.42
Class A 115bp Unit value, end of period.................... $15.55 $14.60 $13.77
Class B 115bp Unit value, beginning of period (b).......... $14.58 $13.88 --
Class B 115bp Unit value, end of period (b)................ $15.49 $14.58 --
Class B 135bp Unit value, beginning of period (c).......... $14.59 -- --
Class B 135bp Unit value, end of period (c)................ $15.25 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 524 413 252
Class B 115bp........................................... 1,079 345 --
Class B 135bp........................................... 929 -- --
ALLIANCE HIGH YIELD FUND
- ------------------------
Class A 115bp Unit value, beginning of period (a).......... $30.73 $26.95 --
Class A 115bp Unit value, end of period (a)................ $28.81 $30.73 --
Class B 115bp Unit value, beginning of period (a).......... $30.63 $26.91 --
Class B 115bp Unit value, end of period (a)................ $28.65 $30.63 --
Class B 135bp Unit value, beginning of period (c).......... $31.54 -- --
Class B 135bp Unit value, end of period (c)................ $27.96 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 173 98 --
Class B 115bp........................................... 1,451 505 --
Class B 135bp........................................... 801 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-21
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> C>
T. ROWE PRICE EQUITY INCOME FUND (a)
- ------------------------------------
Class B 115bp Unit value, beginning of period.............. $12.12 $10.00 --
Class B 115bp Unit value, end of period.................... $13.07 $12.12 --
Class B 135bp Unit value, beginning of period (c).......... $13.19 -- --
Class B 135bp Unit value, end of period (c)................ $13.02 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 3,102 1,565 --
Class B 135bp........................................... 1,059 -- --
EQ/PUTNAM GROWTH & INCOME VALUE FUND (a)
- ----------------------------------------
Class B 115bp Unit value, beginning of period.............. $11.53 $10.00 --
Class B 115bp Unit value, end of period.................... $12.86 $11.53 --
Class B 135bp Unit value, beginning of period (c) ......... $12.86 -- --
Class B 135bp Unit value, end of period (c) ............... $12.82 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,347 1,230 --
Class B 135bp........................................... 867 -- --
ALLIANCE GROWTH & INCOME FUND
- -----------------------------
Class A 115bp Unit value, beginning of period.............. $17.83 $14.23 $11.99
Class A 115bp Unit value, end of period.................... $21.30 $17.83 $14.23
Class B 115bp Unit value, beginning of period (b).......... $17.80 $14.67 --
Class B 115bp Unit value, end of period (b)................ $21.22 $17.80 --
Class B 135bp Unit value, beginning of period (c).......... $19.99 -- --
Class B 135bp Unit value, end of period (c)................ $20.99 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 3,481 3,433 1,056
Class B 115bp........................................... 3,845 1,829 --
Class B 135bp........................................... 1,853 -- --
BT EQUITY 500 INDEX FUND (c)
- ----------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $12.37 -- --
Class B 135bp Unit value, beginning of period (c).......... $11.28 -- --
Class B 135bp Unit value, end of period (c)................ $12.34 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,189 -- --
Class B 135bp........................................... 2,426 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-22
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE EQUITY INDEX FUND (a)
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $21.41 $17.62 --
Class A 115bp Unit value, end of period.................... $27.11 $21.41 --
Class B 115bp Unit value, beginning of period.............. $21.38 $17.62 --
Class B 115bp Unit value, end of period.................... $26.99 $21.38 --
Class B 135bp Unit value, beginning of period (d).......... $24.44 -- --
Class B 135bp Unit value, end of period (d)................ $26.73 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... -- -- --
Class B 115bp........................................... 14 5 --
Class B 135bp........................................... 2 -- --
MERRILL LYNCH BASIC VALUE EQUITY FUND (a)
- -----------------------------------------
Class B 115bp Unit value, beginning of period (b).......... $11.61 $10.00 --
Class B 115bp Unit value, end of period (b)................ $12.81 $11.61 --
Class B 135bp Unit value, beginning of period (d).......... $13.70 -- --
Class B 135bp Unit value, end of period (d)................ $12.76 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,127 849 --
Class B 135bp........................................... 1,009 -- --
ALLIANCE COMMON STOCK FUND
- --------------------------
Class A 115bp Unit value, beginning of period.............. $195.37 $152.96 $124.52
Class A 115bp Unit value, end of period.................... $249.88 $195.37 $152.96
Class B 115bp Unit value, beginning of period (b).......... $194.74 $153.35 --
Class B 115bp Unit value, end of period (b)................ $248.45 $194.74 --
Class B 135bp Unit value, beginning of period (d).......... $211.50 -- --
Class B 135bp Unit value, end of period (d)................ $237.18 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,079 1,114 494
Class B 115bp........................................... 1,101 519 --
Class B 135bp........................................... 550 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Commenced operations on January 1, 1998.
(d) Units were made available for sale on May 1, 1998.
FS-23
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
MFS RESEARCH FUND (a)
- ---------------------
Class B 115bp Unit value, beginning of period.............. $11.52 $10.00 --
Class B 115bp Unit value, end of period.................... $14.13 $11.52 --
Class B 135bp Unit value, beginning of period (d).......... $13.53 -- --
Class B 135bp Unit value, end of period (d)................ $14.08 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,283 1,039 --
Class B 135bp........................................... 1,479 -- --
ALLIANCE GLOBAL FUND
- --------------------
Class A 115bp Unit value, beginning of period.............. $27.85 $25.25 $22.29
Class A 115bp Unit value, end of period.................... $33.53 $27.85 $25.25
Class B 115bp Unit value, beginning of period (c).......... $27.76 $24.87 --
Class B 115bp Unit value, end of period (c)................ $33.34 $27.76 --
Class B 135bp Unit value, beginning of period (d).......... $31.57 -- --
Class B 135bp Unit value, end of period (d)................ $32.58 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 971 1,074 609
Class B 115bp........................................... 668 308 --
Class B 135bp........................................... 354 -- --
ALLIANCE INTERNATIONAL FUND
- ---------------------------
Class A 115bp Unit value, beginning of period.............. $11.48 $11.98 $11.03
Class A 115bp Unit value, end of period.................... $12.54 $11.48 $11.98
Class B 115bp Unit value, beginning of period (c).......... $11.46 $11.86 --
Class B 115bp Unit value, end of period (c)................ $12.49 $11.46 --
Class B 135bp Unit value, beginning of period (d).......... $13.41 -- --
Class B 135bp Unit value, end of period (d)................ $12.40 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,001 1,151 717
Class B 115bp........................................... 438 285 --
Class B 135bp........................................... 166 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1997.
(d) Units were made available for sale on May 1, 1998.
FS-24
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
BT INTERNATIONAL EQUITY INDEX FUND (c)
- --------------------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $11.87 -- --
Class B 135bp Unit value, beginning of period (e).......... $11.50 -- --
Class B 135bp Unit value, end of period (e)................ $11.85 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 209 -- --
Class B 135bp........................................... 242 -- --
T. ROWE PRICE INTERNATIONAL STOCK FUND (a)
- ------------------------------------------
Class B 115bp Unit value, beginning of period.............. $9.77 $10.00 --
Class B 115bp Unit value, end of period.................... $10.98 $9.77 --
Class B 135bp Unit value, beginning of period (e).......... $11.13 -- --
Class B 135bp Unit value, end of period (e)................ $10.95 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 1,995 1,291 --
Class B 135bp........................................... 705 -- --
MORGAN STANLEY EMERGING MARKETS EQUITY FUND (b)
- -----------------------------------------------
Class B 115bp Unit value, beginning of period.............. $7.95 $10.00 --
Class B 115bp Unit value, end of period.................... $5.73 $7.95 --
Class B 135bp Unit value, beginning of period(e)........... $8.23 -- --
Class B 135bp Unit value, end of period (e)................ $5.72 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 567 282 --
Class B 135bp........................................... 177 -- --
ALLIANCE AGGRESSIVE STOCK FUND
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $72.23 $65.94 $54.59
Class A 115bp Unit value, end of period.................... $71.60 $72.23 $65.94
Class B 115bp Unit value, beginning of period (d).......... $72.00 $62.84 --
Class B 115bp Unit value, end of period (d)................ $71.21 $72.00 --
Class B 135bp Unit value, beginning of period (e).......... $79.87 -- --
Class B 135bp Unit value, end of period (e)................ $69.37 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,101 1,261 620
Class B 115bp........................................... 680 369 --
Class B 135bp........................................... 293 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on August 20, 1997.
(c) Commenced operations on January 1, 1998.
(d) Units were made available for sale May 1, 1997.
(e) Units were made available for sale on May 1, 1998.
FS-25
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
WARBURG PINCUS SMALL COMPANY VALUE FUND (a)
- -------------------------------------------
Class B 115bp Unit value, beginning of period.............. $11.82 $10.00 --
Class B 115bp Unit value, end of period.................... $10.52 $11.82 --
Class B 135bp Unit value, beginning of period (c).......... $12.72 -- --
Class B 135bp Unit value, end of period (c)................ $10.48 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,984 2,096 --
Class B 135bp........................................... 560 -- --
ALLIANCE SMALL CAP GROWTH FUND (a)
- ----------------------------------
Class A 115bp Unit value, beginning of period.............. $12.57 $10.00 --
Class A 115bp Unit value, end of period.................... $11.90 $12.57 --
Class B 115bp Unit value, beginning of period.............. $12.55 $10.00 --
Class B 115bp Unit value, end of period.................... $11.86 $12.55 --
Class B 135bp Unit value, beginning of period (c).......... $14.29 -- --
Class B 135bp Unit value, end of period (c)................ $11.82 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 314 208 --
Class B 115bp........................................... 2,306 1,084 --
Class B 135bp........................................... 775 -- --
BT SMALL COMPANY INDEX FUND (b)
- -------------------------------
Class B 115bp Unit value, beginning of period.............. $10.00 -- --
Class B 115bp Unit value, end of period.................... $9.66 -- --
Class B 135bp Unit value, beginning of period (c).......... $10.97 -- --
Class B 135bp Unit value, end of period (c)................ $9.64 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 244 -- --
Class B 135bp........................................... 284 -- --
MFS EMERGING GROWTH FUND (a)
- ----------------------------
Class B 115bp Unit value, beginning of period.............. $12.15 $10.00 --
Class B 115bp Unit value, end of period.................... $16.16 $12.15 --
Class B 135bp Unit value, beginning of period (c).......... $14.42 -- --
Class B 135bp Unit value, end of period (c)................ $16.10 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 2,619 982 --
Class B 135bp........................................... 1,942 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Commenced operations on January 1, 1998.
(c) Units were made available for sale on May 1, 1998.
FS-26
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Continued)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
ALLIANCE CONSERVATIVE INVESTORS FUND
- ------------------------------------
Class A 115bp Unit value, beginning of period.............. $19.26 $17.21 $16.55
Class A 115bp Unit value, end of period.................... $21.68 $19.26 $17.21
Class B 115bp Unit value, beginning of period (b).......... $19.23 $17.33 --
Class B 115bp Unit value, end of period (b)................ $21.60 $19.23 --
Class B 135bp Unit value, beginning of period (c).......... $20.06 -- --
Class B 135bp Unit value, end of period (c)................ $21.20 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 865 813 457
Class B 115bp........................................... 860 295 --
Class B 135bp........................................... 659 -- --
EQ/PUTNAM BALANCED FUND (a)
- ---------------------------
Class B 115bp Unit value, beginning of period.............. $11.36 $10.00 --
Class B 115bp Unit value, end of period.................... $12.56 $11.36 --
Class B 135bp Unit value, beginning of period (c).......... $12.29 -- --
Class B 135bp Unit value, end of period (c)................ $12.51 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 1,625 531 --
Class B 135bp........................................... 1,136 -- --
ALLIANCE GROWTH INVESTORS FUND
- ------------------------------
Class A 115bp Unit value, beginning of period.............. $30.31 $26.26 $23.59
Class A 115bp Unit value, end of period.................... $35.70 $30.31 $26.26
Class B 115bp Unit value, beginning of period (b).......... $30.22 $26.23 --
Class B 115bp Unit value, end of period (b)................ $35.50 $30.22 --
Class B 135bp Unit value, beginning of period (c).......... $32.93 -- --
Class B 135bp Unit value, end of period (c)................ $34.84 -- --
Number of units outstanding, end of period (000's):
Class A 115bp........................................... 1,515 1,596 914
Class B 115bp........................................... 1,359 581 --
Class B 135bp........................................... 694 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1997.
(c) Units were made available for sale on May 1, 1998.
FS-27
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SEPARATE ACCOUNT NO. 45
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
6. Accumulation Unit Values (Concluded)
Shown below is accumulation unit value information for a unit outstanding
throughout the period shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
MERRILL LYNCH WORLD STRATEGY FUND (a)
- -------------------------------------
Class B 115bp Unit value, beginning of period.............. $10.39 $10.00 --
Class B 115bp Unit value, end of period.................... $10.97 $10.39 --
Class B 135bp Unit value, beginning of period (b).......... $11.31 -- --
Class B 135bp Unit value, end of period (b)................ $10.94 -- --
Number of units outstanding, end of period (000's):
Class B 115bp........................................... 402 232 --
Class B 135bp........................................... 140 -- --
</TABLE>
- -------------------
(a) Commenced operations on May 1, 1997.
(b) Units were made available for sale on May 1, 1998.
FS-28
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Equitable Life Assurance Society of the United States
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholder's equity and comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of The Equitable Life Assurance Society of the United States and its
subsidiaries ("Equitable Life") at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Equitable
Life's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, Equitable Life
changed its method of accounting for long-lived assets in 1996.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999
F-1
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,993.7 $ 19,630.9
Held to maturity, at amortized cost..................................... 125.0 -
Mortgage loans on real estate............................................. 2,809.9 2,611.4
Equity real estate........................................................ 1,676.9 2,495.1
Policy loans.............................................................. 2,086.7 2,422.9
Other equity investments.................................................. 713.3 951.5
Investment in and loans to affiliates..................................... 928.5 731.1
Other invested assets..................................................... 808.2 612.2
----------------- -----------------
Total investments..................................................... 28,142.2 29,455.1
Cash and cash equivalents................................................... 1,245.5 300.5
Deferred policy acquisition costs........................................... 3,563.8 3,236.6
Amounts due from discontinued operations.................................... 2.7 572.8
Other assets................................................................ 3,051.9 2,687.4
Closed Block assets......................................................... 8,632.4 8,566.6
Separate Accounts assets.................................................... 43,302.3 36,538.7
----------------- -----------------
Total Assets................................................................ $ 87,940.8 $ 81,357.7
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,889.7 $ 21,579.5
Future policy benefits and other policyholders' liabilities................. 4,694.2 4,553.8
Short-term and long-term debt............................................... 1,181.7 1,716.7
Other liabilities........................................................... 3,474.3 3,267.2
Closed Block liabilities.................................................... 9,077.0 9,073.7
Separate Accounts liabilities............................................... 43,211.3 36,306.3
----------------- -----------------
Total liabilities..................................................... 82,528.2 76,497.2
----------------- -----------------
Commitments and contingencies (Notes 11, 13, 14, 15 and 16)
SHAREHOLDER'S EQUITY
Common stock, $1.25 par value 2.0 million shares authorized, issued
and outstanding........................................................... 2.5 2.5
Capital in excess of par value.............................................. 3,110.2 3,105.8
Retained earnings........................................................... 1,944.1 1,235.9
Accumulated other comprehensive income...................................... 355.8 516.3
----------------- -----------------
Total shareholder's equity............................................ 5,412.6 4,860.5
----------------- -----------------
Total Liabilities and Shareholder's Equity.................................. $ 87,940.8 $ 81,357.7
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,056.2 $ 950.6 $ 874.0
Premiums...................................................... 588.1 601.5 597.6
Net investment income......................................... 2,228.1 2,282.8 2,203.6
Investment gains (losses), net................................ 100.2 (45.2) (9.8)
Commissions, fees and other income............................ 1,503.0 1,227.2 1,081.8
Contribution from the Closed Block............................ 87.1 102.5 125.0
----------------- ----------------- -----------------
Total revenues.......................................... 5,562.7 5,119.4 4,872.2
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances.......... 1,153.0 1,266.2 1,270.2
Policyholders' benefits....................................... 1,024.7 978.6 1,317.7
Other operating costs and expenses............................ 2,201.2 2,203.9 2,075.7
----------------- ----------------- -----------------
Total benefits and other deductions..................... 4,378.9 4,448.7 4,663.6
----------------- ----------------- -----------------
Earnings from continuing operations before Federal
income taxes, minority interest and cumulative
effect of accounting change................................. 1,183.8 670.7 208.6
Federal income taxes.......................................... 353.1 91.5 9.7
Minority interest in net income of consolidated subsidiaries.. 125.2 54.8 81.7
----------------- ----------------- -----------------
Earnings from continuing operations before cumulative
effect of accounting change................................. 705.5 524.4 117.2
Discontinued operations, net of Federal income taxes.......... 2.7 (87.2) (83.8)
Cumulative effect of accounting change, net of Federal
income taxes................................................ - - (23.1)
----------------- ----------------- -----------------
Net Earnings.................................................. $ 708.2 $ 437.2 $ 10.3
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Common stock, at par value, beginning and end of year......... $ 2.5 $ 2.5 $ 2.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............. 3,105.8 3,105.8 3,105.8
Additional capital in excess of par value..................... 4.4 - -
----------------- ----------------- -----------------
Capital in excess of par value, end of year................... 3,110.2 3,105.8 3,105.8
Retained earnings, beginning of year.......................... 1,235.9 798.7 788.4
Net earnings.................................................. 708.2 437.2 10.3
----------------- ----------------- -----------------
Retained earnings, end of year................................ 1,944.1 1,235.9 798.7
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year........................................... 516.3 177.0 361.4
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Accumulated other comprehensive income, end of year........... 355.8 516.3 177.0
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year....................... $ 5,412.6 $ 4,860.5 $ 4,084.0
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment.................................................. (149.5) 343.7 (206.6)
Minimum pension liability adjustment.......................... (11.0) (4.4) 22.2
----------------- ----------------- -----------------
Other comprehensive income.................................... (160.5) 339.3 (184.4)
----------------- ----------------- -----------------
Comprehensive Income.......................................... $ 547.7 $ 776.5 $ (174.1)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net earnings.................................................. $ 708.2 $ 437.2 $ 10.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest credited to policyholders' account balances........ 1,153.0 1,266.2 1,270.2
Universal life and investment-type product
policy fee income......................................... (1,056.2) (950.6) (874.0)
Investment (gains) losses................................... (100.2) 45.2 9.8
Change in Federal income tax payable........................ 123.1 (74.4) (197.1)
Other, net.................................................. (324.9) 169.4 330.2
----------------- ----------------- -----------------
Net cash provided by operating activities..................... 503.0 893.0 549.4
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,289.0 2,702.9 2,275.1
Sales....................................................... 16,972.1 10,385.9 8,964.3
Purchases................................................... (18,578.5) (13,205.4) (12,559.6)
Decrease (increase) in short-term investments............... 102.4 (555.0) 450.3
Decrease in loans to discontinued operations................ 660.0 420.1 1,017.0
Sale of subsidiaries........................................ - 261.0 -
Other, net.................................................. (341.8) (612.6) (281.0)
----------------- ----------------- -----------------
Net cash provided (used) by investing activities.............. 1,103.2 (603.1) (133.9)
----------------- ----------------- -----------------
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. 1,508.1 1,281.7 1,925.4
Withdrawals............................................... (1,724.6) (1,886.8) (2,385.2)
Net (decrease) increase in short-term financings............ (243.5) 419.9 (.3)
Repayments of long-term debt................................ (24.5) (196.4) (124.8)
Payment of obligation to fund accumulated deficit of
discontinued operations................................... (87.2) (83.9) -
Other, net.................................................. (89.5) (62.7) (66.5)
----------------- ----------------- -----------------
Net cash used by financing activities......................... (661.2) (528.2) (651.4)
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 945.0 (238.3) (235.9)
Cash and cash equivalents, beginning of year.................. 300.5 538.8 774.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,245.5 $ 300.5 $ 538.8
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 130.7 $ 217.1 $ 109.9
================= ================= =================
Income Taxes Paid (Refunded)................................ $ 254.3 $ 170.0 $ (10.0)
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
The Equitable Life Assurance Society of the United States ("Equitable
Life") is a wholly owned subsidiary of The Equitable Companies
Incorporated (the "Holding Company"). Equitable Life's insurance
business is conducted principally by Equitable Life and its wholly owned
life insurance subsidiaries, Equitable of Colorado ("EOC"), and, prior
to December 31, 1996, Equitable Variable Life Insurance Company
("EVLICO"). Effective January 1, 1997, EVLICO was merged into Equitable
Life, which continues to conduct the Company's insurance business.
Equitable Life's investment management business, which comprises the
Investment Services segment, is conducted principally by Alliance
Capital Management L.P. ("Alliance"), in which Equitable Life has a
57.7% ownership interest, and Donaldson, Lufkin & Jenrette, Inc.
("DLJ"), an investment banking and brokerage affiliate in which
Equitable Life has a 32.5% ownership interest. AXA ("AXA"), a French
holding company for an international group of insurance and related
financial services companies, is the Holding Company's largest
shareholder, owning approximately 58.5% at December 31, 1998 (53.4% if
all securities convertible into, and options on, common stock were to be
converted or exercised).
The Insurance segment offers a variety of traditional, variable and
interest-sensitive life insurance products, disability income, annuity
products, mutual fund and other investment products to individuals and
small groups. It also administers traditional participating group
annuity contracts with conversion features, generally for corporate
qualified pension plans, and association plans which provide full
service retirement programs for individuals affiliated with professional
and trade associations. This segment includes Separate Accounts for
individual insurance and annuity products.
The Investment Services segment includes Alliance, the results of DLJ
which are accounted for on an equity basis, and, through June 10, 1997,
Equitable Real Estate Investment Management, Inc. ("EREIM"), a real
estate investment management subsidiary which was sold. Alliance
provides diversified investment fund management services to a variety of
institutional clients, including pension funds, endowments, and foreign
financial institutions, as well as to individual investors, principally
through a broad line of mutual funds. This segment includes
institutional Separate Accounts which provide various investment options
for large group pension clients, primarily deferred benefit contribution
plans, through pooled or single group accounts. DLJ's businesses include
securities underwriting, sales and trading, merchant banking, financial
advisory services, investment research, venture capital, correspondent
brokerage services, online interactive brokerage services and asset
management. DLJ serves institutional, corporate, governmental and
individual clients both domestically and internationally. EREIM provided
real estate investment management services, property management
services, mortgage servicing and loan asset management, and agricultural
investment management.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles ("GAAP") which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts
of Equitable Life and its wholly owned life insurance subsidiary
(collectively, the "Insurance Group"); non-insurance subsidiaries,
principally Alliance and EREIM (see Note 5); and those partnerships and
joint ventures in which Equitable Life or its subsidiaries has control
F-6
<PAGE>
and a majority economic interest (collectively, including its
consolidated subsidiaries, the "Company"). The Company's investment in
DLJ is reported on the equity basis of accounting. Closed Block assets,
liabilities and results of operations are presented in the consolidated
financial statements as single line items (see Note 7). Unless
specifically stated, all other footnote disclosures contained herein
exclude the Closed Block related amounts.
All significant intercompany transactions and balances except those with
the Closed Block and discontinued operations (see Note 8) have been
eliminated in consolidation. The years "1998," "1997" and "1996" refer
to the years ended December 31, 1998, 1997 and 1996, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods with the 1998 presentation.
Closed Block
On July 22, 1992, Equitable Life established the Closed Block for the
benefit of certain individual participating policies which were in force
on that date. The assets allocated to the Closed Block, together with
anticipated revenues from policies included in the Closed Block, were
reasonably expected to be sufficient to support such business, including
provision for payment of claims, certain expenses and taxes, and for
continuation of dividend scales payable in 1991, assuming the experience
underlying such scales continues.
Assets allocated to the Closed Block inure solely to the benefit of the
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or any
affiliate of Equitable Life without the approval of the New York
Superintendent of Insurance (the "Superintendent"). Closed Block assets
and liabilities are carried on the same basis as similar assets and
liabilities held in the General Account. The excess of Closed Block
liabilities over Closed Block assets represents the expected future
post-tax contribution from the Closed Block which would be recognized in
income over the period the policies and contracts in the Closed Block
remain in force.
Discontinued Operations
Discontinued operations include the Group Non-Participating Wind-Up
Annuities ("Wind-Up Annuities") and the Guaranteed Interest Contract
("GIC") lines of business. An allowance was established for the premium
deficiency reserve for Wind-Up Annuities and estimated future losses of
the GIC line of business. Management reviews the adequacy of the
allowance each quarter and believes the allowance for future losses at
December 31, 1998 is adequate to provide for all future losses; however,
the quarterly allowance review continues to involve numerous estimates
and subjective judgments regarding the expected performance of
Discontinued Operations Investment Assets. There can be no assurance the
losses provided for will not differ from the losses ultimately realized.
To the extent actual results or future projections of the discontinued
operations differ from management's current best estimates and
assumptions underlying the allowance for future losses, the difference
would be reflected in the consolidated statements of earnings in
discontinued operations. In particular, to the extent income, sales
proceeds and holding periods for equity real estate differ from
management's previous assumptions, periodic adjustments to the allowance
are likely to result (see Note 8).
Accounting Changes
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for public companies to report
information about operating segments in annual and interim financial
statements issued to shareholders. It also specifies related disclosure
requirements for products and services, geographic areas and major
customers. Generally, financial information must be reported using the
basis management uses to make operating decisions and to evaluate
business performance. The Company implemented SFAS No. 131 effective
December 31, 1998 and continues to identify two operating segments to
reflect its major businesses: Insurance and Investment Services. While
the segment descriptions are the same as those previously reported,
certain amounts have been reattributed between the two reportable
segments. Prior period comparative segment information has been
restated.
F-7
<PAGE>
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
which requires capitalization of external and certain internal costs
incurred to obtain or develop internal-use computer software during the
application development stage. The Company applied the provisions of SOP
98-1 prospectively effective January 1, 1998. The adoption of SOP 98-1
did not have a material impact on the Company's consolidated financial
statements. Capitalized internal-use software is amortized on a
straight-line basis over the estimated useful life of the software.
The Company implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of
January 1, 1996. SFAS No. 121 requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Effective with SFAS No. 121's adoption, impaired
real estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Before implementing SFAS No.
121, valuation allowances on real estate held for the production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Adoption of the statement resulted in the release of valuation
allowances of $152.4 million and recognition of impairment losses of
$144.0 million on real estate held for production of income. Real estate
which management intends to sell or abandon is classified as real estate
held for sale. Valuation allowances on real estate held for sale
continue to be computed using the lower of depreciated cost or estimated
fair value, net of disposition costs. Initial adoption of the impairment
requirements of SFAS No. 121 to other assets to be disposed of resulted
in a charge for the cumulative effect of an accounting change of $23.1
million, net of a Federal income tax benefit of $12.4 million, due to
the writedown to fair value of building improvements relating to
facilities vacated in 1996.
New Accounting Pronouncements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," which amends
existing accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. This statement is effective for the first
fiscal quarter beginning after December 15, 1998. This statement is not
expected to have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and for hedging activities. It
requires all derivatives to be recognized on the balance sheet at fair
value. The accounting for changes in the fair value of a derivative
depends on its intended use. Derivatives not used in hedging activities
must be adjusted to fair value through earnings. Changes in the fair
value of derivatives used in hedging activities will, depending on the
nature of the hedge, either be offset in earnings against the change in
fair value of the hedged item attributable to the risk being hedged or
recognized in other comprehensive income until the hedged item affects
earnings. For all hedging activities, the ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings.
SFAS No. 133 requires adoption in fiscal years beginning after June 15,
1999 and permits early adoption as of the beginning of any fiscal
quarter following issuance of the statement. Retroactive application to
financial statements of prior periods is prohibited. The Company expects
to adopt SFAS No. 133 effective January 1, 2000. Adjustments resulting
from initial adoption of the new requirements will be reported in a
manner similar to the cumulative effect of a change in accounting
principle and will be reflected in net income or accumulated other
comprehensive income based upon existing hedging relationships, if any.
Management currently is assessing the impact of adoption. However,
Alliance's adoption is not expected to have a significant impact on the
Company's consolidated balance sheet or statement of earnings. Also,
since most of DLJ's derivatives are carried at fair values, the
Company's consolidated earnings and financial position are not expected
to be significantly affected by DLJ's adoption of the new requirements.
F-8
<PAGE>
In late 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts that Do Not Transfer Insurance
Risk". This SOP, effective for fiscal years beginning after June 15,
1999, provides guidance to both the insured and insurer on how to apply
the deposit method of accounting when it is required for insurance and
reinsurance contracts that do not transfer insurance risk. The SOP does
not address or change the requirements as to when deposit accounting
should be applied. SOP 98-7 applies to all entities and all insurance
and reinsurance contracts that do not transfer insurance risk except for
long-duration life and health insurance contracts. This SOP is not
expected to have a material impact on the Company's consolidated
financial statements.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments". SOP 97-3
provides guidance for assessments related to insurance activities and
requirements for disclosure of certain information. SOP 97-3 is
effective for financial statements issued for periods beginning after
December 31, 1998. Restatement of previously issued financial statements
is not required. SOP 97-3 is not expected to have a material impact on
the Company's consolidated financial statements.
Valuation of Investments
Fixed maturities identified as available for sale are reported at
estimated fair value. Fixed maturities, which the Company has both the
ability and the intent to hold to maturity, are stated principally at
amortized cost. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary.
Valuation allowances are netted against the asset categories to which
they apply.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the measurement method used is
collateral value.
Real estate, including real estate acquired in satisfaction of debt, is
stated at depreciated cost less valuation allowances. At the date of
foreclosure (including in-substance foreclosure), real estate acquired
in satisfaction of debt is valued at estimated fair value. Impaired real
estate is written down to fair value with the impairment loss being
included in investment gains (losses), net. Valuation allowances on real
estate held for sale are computed using the lower of depreciated cost or
current estimated fair value, net of disposition costs. Depreciation is
discontinued on real estate held for sale. Prior to the adoption of SFAS
No. 121, valuation allowances on real estate held for production of
income were computed using the forecasted cash flows of the respective
properties discounted at a rate equal to the Company's cost of funds.
Policy loans are stated at unpaid principal balances.
Partnerships and joint venture interests in which the Company does not
have control or a majority economic interest are reported on the equity
basis of accounting and are included either with equity real estate or
other equity investments, as appropriate.
Common stocks are carried at estimated fair value and are included in
other equity investments.
Short-term investments are stated at amortized cost which approximates
fair value and are included with other invested assets.
F-9
<PAGE>
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities are recorded in the consolidated financial statements on
a trade date basis.
Net Investment Income, Investment Gains, Net and Unrealized Investment
Gains (Losses)
Net investment income and realized investment gains (losses)
(collectively, "investment results") related to certain participating
group annuity contracts which are passed through to the contractholders
are reflected as interest credited to policyholders' account balances.
Realized investment gains (losses) are determined by specific
identification and are presented as a component of revenue. Changes in
valuation allowances are included in investment gains (losses).
Unrealized investment gains and losses on equity securities and fixed
maturities available for sale held by the Company are accounted for as a
separate component of accumulated comprehensive income, net of related
deferred Federal income taxes, amounts attributable to discontinued
operations, participating group annuity contracts and deferred policy
acquisition costs ("DAC") related to universal life and investment-type
products and participating traditional life contracts.
Recognition of Insurance Income and Related Expenses
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as income when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions,
underwriting, agency and policy issue expenses, all of which vary with
and are primarily related to the production of new business, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group (periods
ranging from 25 to 35 years and 5 to 17 years, respectively) as a
constant percentage of estimated gross profits arising principally from
investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, updated at the
end of each accounting period. The effect on the amortization of DAC of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to accumulated other comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
F-10
<PAGE>
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is amortized over the expected total life
of the contract group (40 years) as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 1998, the expected investment yield, excluding
policy loans, generally ranged from 7.29% grading to 6.5% over a 20 year
period. Estimated gross margin includes anticipated premiums and
investment results less claims and administrative expenses, changes in
the net level premium reserve and expected annual policyholder
dividends. The effect on the amortization of DAC of revisions to
estimated gross margins is reflected in earnings in the period such
estimated gross margins are revised. The effect on the DAC asset that
would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated comprehensive income in consolidated
shareholder's equity as of the balance sheet date.
For non-participating traditional life and annuity policies with life
contingencies, DAC is amortized in proportion to anticipated premiums.
Assumptions as to anticipated premiums are estimated at the date of
policy issue and are consistently applied during the life of the
contracts. Deviations from estimated experience are reflected in
earnings in the period such deviations occur. For these contracts, the
amortization periods generally are for the total life of the policy.
For individual health benefit insurance, DAC is amortized over the
expected average life of the contracts (10 years for major medical
policies and 20 years for disability income ("DI") products) in
proportion to anticipated premium revenue at time of issue.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represents an accumulation of gross premium payments plus
credited interest less expense and mortality charges and withdrawals.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience which, together with interest and expense assumptions,
includes a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC is written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and after annuitization are equal to the present value of
expected future payments. Interest rates used in establishing such
liabilities range from 2.25% to 11.5% for life insurance liabilities and
from 2.25% to 13.5% for annuity liabilities.
During the fourth quarter of 1996 a loss recognition study of
participating group annuity contracts and conversion annuities ("Pension
Par") was completed which included management's revised estimate of
assumptions, such as expected mortality and future investment returns.
The study's results prompted management to establish a premium
deficiency reserve which decreased earnings from continuing operations
and net earnings by $47.5 million ($73.0 million pre-tax).
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
F-11
<PAGE>
During the fourth quarter of 1996, the Company completed a loss
recognition study of the DI business which incorporated management's
revised estimates of future experience with regard to morbidity,
investment returns, claims and administration expenses and other
factors. The study indicated DAC was not recoverable and the reserves
were not sufficient. Earnings from continuing operations and net
earnings decreased by $208.0 million ($320.0 million pre-tax) as a
result of strengthening DI reserves by $175.0 million and writing off
unamortized DAC of $145.0 million related to DI products issued prior to
July 1993. The determination of DI reserves requires making assumptions
and estimates relating to a variety of factors, including morbidity and
interest rates, claims experience and lapse rates based on then known
facts and circumstances. Such factors as claim incidence and termination
rates can be affected by changes in the economic, legal and regulatory
environments and work ethic. While management believes its Pension Par
and DI reserves have been calculated on a reasonable basis and are
adequate, there can be no assurance reserves will be sufficient to
provide for future liabilities.
Claim reserves and associated liabilities for individual DI and major
medical policies were $938.6 million and $886.7 million at December 31,
1998 and 1997, respectively. Incurred benefits (benefits paid plus
changes in claim reserves) and benefits paid for individual DI and major
medical policies (excluding reserve strengthening in 1996) are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Incurred benefits related to current year.......... $ 202.1 $ 190.2 $ 189.0
Incurred benefits related to prior years........... 22.2 2.1 69.1
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 224.3 $ 192.3 $ 258.1
================= ================ =================
Benefits paid related to current year.............. $ 17.0 $ 28.8 $ 32.6
Benefits paid related to prior years............... 155.4 146.2 153.3
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 172.4 $ 175.0 $ 185.9
================= ================ =================
</TABLE>
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including those on
policies included in the Closed Block) is determined annually by
Equitable Life's board of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by Equitable Life.
At December 31, 1998, participating policies, including those in the
Closed Block, represent approximately 19.9% ($49.3 billion) of directly
written life insurance in force, net of amounts ceded.
Federal Income Taxes
The Company files a consolidated Federal income tax return with the
Holding Company and its consolidated subsidiaries. Current Federal
income taxes are charged or credited to operations based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income tax assets and liabilities are
recognized based on the difference between financial statement carrying
amounts and income tax bases of assets and liabilities using enacted
income tax rates and laws.
Separate Accounts
Separate Accounts are established in conformity with the New York State
Insurance Law and generally are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent the
value of such assets exceeds Separate Accounts liabilities.
F-12
<PAGE>
Assets and liabilities of the Separate Accounts, representing net
deposits and accumulated net investment earnings less fees, held
primarily for the benefit of contractholders, and for which the
Insurance Group does not bear the investment risk, are shown as separate
captions in the consolidated balance sheets. The Insurance Group bears
the investment risk on assets held in one Separate Account; therefore,
such assets are carried on the same basis as similar assets held in the
General Account portfolio. Assets held in the other Separate Accounts
are carried at quoted market values or, where quoted values are not
available, at estimated fair values as determined by the Insurance
Group.
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities. For 1998, 1997 and 1996, investment results of
such Separate Accounts were $4,591.0 million, $3,411.1 million and
$2,970.6 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all Separate Accounts are
included in revenues.
Employee Stock Option Plan
The Company accounts for stock option plans sponsored by the Holding
Company, DLJ and Alliance in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In accordance
with the Statement, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock exceeds
the option price. See Note 22 for the pro forma disclosures for the
Holding Company, DLJ and Alliance required by SFAS No. 123, "Accounting
for Stock-Based Compensation".
F-13
<PAGE>
3) INVESTMENTS
The following tables provide additional information relating to fixed
maturities and equity securities:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------------- ----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C> <C>
December 31, 1998
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,520.8 $ 793.6 $ 379.6 $ 14,934.8
Mortgage-backed.................... 1,807.9 23.3 .9 1,830.3
U.S. Treasury securities and
U.S. government and
agency securities................ 1,464.1 107.6 .7 1,571.0
States and political subdivisions.. 55.0 9.9 - 64.9
Foreign governments................ 363.3 20.9 30.0 354.2
Redeemable preferred stock......... 242.7 7.0 11.2 238.5
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,453.8 $ 962.3 $ 422.4 $ 18,993.7
================= ================= ================ =================
Held to Maturity: Corporate......... $ 125.0 $ - $ - $ 125.0
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 58.3 $ 114.9 $ 22.5 $ 150.7
================= ================= ================ =================
December 31, 1997
Fixed Maturities:
Available for Sale:
Corporate.......................... $ 14,850.5 $ 785.0 $ 74.5 $ 15,561.0
Mortgage-backed.................... 1,702.8 23.5 1.3 1,725.0
U.S. Treasury securities and
U.S. government and
agency securities................ 1,583.2 83.9 .6 1,666.5
States and political subdivisions.. 52.8 6.8 .1 59.5
Foreign governments................ 442.4 44.8 2.0 485.2
Redeemable preferred stock......... 128.0 6.7 1.0 133.7
----------------- ----------------- ---------------- -----------------
Total Available for Sale............... $ 18,759.7 $ 950.7 $ 79.5 $ 19,630.9
================= ================= ================ =================
Equity Securities:
Common stock......................... $ 408.4 $ 48.7 $ 15.0 $ 442.1
================= ================= ================ =================
</TABLE>
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, the Company
determines an estimated fair value using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Estimated fair
values for equity securities, substantially all of which do not have a
readily ascertainable market value, have been determined by the Company.
Such estimated fair values do not necessarily represent the values for
which these securities could have been sold at the dates of the
consolidated balance sheets. At December 31, 1998 and 1997, securities
without a readily ascertainable market value having an amortized cost of
$3,539.9 million and $3,759.2 million, respectively, had estimated fair
values of $3,748.5 million and $3,903.9 million, respectively.
F-14
<PAGE>
The contractual maturity of bonds at December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
<S> <C> <C>
Due in one year or less................................................ $ 324.8 $ 323.4
Due in years two through five.......................................... 3,778.2 3,787.9
Due in years six through ten........................................... 6,543.4 6,594.1
Due after ten years.................................................... 5,756.8 6,219.5
Mortgage-backed securities............................................. 1,807.9 1,830.3
---------------- -----------------
Total.................................................................. $ 18,211.1 $ 18,755.2
================ =================
</TABLE>
Corporate bonds held to maturity with an amortized cost and estimated
fair value of $125.0 million are due in one year or less.
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
concentrations in any single issuer or a particular industry group.
Certain of these corporate high yield securities are classified as other
than investment grade by the various rating agencies, i.e., a rating
below Baa or National Association of Insurance Commissioners ("NAIC")
designation of 3 (medium grade), 4 or 5 (below investment grade) or 6
(in or near default). At December 31, 1998, approximately 15.1% of the
$18,336.1 million aggregate amortized cost of bonds held by the Company
was considered to be other than investment grade.
In addition, the Insurance Group is an equity investor in limited
partnership interests which primarily invest in securities considered to
be other than investment grade.
Fixed maturity investments with restructured or modified terms are not
material.
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balances, beginning of year........................ $ 384.5 $ 137.1 $ 325.3
SFAS No. 121 release............................... - - (152.4)
Additions charged to income........................ 86.2 334.6 125.0
Deductions for writedowns and
asset dispositions............................... (240.1) (87.2) (160.8)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 34.3 $ 55.8 $ 50.4
Equity real estate............................... 196.3 328.7 86.7
----------------- ---------------- -----------------
Total.............................................. $ 230.6 $ 384.5 $ 137.1
================= ================ =================
</TABLE>
F-15
<PAGE>
At December 31, 1998, the carrying value of fixed maturities which are
non-income producing for the twelve months preceding the consolidated
balance sheet date was $60.8 million.
At December 31, 1998 and 1997, mortgage loans on real estate with
scheduled payments 60 days (90 days for agricultural mortgages) or more
past due or in foreclosure (collectively, "problem mortgage loans on
real estate") had an amortized cost of $7.0 million (0.2% of total
mortgage loans on real estate) and $23.4 million (0.9% of total mortgage
loans on real estate), respectively.
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $115.1
million and $183.4 million at December 31, 1998 and 1997, respectively.
Gross interest income on restructured mortgage loans on real estate that
would have been recorded in accordance with the original terms of such
loans amounted to $10.3 million, $17.2 million and $35.5 million in
1998, 1997 and 1996, respectively. Gross interest income on these loans
included in net investment income aggregated $8.3 million, $12.7 million
and $28.2 million in 1998, 1997 and 1996, respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997
------------------- -------------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses.................. $ 125.4 $ 196.7
Impaired mortgage loans without provision for losses............... 8.6 3.6
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 134.0 200.3
Provision for losses............................................... (29.0) (51.8)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 105.0 $ 148.5
=================== ===================
</TABLE>
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
During 1998, 1997 and 1996, respectively, the Company's average recorded
investment in impaired mortgage loans was $161.3 million, $246.9 million
and $552.1 million. Interest income recognized on these impaired
mortgage loans totaled $12.3 million, $15.2 million and $38.8 million
($.9 million, $2.3 million and $17.9 million recognized on a cash basis)
for 1998, 1997 and 1996, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 1998 and 1997, the carrying value of equity real estate
held for sale amounted to $836.2 million and $1,023.5 million,
respectively. For 1998, 1997 and 1996, respectively, real estate of $7.1
million, $152.0 million and $58.7 million was acquired in satisfaction
of debt. At December 31, 1998 and 1997, the Company owned $552.3 million
and $693.3 million, respectively, of real estate acquired in
satisfaction of debt.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years. Accumulated
depreciation on real estate was $374.8 million and $541.1 million at
December 31, 1998 and 1997, respectively. Depreciation expense on real
estate totaled $30.5 million, $74.9 million and $91.8 million for 1998,
1997 and 1996, respectively.
F-16
<PAGE>
4) JOINT VENTURES AND PARTNERSHIPS
Summarized combined financial information for real estate joint ventures
(25 and 29 individual ventures as of December 31, 1998 and 1997,
respectively) and for limited partnership interests accounted for under
the equity method, in which the Company has an investment of $10.0
million or greater and an equity interest of 10% or greater, is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 913.7 $ 1,700.9
Investments in securities, generally at estimated fair value........... 636.9 1,374.8
Cash and cash equivalents.............................................. 85.9 105.4
Other assets........................................................... 279.8 584.9
---------------- -----------------
Total Assets........................................................... $ 1,916.3 $ 3,766.0
================ =================
Borrowed funds - third party........................................... $ 367.1 $ 493.4
Borrowed funds - the Company........................................... 30.1 31.2
Other liabilities...................................................... 197.2 284.0
---------------- -----------------
Total liabilities...................................................... 594.4 808.6
---------------- -----------------
Partners' capital...................................................... 1,321.9 2,957.4
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 1,916.3 $ 3,766.0
================ =================
Equity in partners' capital included above............................. $ 312.9 $ 568.5
Equity in limited partnership interests not included above............. 442.1 331.8
Other.................................................................. .7 4.3
---------------- -----------------
Carrying Value......................................................... $ 755.7 $ 904.6
================ =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 246.1 $ 310.5 $ 348.9
Revenues of other limited partnership interests.... 128.9 506.3 386.1
Interest expense - third party..................... (33.3) (91.8) (111.0)
Interest expense - the Company..................... (2.6) (7.2) (30.0)
Other expenses..................................... (197.0) (263.6) (282.5)
----------------- ---------------- -----------------
Net Earnings....................................... $ 142.1 $ 454.2 $ 311.5
================= ================ =================
Equity in net earnings included above.............. $ 59.6 $ 76.7 $ 73.9
Equity in net earnings of limited partnership
interests not included above..................... 22.7 69.5 35.8
Other.............................................. - (.9) .9
----------------- ---------------- -----------------
Total Equity in Net Earnings....................... $ 82.3 $ 145.3 $ 110.6
================= ================ =================
</TABLE>
F-17
<PAGE>
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ 1,489.0 $ 1,459.4 $ 1,307.4
Mortgage loans on real estate...................... 235.4 260.8 303.0
Equity real estate................................. 356.1 390.4 442.4
Other equity investments........................... 83.8 156.9 122.0
Policy loans....................................... 144.9 177.0 160.3
Other investment income............................ 185.7 181.7 217.4
----------------- ---------------- -----------------
Gross investment income.......................... 2,494.9 2,626.2 2,552.5
Investment expenses.............................. (266.8) (343.4) (348.9)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,228.1 $ 2,282.8 $ 2,203.6
================= ================ =================
</TABLE>
Investment gains (losses), net, including changes in the valuation
allowances, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Fixed maturities................................... $ (24.3) $ 88.1 $ 60.5
Mortgage loans on real estate...................... (10.9) (11.2) (27.3)
Equity real estate................................. 74.5 (391.3) (79.7)
Other equity investments........................... 29.9 14.1 18.9
Sale of subsidiaries............................... (2.6) 252.1 -
Issuance and sales of Alliance Units............... 19.8 - 20.6
Issuance and sale of DLJ common stock.............. 18.2 3.0 -
Other.............................................. (4.4) - (2.8)
----------------- ---------------- -----------------
Investment Gains (Losses), Net..................... $ 100.2 $ (45.2) $ (9.8)
================= ================ =================
</TABLE>
Writedowns of fixed maturities amounted to $101.6 million, $11.7 million
and $29.9 million for 1998, 1997 and 1996, respectively, and writedowns
of equity real estate subsequent to the adoption of SFAS No. 121
amounted to $136.4 million for 1997. In the fourth quarter of 1997, the
Company reclassified $1,095.4 million depreciated cost of equity real
estate from real estate held for the production of income to real estate
held for sale. Additions to valuation allowances of $227.6 million were
recorded upon these transfers. Additionally, in fourth quarter 1997,
$132.3 million of writedowns on real estate held for production of
income were recorded.
For 1998, 1997 and 1996, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $15,961.0
million, $9,789.7 million and $8,353.5 million. Gross gains of $149.3
million, $166.0 million and $154.2 million and gross losses of $95.1
million, $108.8 million and $92.7 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 1998,
1997 and 1996 amounted to $(331.7) million, $513.4 million and $(258.0)
million, respectively.
For 1998, 1997 and 1996, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $136.9 million, $137.5
million and $136.7 million, respectively.
F-18
<PAGE>
On June 10, 1997, Equitable Life sold EREIM (other than its interest in
Column Financial, Inc.) ("ERE") to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial
services company based in Sydney, Australia. The total purchase price
was $400.0 million and consisted of $300.0 million in cash and a $100.0
million note which was paid in 1998. The Company recognized an
investment gain of $162.4 million, net of Federal income tax of $87.4
million as a result of this transaction. Equitable Life entered into
long-term advisory agreements whereby ERE continues to provide
substantially the same services to Equitable Life's General Account and
Separate Accounts, for substantially the same fees, as provided prior to
the sale.
Through June 10, 1997 and for the year ended December 31, 1996,
respectively, the businesses sold reported combined revenues of $91.6
million and $226.1 million and combined net earnings of $10.7 million
and $30.7 million.
In 1996, Alliance acquired the business of Cursitor Holdings L.P. and
Cursitor Holdings Limited (collectively, "Cursitor") for approximately
$159.0 million. The purchase price consisted of $94.3 million in cash,
1.8 million of Alliance's publicly traded units ("Alliance Units"), 6%
notes aggregating $21.5 million payable ratably over four years, and
additional consideration to be determined at a later date but currently
estimated to not exceed $10.0 million. The excess of the purchase price,
including acquisition costs and minority interest, over the fair value
of Cursitor's net assets acquired resulted in the recognition of
intangible assets consisting of costs assigned to contracts acquired and
goodwill of approximately $122.8 million and $38.3 million,
respectively. The Company recognized an investment gain of $20.6 million
as a result of the issuance of Alliance Units in this transaction. On
June 30, 1997, Alliance reduced the recorded value of goodwill and
contracts associated with Alliance's acquisition of Cursitor by $120.9
million. This charge reflected Alliance's view that Cursitor's
continuing decline in assets under management and its reduced
profitability, resulting from relative investment underperformance, no
longer supported the carrying value of its investment. As a result, the
Company's earnings from continuing operations before cumulative effect
of accounting change for 1997 included a charge of $59.5 million, net of
a Federal income tax benefit of $10.0 million and minority interest of
$51.4 million. The remaining balance of intangible assets is being
amortized over its estimated useful life of 20 years. At December 31,
1998, the Company's ownership of Alliance Units was approximately 56.7%.
F-19
<PAGE>
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of accumulated comprehensive income and
the changes for the corresponding years, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Balance, beginning of year......................... $ 533.6 $ 189.9 $ 396.5
Changes in unrealized investment gains (losses).... (242.4) 543.3 (297.6)
Changes in unrealized investment losses
(gains) attributable to:
Participating group annuity contracts.......... (5.7) 53.2 -
DAC............................................ 13.2 (89.0) 42.3
Deferred Federal income taxes.................. 85.4 (163.8) 48.7
----------------- ---------------- -----------------
Balance, End of Year............................... $ 384.1 $ 533.6 $ 189.9
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains on:
Fixed maturities............................... $ 539.9 $ 871.2 $ 357.8
Other equity investments....................... 92.4 33.7 31.6
Other, principally Closed Block................ 111.1 80.9 53.1
----------------- ---------------- -----------------
Total........................................ 743.4 985.8 442.5
Amounts of unrealized investment gains
attributable to:
Participating group annuity contracts........ (24.7) (19.0) (72.2)
DAC.......................................... (127.8) (141.0) (52.0)
Deferred Federal income taxes................ (206.8) (292.2) (128.4)
----------------- ---------------- -----------------
Total.............................................. $ 384.1 $ 533.6 $ 189.9
================= ================ =================
</TABLE>
6) ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents cumulative gains and
losses on items that are not reflected in earnings. The balances for the
years 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Unrealized gains on investments.................... $ 384.1 $ 533.6 $ 189.9
Minimum pension liability.......................... (28.3) (17.3) (12.9)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive Income............................. $ 355.8 $ 516.3 $ 177.0
================= ================ =================
</TABLE>
F-20
<PAGE>
The components of other comprehensive income for the years 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Net unrealized gains (losses) on investment
securities:
Net unrealized gains (losses) arising during
the period..................................... $ (186.1) $ 564.0 $ (249.8)
Reclassification adjustment for (gains) losses
included in net earnings....................... (56.3) (20.7) (47.8)
----------------- ---------------- -----------------
Net unrealized gains (losses) on investment
securities....................................... (242.4) 543.3 (297.6)
Adjustments for policyholder liabilities,
DAC and deferred
Federal income taxes............................. 92.9 (199.6) 91.0
----------------- ---------------- -----------------
Change in unrealized gains (losses), net of
reclassification and adjustments................. (149.5) 343.7 (206.6)
Change in minimum pension liability................ (11.0) (4.4) 22.2
----------------- ---------------- -----------------
Total Other Comprehensive Income................... $ (160.5) $ 339.3 $ (184.4)
================= ================ =================
</TABLE>
7) CLOSED BLOCK
Summarized financial information for the Closed Block follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed Maturities:
Available for sale, at estimated fair value (amortized cost,
$4,149.0 and $4,059.4)........................................... $ 4,373.2 $ 4,231.0
Mortgage loans on real estate........................................ 1,633.4 1,341.6
Policy loans......................................................... 1,641.2 1,700.2
Cash and other invested assets....................................... 86.5 282.0
DAC.................................................................. 676.5 775.2
Other assets......................................................... 221.6 236.6
----------------- -----------------
Total Assets......................................................... $ 8,632.4 $ 8,566.6
================= =================
Liabilities
Future policy benefits and policyholders' account balances........... $ 9,013.1 $ 8,993.2
Other liabilities.................................................... 63.9 80.5
----------------- -----------------
Total Liabilities.................................................... $ 9,077.0 $ 9,073.7
================= =================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Premiums and other revenue......................... $ 661.7 $ 687.1 $ 724.8
Investment income (net of investment
expenses of $15.5, $27.0 and $27.3).............. 569.7 574.9 546.6
Investment losses, net............................. .5 (42.4) (5.5)
----------------- ---------------- -----------------
Total revenues............................... 1,231.9 1,219.6 1,265.9
----------------- ---------------- -----------------
Benefits and Other Deductions
Policyholders' benefits and dividends.............. 1,082.0 1,066.7 1,106.3
Other operating costs and expenses................. 62.8 50.4 34.6
----------------- ---------------- -----------------
Total benefits and other deductions.......... 1,144.8 1,117.1 1,140.9
----------------- ---------------- -----------------
Contribution from the Closed Block................. $ 87.1 $ 102.5 $ 125.0
================= ================ =================
</TABLE>
At December 31, 1998 and 1997, problem mortgage loans on real estate had
an amortized cost of $5.1 million and $8.1 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had an amortized cost of $26.0 million and $70.5 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 55.5 $ 109.1
Impaired mortgage loans without provision for losses................... 7.6 .6
---------------- -----------------
Recorded investment in impaired mortgages.............................. 63.1 109.7
Provision for losses................................................... (10.1) (17.4)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 53.0 $ 92.3
================ =================
</TABLE>
During 1998, 1997 and 1996, the Closed Block's average recorded
investment in impaired mortgage loans was $85.5 million, $110.2 million
and $153.8 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $4.7 million, $9.4 million and $10.9
million ($1.5 million, $4.1 million and $4.7 million recognized on a
cash basis) for 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $11.1 million and $18.5 million on
mortgage loans on real estate and $15.4 million and $16.8 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in the
recognition of impairment losses of $5.6 million on real estate held for
production of income. Writedowns of fixed maturities amounted to $3.5
million and $12.8 million for 1997 and 1996, respectively. Writedowns of
equity real estate subsequent to the adoption of SFAS No. 121 amounted
to $28.8 million for 1997.
In the fourth quarter of 1997, $72.9 million depreciated cost of equity
real estate held for production of income was reclassified to equity
real estate held for sale. Additions to valuation allowances of $15.4
million were recorded upon these transfers. Additionally, in fourth
quarter 1997, $28.8 million of writedowns on real estate held for
production of income were recorded.
Many expenses related to Closed Block operations are charged to
operations outside of the Closed Block; accordingly, the contribution
from the Closed Block does not represent the actual profitability of the
Closed Block operations. Operating costs and expenses outside of the
Closed Block are, therefore, disproportionate to the business outside of
the Closed Block.
F-22
<PAGE>
8) DISCONTINUED OPERATIONS
Summarized financial information for discontinued operations follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate........................................ $ 553.9 $ 635.2
Equity real estate................................................... 611.0 874.5
Other equity investments............................................. 115.1 209.3
Other invested assets................................................ 24.9 152.4
----------------- -----------------
Total investments.................................................. 1,304.9 1,871.4
Cash and cash equivalents............................................ 34.7 106.8
Other assets......................................................... 219.0 243.8
----------------- -----------------
Total Assets......................................................... $ 1,558.6 $ 2,222.0
================= =================
Liabilities
Policyholders' liabilities........................................... $ 1,021.7 $ 1,048.3
Allowance for future losses.......................................... 305.1 259.2
Amounts due to continuing operations................................. 2.7 572.8
Other liabilities.................................................... 229.1 341.7
----------------- -----------------
Total Liabilities.................................................... $ 1,558.6 $ 2,222.0
================= =================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $63.3, $97.3 and $127.5)............. $ 160.4 $ 188.6 $ 245.4
Investment gains (losses), net..................... 35.7 (173.7) (18.9)
Policy fees, premiums and other income............. (4.3) .2 .2
----------------- ---------------- -----------------
Total revenues..................................... 191.8 15.1 226.7
Benefits and other deductions...................... 141.5 169.5 250.4
Earnings added (losses charged) to allowance
for future losses................................ 50.3 (154.4) (23.7)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing (loss from
strengthening) of the allowance for future
losses........................................... 4.2 (134.1) (129.0)
Federal income tax (expense) benefit............... (1.5) 46.9 45.2
----------------- ---------------- -----------------
Earnings (Loss) from Discontinued Operations....... $ 2.7 $ (87.2) $ (83.8)
================= ================ =================
</TABLE>
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of the discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. Additionally, as part of the Company's
annual planning process which takes place in the fourth quarter of each
year, investment and benefit cash flow projections are prepared. These
updated assumptions and estimates resulted in a release of allowance in
1998 and strengthening of allowance in 1997 and 1996.
F-23
<PAGE>
In the fourth quarter of 1997, $329.9 million depreciated cost of equity
real estate was reclassified from equity real estate held for production
of income to real estate held for sale. Additions to valuation
allowances of $79.8 million were recognized upon these transfers.
Additionally, in fourth quarter 1997, $92.5 million of writedowns on
real estate held for production of income were recognized.
Benefits and other deductions includes $26.6 million, $53.3 million and
$114.3 million of interest expense related to amounts borrowed from
continuing operations in 1998, 1997 and 1996, respectively.
Valuation allowances amounted to $3.0 million and $28.4 million on
mortgage loans on real estate and $34.8 million and $88.4 million on
equity real estate at December 31, 1998 and 1997, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held
for production of income. Writedowns of equity real estate subsequent to
the adoption of SFAS No. 121 amounted to $95.7 million and $12.3 million
for 1997 and 1996, respectively.
At December 31, 1998 and 1997, problem mortgage loans on real estate had
amortized costs of $1.1 million and $11.0 million, respectively, and
mortgage loans on real estate for which the payment terms have been
restructured had amortized costs of $3.5 million and $109.4 million,
respectively.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 6.7 $ 101.8
Impaired mortgage loans without provision for losses................... 8.5 .2
---------------- -----------------
Recorded investment in impaired mortgages.............................. 15.2 102.0
Provision for losses................................................... (2.1) (27.3)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 13.1 $ 74.7
================ =================
</TABLE>
During 1998, 1997 and 1996, the discontinued operations' average
recorded investment in impaired mortgage loans was $73.3 million, $89.2
million and $134.8 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $4.7 million, $6.6 million and
$10.1 million ($3.4 million, $5.3 million and $7.5 million recognized on
a cash basis) for 1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, discontinued operations had carrying
values of $50.0 million and $156.2 million, respectively, of real estate
acquired in satisfaction of debt.
F-24
<PAGE>
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
(In Millions)
<S> <C> <C>
Short-term debt...................................................... $ 179.3 $ 422.2
----------------- -----------------
Long-term debt:
Equitable Life:
6.95% surplus notes scheduled to mature 2005....................... 399.4 399.4
7.70% surplus notes scheduled to mature 2015....................... 199.7 199.7
Other.............................................................. .3 .3
----------------- -----------------
Total Equitable Life........................................... 599.4 599.4
----------------- -----------------
Wholly Owned and Joint Venture Real Estate:
Mortgage notes, 5.91% - 12.00%, due through 2017................... 392.2 676.6
----------------- -----------------
Alliance:
Other.............................................................. 10.8 18.5
----------------- -----------------
Total long-term debt................................................. 1,002.4 1,294.5
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 1,181.7 $ 1,716.7
================= =================
</TABLE>
Short-term Debt
Equitable Life has a $350.0 million bank credit facility available to
fund short-term working capital needs and to facilitate the securities
settlement process. The credit facility consists of two types of
borrowing options with varying interest rates and expires in September
2000. The interest rates are based on external indices dependent on the
type of borrowing and at December 31, 1998 range from 5.23% to 7.75%.
There were no borrowings outstanding under this bank credit facility at
December 31, 1998.
Equitable Life has a commercial paper program with an issue limit of
$500.0 million. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $350.0 million bank credit facility. At
December 31, 1998, there were no borrowings outstanding under this
program.
During July 1998, Alliance entered into a $425.0 million five-year
revolving credit facility with a group of commercial banks which
replaced a $250.0 million revolving credit facility. Under the facility,
the interest rate, at the option of Alliance, is a floating rate
generally based upon a defined prime rate, a rate related to the London
Interbank Offered Rate ("LIBOR") or the Federal Funds Rate. A facility
fee is payable on the total facility. During September 1998, Alliance
increased the size of its commercial paper program from $250.0 million
to $425.0 million. Borrowings from these two sources may not exceed
$425.0 million in the aggregate. The revolving credit facility provides
backup liquidity for commercial paper issued under Alliance's commercial
paper program and can be used as a direct source of borrowing. The
revolving credit facility contains covenants which require Alliance to,
among other things, meet certain financial ratios. As of December 31,
1998, Alliance had commercial paper outstanding totaling $179.5 million
at an effective interest rate of 5.5% and there were no borrowings
outstanding under Alliance's revolving credit facility.
Long-term Debt
Several of the long-term debt agreements have restrictive covenants
related to the total amount of debt, net tangible assets and other
matters. The Company is in compliance with all debt covenants.
F-25
<PAGE>
The Company has pledged real estate, mortgage loans, cash and securities
amounting to $640.2 million and $1,164.0 million at December 31, 1998
and 1997, respectively, as collateral for certain short-term and
long-term debt.
At December 31, 1998, aggregate maturities of the long-term debt based
on required principal payments at maturity for 1999 and the succeeding
four years are $322.8 million, $6.9 million, $1.7 million, $1.8 million
and $2.0 million, respectively, and $668.0 million thereafter.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense in the consolidated
statements of earnings is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Federal income tax expense (benefit):
Current.......................................... $ 283.3 $ 186.5 $ 97.9
Deferred......................................... 69.8 (95.0) (88.2)
----------------- ---------------- -----------------
Total.............................................. $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and the tax
effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Expected Federal income tax expense................ $ 414.3 $ 234.7 $ 73.0
Non-taxable minority interest...................... (33.2) (38.0) (28.6)
Adjustment of tax audit reserves................... 16.0 (81.7) 6.9
Equity in unconsolidated subsidiaries.............. (39.3) (45.1) (32.3)
Other.............................................. (4.7) 21.6 (9.3)
----------------- ---------------- -----------------
Federal Income Tax Expense......................... $ 353.1 $ 91.5 $ 9.7
================= ================ =================
</TABLE>
The components of the net deferred Federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Compensation and related benefits...... $ 235.3 $ - $ 257.9 $ -
Other.................................. 27.8 - 30.7 -
DAC, reserves and reinsurance.......... - 231.4 - 222.8
Investments............................ - 364.4 - 405.7
--------------- ---------------- --------------- ---------------
Total.................................. $ 263.1 $ 595.8 $ 288.6 $ 628.5
=============== ================ =============== ===============
</TABLE>
F-26
<PAGE>
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
DAC, reserves and reinsurance...................... $ (7.7) $ 46.2 $ (156.2)
Investments........................................ 46.8 (113.8) 78.6
Compensation and related benefits.................. 28.6 3.7 22.3
Other.............................................. 2.1 (31.1) (32.9)
----------------- ---------------- -----------------
Deferred Federal Income Tax
Expense (Benefit)................................ $ 69.8 $ (95.0) $ (88.2)
================= ================ =================
</TABLE>
The Internal Revenue Service (the "IRS") is in the process of examining
the Holding Company's consolidated Federal income tax returns for the
years 1992 through 1996. Management believes these audits will have no
material adverse effect on the Company's results of operations.
11) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Ceded reinsurance does not relieve the originating insurer
of liability. The effect of reinsurance (excluding group life and
health) is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Direct premiums.................................... $ 438.8 $ 448.6 $ 461.4
Reinsurance assumed................................ 203.6 198.3 177.5
Reinsurance ceded.................................. (54.3) (45.4) (41.3)
----------------- ---------------- -----------------
Premiums........................................... $ 588.1 $ 601.5 $ 597.6
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 75.7 $ 61.0 $ 48.2
================= ================ =================
Policyholders' Benefits Ceded...................... $ 85.9 $ 70.6 $ 54.1
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 39.5 $ 36.4 $ 32.3
================= ================ =================
</TABLE>
Beginning in May 1997, the Company began reinsuring on a yearly renewal
term basis 90% of the mortality risk on new issues of certain term,
universal and variable life products. During 1996, the Company's
retention limit on joint survivorship policies was increased to $15.0
million. Effective January 1, 1994, all in force business above $5.0
million was reinsured. The Insurance Group also reinsures the entire
risk on certain substandard underwriting risks as well as in certain
other cases.
The Insurance Group cedes 100% of its group life and health business to
a third party insurance company. Premiums ceded totaled $1.3 million,
$1.6 million and $2.4 million for 1998, 1997 and 1996, respectively.
Ceded death and disability benefits totaled $15.6 million, $4.3 million
and $21.2 million for 1998, 1997 and 1996, respectively. Insurance
liabilities ceded totaled $560.3 million and $593.8 million at December
31, 1998 and 1997, respectively.
F-27
<PAGE>
12) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. The Company's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension cost (credit) for the qualified and
non-qualified plans are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 33.2 $ 32.5 $ 33.8
Interest cost on projected benefit obligations..... 129.2 128.2 120.8
Actual return on assets............................ (175.6) (307.6) (181.4)
Net amortization and deferrals..................... 6.1 166.6 43.4
----------------- ---------------- -----------------
Net Periodic Pension Cost (Credit)................. $ (7.1) $ 19.7 $ 16.6
================= ================ =================
</TABLE>
The plan's projected benefit obligation under the qualified and
non-qualified plans was comprised of:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Benefit obligation, beginning of year.................................. $ 1,801.3 $ 1,765.5
Service cost........................................................... 33.2 32.5
Interest cost.......................................................... 129.2 128.2
Actuarial (gains) losses............................................... 108.4 (15.5)
Benefits paid.......................................................... (138.7) (109.4)
---------------- -----------------
Benefit Obligation, End of Year........................................ $ 1,933.4 $ 1,801.3
================ =================
</TABLE>
The funded status of the qualified and non-qualified pension plans is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Plan assets at fair value, beginning of year........................... $ 1,867.4 $ 1,626.0
Actual return on plan assets........................................... 338.9 307.5
Contributions.......................................................... - 30.0
Benefits paid and fees................................................. (123.2) (96.1)
---------------- -----------------
Plan assets at fair value, end of year................................. 2,083.1 1,867.4
Projected benefit obligations.......................................... 1,933.4 1,801.3
---------------- -----------------
Projected benefit obligations less than plan assets.................... 149.7 66.1
Unrecognized prior service cost........................................ (7.5) (9.9)
Unrecognized net loss from past experience different
from that assumed.................................................... 38.7 95.0
Unrecognized net asset at transition................................... 1.5 3.1
---------------- -----------------
Prepaid Pension Cost.................................................. $ 182.4 $ 154.3
================ =================
</TABLE>
The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of projected benefit
obligations were 7.0% and 3.83%, respectively, at December 31, 1998 and
7.25% and 4.07%, respectively, at December 31, 1997. As of January 1,
1998 and 1997, the expected long-term rate of return on assets for the
retirement plan was 10.25%.
F-28
<PAGE>
The Company recorded, as a reduction of shareholders' equity an
additional minimum pension liability of $28.3 million and $17.3 million,
net of Federal income taxes, at December 31, 1998 and 1997,
respectively, primarily representing the excess of the accumulated
benefit obligation of the qualified pension plan over the accrued
liability.
The pension plan's assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $31.8 million,
$33.2 million and $34.7 million for 1998, 1997 and 1996, respectively.
The Company provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from the Company (i) on or after attaining
age 55 who have at least 10 years of service or (ii) on or after
attaining age 65 or (iii) whose jobs have been abolished and who have
attained age 50 with 20 years of service. The life insurance benefits
are related to age and salary at retirement. The costs of postretirement
benefits are recognized in accordance with the provisions of SFAS No.
106. The Company continues to fund postretirement benefits costs on a
pay-as-you-go basis and, for 1998, 1997 and 1996, the Company made
estimated postretirement benefits payments of $28.4 million, $18.7
million and $18.9 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in the Company's consolidated
financial statements:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Service cost....................................... $ 4.6 $ 4.5 $ 5.3
Interest cost on accumulated postretirement
benefits obligation.............................. 33.6 34.7 34.6
Net amortization and deferrals..................... .5 1.9 2.4
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 38.7 $ 41.1 $ 42.3
================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Accumulated postretirement benefits obligation, beginning
of year.............................................................. $ 490.8 $ 388.5
Service cost........................................................... 4.6 4.5
Interest cost.......................................................... 33.6 34.7
Contributions and benefits paid........................................ (28.4) 72.1
Actuarial (gains) losses............................................... (10.2) (9.0)
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 490.4 490.8
Unrecognized prior service cost........................................ 31.8 40.3
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (121.2) (140.6)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 401.0 $ 390.5
================ =================
</TABLE>
Since January 1, 1994, costs to the Company for providing these medical
benefits available to retirees under age 65 are the same as those
offered to active employees and medical benefits will be limited to 200%
of 1993 costs for all participants.
F-29
<PAGE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 8.0% in 1998,
gradually declining to 2.5% in the year 2009, and in 1997 was 8.75%,
gradually declining to 2.75% in the year 2009. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.0%
and 7.25% at December 31, 1998 and 1997, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 1998
would be increased 4.83%. The effect of this change on the sum of the
service cost and interest cost would be an increase of 4.57%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 1998
would be decreased by 5.6%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 5.4%.
13) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Accounting for interest rate swap transactions is on an
accrual basis. Gains and losses related to interest rate swap
transactions are amortized as yield adjustments over the remaining life
of the underlying hedged security. Income and expense resulting from
interest rate swap activities are reflected in net investment income.
The notional amount of matched interest rate swaps outstanding at
December 31, 1998 and 1997, respectively, was $880.9 million and
$1,353.4 million. The average unexpired terms at December 31, 1998
ranged from 1 month to 4.3 years. At December 31, 1998, the cost of
terminating swaps in a loss position was $8.0 million. Equitable Life
has implemented an interest rate cap program designed to hedge crediting
rates on interest-sensitive individual annuities contracts. The
outstanding notional amounts at December 31, 1998 of contracts purchased
and sold were $8,450.0 million and $875.0 million, respectively. The net
premium paid by Equitable Life on these contracts was $54.8 million and
is being amortized ratably over the contract periods ranging from 1 to 5
years. Income and expense resulting from this program are reflected as
an adjustment to interest credited to policyholders' account balances.
Substantially all of DLJ's activities related to derivatives are, by
their nature trading activities which are primarily for the purpose of
customer accommodations. DLJ enters into certain contractual agreements
referred to as derivatives or off-balance-sheet financial instruments
involving futures, forwards and options. DLJ's derivative activities
consist of writing over-the-counter ("OTC") options to accommodate its
customer needs, trading in forward contracts in U.S. government and
agency issued or guaranteed securities and in futures contracts on
equity-based indices, interest rate instruments and currencies and
issuing structured products based on emerging market financial
instruments and indices. DLJ's involvement in swap contracts and
commodity derivative instruments is not significant.
Fair Value of Financial Instruments
The Company defines fair value as the quoted market prices for those
instruments that are actively traded in financial markets. In cases
where quoted market prices are not available, fair values are estimated
using present value or other valuation techniques. The fair value
estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates
cannot be substantiated by comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 1998 and 1997.
F-30
<PAGE>
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for the Company's association plan contracts,
supplementary contracts not involving life contingencies ("SCNILC") and
annuities certain, which are included in policyholders' account
balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The estimated fair values for variable deferred annuities and single
premium deferred annuities ("SPDA"), which are included in
policyholders' account balances, are estimated by discounting the
account value back from the time of the next crediting rate review to
the present, at a rate equal to the excess of current estimated market
rates offered on new policies over the current crediting rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate which
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit ratings
similar to the Company. The Company's carrying value of short-term
borrowings approximates their estimated fair value.
The following table discloses carrying value and estimated fair value
for financial instruments not otherwise disclosed in Notes 3, 7 and 8:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Consolidated Financial Instruments:
Mortgage loans on real estate.......... $ 2,809.9 $ 2,961.8 $ 2,611.4 $ 2,822.8
Other limited partnership interests.... 562.6 562.6 509.4 509.4
Policy loans........................... 2,086.7 2,370.7 2,422.9 2,493.9
Policyholders' account balances -
investment contracts................. 12,892.0 13,396.0 12,611.0 12,714.0
Long-term debt......................... 1,002.4 1,025.2 1,294.5 1,257.0
Closed Block Financial Instruments:
Mortgage loans on real estate.......... 1,633.4 1,703.5 1,341.6 1,420.7
Other equity investments............... 56.4 56.4 86.3 86.3
Policy loans........................... 1,641.2 1,929.7 1,700.2 1,784.2
SCNILC liability....................... 25.0 25.0 27.6 30.3
Discontinued Operations Financial
Instruments:
Mortgage loans on real estate.......... 553.9 599.9 655.5 779.9
Fixed maturities....................... 24.9 24.9 38.7 38.7
Other equity investments............... 115.1 115.1 209.3 209.3
Guaranteed interest contracts.......... 37.0 34.0 37.0 34.0
Long-term debt......................... 147.1 139.8 296.4 297.6
</TABLE>
F-31
<PAGE>
14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company has provided, from time to time, certain guarantees or
commitments to affiliates, investors and others. These arrangements
include commitments by the Company, under certain conditions: to make
capital contributions of up to $142.9 million to affiliated real estate
joint ventures; and to provide equity financing to certain limited
partnerships of $287.3 million at December 31, 1998, under existing loan
or loan commitment agreements.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life has
directed payment under these annuities to be made directly to the
beneficiaries under the structured settlement agreements. A contingent
liability exists with respect to these agreements should the previously
wholly owned subsidiaries be unable to meet their obligations.
Management believes the satisfaction of those obligations by Equitable
Life is remote.
The Insurance Group had $24.7 million of letters of credit outstanding
at December 31, 1998.
15) LITIGATION
Major Medical Insurance Cases
Equitable Life agreed to settle, subject to court approval, previously
disclosed cases involving lifetime guaranteed renewable major medical
insurance policies issued by Equitable Life in five states. Plaintiffs
in these cases claimed that Equitable Life's method for determining
premium increases breached the terms of certain forms of the policies
and was misrepresented. In certain cases plaintiffs also claimed that
Equitable Life misrepresented to policyholders that premium increases
had been approved by insurance departments, and that it determined
annual rate increases in a manner that discriminated against the
policyholders.
In December 1997, Equitable Life entered into a settlement agreement,
subject to court approval, which would result in creation of a
nationwide class consisting of all persons holding, and paying premiums
on, the policies at any time since January 1, 1988 and the dismissal
with prejudice of the pending actions and the resolution of all similar
claims on a nationwide basis. Under the terms of the settlement, which
involves approximately 127,000 former and current policyholders,
Equitable Life would pay $14.2 million in exchange for release of all
claims and will provide future relief to certain current policyholders
by restricting future premium increases, estimated to have a present
value of $23.3 million. This estimate is based upon assumptions about
future events that cannot be predicted with certainty and accordingly
the actual value of the future relief may vary. In October 1998, the
court entered a judgment approving the settlement agreement and, in
November, a member of the national class filed a notice of appeal of the
judgment. In January 1999, the Court of Appeals granted Equitable Life's
motion to dismiss the appeal.
Life Insurance and Annuity Sales Cases
A number of lawsuits are pending as individual claims and purported
class actions against Equitable Life and its subsidiary insurance
companies Equitable Variable Life Insurance Company ("EVLICO," which was
merged into Equitable Life effective January 1, 1997) and The Equitable
of Colorado, Inc. ("EOC"). These actions involve, among other things,
sales of life and annuity products for varying periods from 1980 to the
present, and allege, among other things, sales practice
misrepresentation primarily involving: the number of premium payments
required; the propriety of a product as an investment vehicle; the
propriety of a product as a replacement of an existing policy; and
failure to disclose a product as life insurance. Some actions are in
state courts and others are in U.S. District Courts in varying
jurisdictions, and are in varying stages of discovery and motions for
class certification.
F-32
<PAGE>
In general, the plaintiffs request an unspecified amount of damages,
punitive damages, enjoinment from the described practices, prohibition
against cancellation of policies for non-payment of premium or other
remedies, as well as attorneys' fees and expenses. Similar actions have
been filed against other life and health insurers and have resulted in
the award of substantial judgments, including material amounts of
punitive damages, or in substantial settlements. Although the outcome of
litigation cannot be predicted with certainty, particularly in the early
stages of an action, The Equitable's management believes that the
ultimate resolution of these cases should not have a material adverse
effect on the financial position of The Equitable. The Equitable's
management cannot make an estimate of loss, if any, or predict whether
or not any such litigation will have a material adverse effect on The
Equitable's results of operations in any particular period.
Discrimination Case
Equitable Life is a defendant in an action, certified as a class action
in September 1997, in the United States District Court for the Northern
District of Alabama, Southern Division, involving alleged discrimination
on the basis of race against African-American applicants and potential
applicants in hiring individuals as sales agents. Plaintiffs seek a
declaratory judgment and affirmative and negative injunctive relief,
including the payment of back-pay, pension and other compensation.
Although the outcome of litigation cannot be predicted with certainty,
The Equitable's management believes that the ultimate resolution of this
matter should not have a material adverse effect on the financial
position of The Equitable. The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such matter will
have a material adverse effect on The Equitable's results of operations
in any particular period.
Alliance Capital
In July 1995, a class action complaint was filed against Alliance North
American Government Income Trust, Inc. (the "Fund"), Alliance and
certain other defendants affiliated with Alliance, including the Holding
Company, alleging violations of Federal securities laws, fraud and
breach of fiduciary duty in connection with the Fund's investments in
Mexican and Argentine securities. The original complaint was dismissed
in 1996; on appeal, the dismissal was affirmed. In October 1996,
plaintiffs filed a motion for leave to file an amended complaint,
alleging the Fund failed to hedge against currency risk despite
representations that it would do so, the Fund did not properly disclose
that it planned to invest in mortgage-backed derivative securities and
two Fund advertisements misrepresented the risks of investing in the
Fund. In October 1998, the U.S. Court of Appeals for the Second Circuit
issued an order granting plaintiffs' motion to file an amended complaint
alleging that the Fund misrepresented its ability to hedge against
currency risk and denying plaintiffs' motion to file an amended
complaint containing the other allegations. Alliance believes that the
allegations in the amended complaint, which was filed in February 1999,
are without merit and intends to defend itself vigorously against these
claims. While the ultimate outcome of this matter cannot be determined
at this time, Alliance's management does not expect that it will have a
material adverse effect on Alliance's results of operations or financial
condition.
DLJSC
DLJSC is a defendant along with certain other parties in a class action
complaint involving the underwriting of units, consisting of notes and
warrants to purchase common shares, of Rickel Home Centers, Inc.
("Rickel"), which filed a voluntary petition for reorganization pursuant
to Chapter 11 of the Bankruptcy Code. The complaint seeks unspecified
compensatory and punitive damages from DLJSC, as an underwriter and as
an owner of 7.3% of the common stock, for alleged violation of Federal
securities laws and common law fraud for alleged misstatements and
omissions contained in the prospectus and registration statement used in
the offering of the units. DLJSC is defending itself vigorously against
all the allegations contained in the complaint. Although there can be no
assurance, DLJ's management does not believe that the ultimate outcome
of this litigation will have a material adverse effect on DLJ's
consolidated financial condition. Due to the early stage of this
litigation, based on the information currently available to it, DLJ's
management cannot predict whether or not such litigation will have a
material adverse effect on DLJ's results of operations in any particular
period.
F-33
<PAGE>
DLJSC is a defendant in a purported class action filed in a Texas State
Court on behalf of the holders of $550 million principal amount of
subordinated redeemable discount debentures of National Gypsum
Corporation ("NGC"). The debentures were canceled in connection with a
Chapter 11 plan of reorganization for NGC consummated in July 1993. The
litigation seeks compensatory and punitive damages for DLJSC's
activities as financial advisor to NGC in the course of NGC's Chapter 11
proceedings. Trial is expected in early May 1999. DLJSC intends to
defend itself vigorously against all the allegations contained in the
complaint. Although there can be no assurance, DLJ's management does not
believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant in a complaint which alleges that DLJSC and a
number of other financial institutions and several individual defendants
violated civil provisions of RICO by inducing plaintiffs to invest over
$40 million in The Securities Groups, a number of tax shelter limited
partnerships, during the years 1978 through 1982. The plaintiffs seek
recovery of the loss of their entire investment and an approximately
equivalent amount of tax-related damages. Judgment for damages under
RICO are subject to trebling. Discovery is complete. Trial has been
scheduled for May 17, 1999. DLJSC believes that it has meritorious
defenses to the complaints and will continue to contest the suits
vigorously. Although there can be no assurance, DLJ's management does
not believe that the ultimate outcome of this litigation will have a
material adverse effect on DLJ's consolidated financial condition. Based
upon the information currently available to it, DLJ's management cannot
predict whether or not such litigation will have a material adverse
effect on DLJ's results of operations in any particular period.
DLJSC is a defendant along with certain other parties in four actions
involving Mid-American Waste Systems, Inc. ("Mid-American"), which filed
a voluntary petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code in January 1997. Three actions seek rescission,
compensatory and punitive damages for DLJSC's role in underwriting notes
of Mid-American. The other action, filed by the Plan Administrator for
the bankruptcy estate of Mid-American, alleges that DLJSC is liable as
an underwriter for alleged misrepresentations and omissions in the
prospectus for the notes, and liable as financial advisor to
Mid-American for allegedly failing to advise Mid-American about its
financial condition. DLJSC believes that it has meritorious defenses to
the complaints and will continue to contest the suits vigorously.
Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material
adverse effect on DLJ's consolidated financial condition. Based upon
information currently available to it, DLJ's management cannot predict
whether or not such litigation will have a material adverse effect on
DLJ's results of operations in any particular period.
Other Matters
In addition to the matters described above, the Holding Company and its
subsidiaries are involved in various legal actions and proceedings in
connection with their businesses. Some of the actions and proceedings
have been brought on behalf of various alleged classes of claimants and
certain of these claimants seek damages of unspecified amounts. While
the ultimate outcome of such matters cannot be predicted with certainty,
in the opinion of management no such matter is likely to have a material
adverse effect on the Company's consolidated financial position or
results of operations.
16) LEASES
The Company has entered into operating leases for office space and
certain other assets, principally data processing equipment and office
furniture and equipment. Future minimum payments under noncancelable
leases for 1999 and the succeeding four years are $98.7 million, $92.7
million, $73.4 million, $59.9 million, $55.8 million and $550.1 million
thereafter. Minimum future sublease rental income on these noncancelable
leases for 1999 and the succeeding four years is $7.6 million, $5.6
million, $4.6 million, $2.3 million, $2.3 million and $25.4 million
thereafter.
F-34
<PAGE>
At December 31, 1998, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 1999
and the succeeding four years is $189.2 million, $177.0 million, $165.5
million, $145.4 million, $122.8 million and $644.7 million thereafter.
17) OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
(In Millions)
<S> <C> <C> <C>
Compensation costs................................. $ 772.0 $ 721.5 $ 704.8
Commissions........................................ 478.1 409.6 329.5
Short-term debt interest expense................... 26.1 31.7 8.0
Long-term debt interest expense.................... 84.6 121.2 137.3
Amortization of policy acquisition costs........... 292.7 287.3 405.2
Capitalization of policy acquisition costs......... (609.1) (508.0) (391.9)
Rent expense, net of sublease income............... 100.0 101.8 113.7
Cursitor intangible assets writedown............... - 120.9 -
Other.............................................. 1,056.8 917.9 769.1
----------------- ---------------- -----------------
Total.............................................. $ 2,201.2 $ 2,203.9 $ 2,075.7
================= ================ =================
</TABLE>
During 1997 and 1996, the Company restructured certain operations in
connection with cost reduction programs and recorded pre-tax provisions
of $42.4 million and $24.4 million, respectively. The amounts paid
during 1998, associated with cost reduction programs, totaled $22.6
million. At December 31, 1998, the liabilities associated with cost
reduction programs amounted to $39.4 million. The 1997 cost reduction
program included costs related to employee termination and exit costs.
The 1996 cost reduction program included restructuring costs related to
the consolidation of insurance operations' service centers. Amortization
of DAC in 1996 included a $145.0 million writeoff of DAC related to DI
contracts.
18) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. Under the New York Insurance Law, the
Superintendent has broad discretion to determine whether the financial
condition of a stock life insurance company would support the payment of
dividends to its shareholders. For 1998, 1997 and 1996, statutory net
income (loss) totaled $384.4 million, $(351.7) million and $(351.1)
million, respectively. Statutory surplus, capital stock and Asset
Valuation Reserve ("AVR") totaled $4,728.0 million and $3,907.1 million
at December 31, 1998 and 1997, respectively. No dividends have been paid
by Equitable Life to the Holding Company to date.
At December 31, 1998, the Insurance Group, in accordance with various
government and state regulations, had $25.6 million of securities
deposited with such government or state agencies.
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' equity on a GAAP basis are primarily attributable to: (a)
inclusion in SAP of an AVR intended to stabilize surplus from
fluctuations in the value of the investment portfolio; (b) future policy
benefits and policyholders' account balances under SAP differ from GAAP
due to differences between actuarial assumptions and reserving
methodologies; (c) certain policy acquisition costs are expensed under
SAP but deferred under GAAP and amortized over future periods to achieve
a matching of revenues and expenses; (d) Federal income taxes are
generally accrued under SAP based upon revenues and expenses in the
Federal income tax return while under GAAP deferred taxes are provided
for timing differences between recognition of revenues and expenses for
financial reporting and income tax purposes; (e) valuation of assets
under SAP and GAAP differ due to different investment valuation and
depreciation methodologies, as well as the deferral of interest-related
realized capital gains and losses on fixed income investments; and (f)
differences in the accrual methodologies for post-employment and
retirement benefit plans.
F-35
<PAGE>
19) BUSINESS SEGMENT INFORMATION
The Company's operations consist of Insurance and Investment Services.
The Company's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment. Management evaluates the
performance of each segment based upon operating results adjusted to
exclude the effect of unusual or non-recurring events and transactions
and certain revenue and expense categories not related to the base
operations of the particular business net of minority interest.
Information for all periods is presented on a comparable basis.
Intersegment investment advisory and other fees of approximately $61.8
million, $84.1 million and $129.2 million for 1998, 1997 and 1996,
respectively, are included in total revenues of the Investment Services
segment. These fees, excluding amounts related to discontinued
operations of $.5 million, $4.2 million and $13.3 million for 1998, 1997
and 1996, respectively, are eliminated in consolidation.
The following tables reconcile each segment's revenues and operating
earnings to total revenues and earnings from continuing operations
before Federal income taxes and cumulative effect of accounting change
as reported on the consolidated statements of earnings and the segments'
assets to total assets on the consolidated balance sheets, respectively.
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Segment revenues..................... $ 4,029.8 $ 1,438.4 $ (5.7) $ 5,462.5
Investment gains..................... 64.8 35.4 - 100.2
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 4,094.6 $ 1,473.8 $ (5.7) $ 5,562.7
=============== ================= =============== ================
Pre-tax operating earnings........... $ 688.6 $ 284.3 $ - $ 972.9
Investment gains , net of
DAC and other charges.............. 41.7 27.7 - 69.4
Pre-tax minority interest............ - 141.5 - 141.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 730.3 $ 453.5 $ - $ 1,183.8
=============== ================= =============== ================
Total Assets......................... $ 75,626.0 $ 12,379.2 $ (64.4) $ 87,940.8
=============== ================= =============== ================
1997
Segment revenues..................... $ 3,990.8 $ 1,200.0 $ (7.7) $ 5,183.1
Investment gains (losses)............ (318.8) 255.1 - (63.7)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,672.0 $ 1,455.1 $ (7.7) $ 5,119.4
=============== ================= =============== ================
Pre-tax operating earnings........... $ 507.0 $ 258.3 $ - $ 765.3
Investment gains (losses), net of
DAC and other charges.............. (292.5) 252.7 - (39.8)
Non-recurring costs and expenses..... (41.7) (121.6) - (163.3)
Pre-tax minority interest............ - 108.5 - 108.5
--------------- ----------------- --------------- ----------------
Earnings from Continuing
Operations......................... $ 172.8 $ 497.9 $ - $ 670.7
=============== ================= =============== ================
Total Assets......................... $ 67,762.4 $ 13,691.4 $ (96.1) $ 81,357.7
=============== ================= =============== ================
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Investment
Insurance Services Elimination Total
--------------- ----------------- --------------- ----------------
(In Millions)
<S> <C> <C> <C> <C>
1996
Segment revenues..................... $ 3,789.1 $ 1,105.5 $ (12.6) $ 4,882.0
Investment gains (losses)............ (30.3) 20.5 - (9.8)
--------------- ----------------- --------------- ----------------
Total Revenues....................... $ 3,758.8 $ 1,126.0 $ (12.6) $ 4,872.2
=============== ================= =============== ================
Pre-tax operating earnings........... $ 337.1 $ 224.6 $ - $ 561.7
Investment gains (losses), net of
DAC and other charges.............. (37.2) 16.9 - (20.3)
Reserve strengthening and DAC
writeoff........................... (393.0) - - (393.0)
Non-recurring costs and
expenses........................... (22.3) (1.1) - (23.4)
Pre-tax minority interest............ - 83.6 - 83.6
--------------- ----------------- --------------- ----------------
Earnings (Loss) from
Continuing Operations.............. $ (115.4) $ 324.0 $ - $ 208.6
=============== ================= =============== ================
</TABLE>
20) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1998 and 1997 are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ ------------------
(In Millions)
<S> <C> <C> <C> <C>
1998
Total Revenues................ $ 1,470.2 $ 1,422.9 $ 1,297.6 $ 1,372.0
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 212.8 $ 197.0 $ 136.8 $ 158.9
================= ================= ================== ==================
Net Earnings.................. $ 213.3 $ 198.3 $ 137.5 $ 159.1
================= ================= ================== ==================
1997
Total Revenues................ $ 1,266.0 $ 1,552.8 $ 1,279.0 $ 1,021.6
================= ================= ================== ==================
Earnings from Continuing
Operations before
Cumulative Effect
of Accounting Change........ $ 117.4 $ 222.5 $ 145.1 $ 39.4
================= ================= ================== ==================
Net Earnings (Loss)........... $ 114.1 $ 223.1 $ 144.9 $ (44.9)
================= ================= ================== ==================
</TABLE>
Net earnings for the three months ended December 31, 1997 includes a
charge of $212.0 million related to additions to valuation allowances on
and writeoffs of real estate of $225.2 million, and reserve
strengthening on discontinued operations of $84.3 million offset by a
reversal of prior years tax reserves of $97.5 million.
F-37
<PAGE>
21) INVESTMENT IN DLJ
At December 31, 1998, the Company's ownership of DLJ interest was
approximately 32.5%. The Company's ownership interest will be further
reduced upon the issuance of common stock after the vesting of
forfeitable restricted stock units acquired by and/or the exercise of
options granted to certain DLJ employees. DLJ restricted stock units
represents forfeitable rights to receive approximately 5.2 million
shares of DLJ common stock through February 2000.
The results of operations of DLJ are accounted for on the equity basis
and are included in commissions, fees and other income in the
consolidated statements of earnings. The Company's carrying value of DLJ
is included in investment in and loans to affiliates in the consolidated
balance sheets.
Summarized balance sheets information for DLJ, reconciled to the
Company's carrying value of DLJ, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Assets:
Trading account securities, at market value............................ $ 13,195.1 $ 16,535.7
Securities purchased under resale agreements........................... 20,063.3 22,628.8
Broker-dealer related receivables...................................... 34,264.5 28,159.3
Other assets........................................................... 4,759.3 3,182.0
---------------- -----------------
Total Assets........................................................... $ 72,282.2 $ 70,505.8
================ =================
Liabilities:
Securities sold under repurchase agreements............................ $ 35,775.6 $ 36,006.7
Broker-dealer related payables......................................... 26,161.5 26,127.2
Short-term and long-term debt.......................................... 3,997.6 3,249.5
Other liabilities...................................................... 3,219.8 2,860.9
---------------- -----------------
Total liabilities...................................................... 69,154.5 68,244.3
DLJ's company-obligated mandatorily redeemed preferred
securities of subsidiary trust holding solely debentures of DLJ...... 200.0 200.0
Total shareholders' equity............................................. 2,927.7 2,061.5
---------------- -----------------
Total Liabilities, Cumulative Exchangeable Preferred Stock and
Shareholders' Equity................................................. $ 72,282.2 $ 70,505.8
================ =================
DLJ's equity as reported............................................... $ 2,927.7 $ 2,061.5
Unamortized cost in excess of net assets acquired in 1985
and other adjustments................................................ 23.7 23.5
The Holding Company's equity ownership in DLJ.......................... (1,002.4) (740.2)
Minority interest in DLJ............................................... (1,118.2) (729.3)
---------------- -----------------
The Company's Carrying Value of DLJ.................................... $ 830.8 $ 615.5
================ =================
</TABLE>
F-38
<PAGE>
Summarized statements of earnings information for DLJ reconciled to the
Company's equity in earnings of DLJ is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
(In Millions)
<S> <C> <C>
Commission, fees and other income...................................... $ 3,184.7 $ 2,430.7
Net investment income.................................................. 2,189.1 1,652.1
Dealer, trading and investment gains, net.............................. 33.2 557.7
---------------- -----------------
Total revenues......................................................... 5,407.0 4,640.5
Total expenses including income taxes.................................. 5,036.2 4,232.2
---------------- -----------------
Net earnings........................................................... 370.8 408.3
Dividends on preferred stock........................................... 21.3 12.2
---------------- -----------------
Earnings Applicable to Common Shares................................... $ 349.5 $ 396.1
================ =================
DLJ's earnings applicable to common shares as reported................. $ 349.5 $ 396.1
Amortization of cost in excess of net assets acquired in 1985.......... (.8) (1.3)
The Holding Company's equity in DLJ's earnings......................... (136.8) (156.8)
Minority interest in DLJ............................................... (99.5) (109.1)
---------------- -----------------
The Company's Equity in DLJ's Earnings................................. $ 112.4 $ 128.9
================ =================
</TABLE>
22) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Holding Company sponsors a stock option plan for employees of
Equitable Life. DLJ and Alliance each sponsor their own stock option
plans for certain employees. The Company has elected to continue to
account for stock-based compensation using the intrinsic value method
prescribed in APB No. 25. Had compensation expense for the Holding
Company, DLJ and Alliance Stock Option Incentive Plan options been
determined based on SFAS No. 123's fair value based method, the
Company's pro forma net earnings for 1998, 1997 and 1996 would have
been:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C>
Net Earnings:
As reported............................................. $ 708.2 $ 437.2 $ 10.3
Pro forma............................................... 678.4 426.3 3.3
</TABLE>
The fair values of options granted after December 31, 1994, used as a
basis for the above pro forma disclosures, were estimated as of the
dates of grant using the Black-Scholes option pricing model. The option
pricing assumptions for 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
------------------------------ ------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- ---------- --------- ---------- -------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend yield...... 0.32% 0.48% 0.80% 0.69% 0.86% 1.54% 6.50% 8.00% 8.00%
Expected volatility. 28% 20% 20% 40% 33% 25% 29% 26% 23%
Risk-free interest
rate.............. 5.48% 5.99% 5.92% 5.53% 5.96% 6.07% 4.40% 5.70% 5.80%
Expected life
in years.......... 5 5 5 5 5 5 7.2 7.2 7.4
Weighted average
fair value per
option at
grant-date........ $22.64 $12.25 $6.94 $16.27 $10.81 $4.03 $3.86 $2.18 $1.35
</TABLE>
F-39
<PAGE>
A summary of the Holding Company, DLJ and Alliance's option plans is as
follows:
<TABLE>
<CAPTION>
Holding Company DLJ Alliance
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price of Price of Price of
Shares Options Shares Options Units Options
(In Millions) Outstanding (In Millions) Outstanding (In Millions) Outstanding
--------------- ------------- --------------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1996........ 6.7 $20.27 18.4 $13.50 9.6 $ 8.86
Granted................ .7 $24.94 4.2 $16.27 1.4 $12.56
Exercised.............. (.1) $19.91 - (.8) $ 6.82
Expired................ - - -
Forfeited.............. (.6) $20.21 (.4) $13.50 (.2) $ 9.66
--------------- ------------- ---------------
Balance as of
December 31, 1996...... 6.7 $20.79 22.2 $14.03 10.0 $ 9.54
Granted................ 3.2 $41.85 6.4 $30.54 2.2 $18.28
Exercised.............. (1.6) $20.26 (.2) $16.01 (1.2) $ 8.06
Forfeited.............. (.4) $23.43 (.2) $13.79 (.4) $10.64
--------------- ------------- ---------------
Balance as of
December 31, 1997...... 7.9 $29.05 28.2 $17.78 10.6 $11.41
Granted................ 4.3 $66.26 1.5 $38.59 2.8 $26.28
Exercised.............. (1.1) $21.18 (1.4) $14.91 (.9) $ 8.91
Forfeited.............. (.4) $47.01 (.1) $17.31 (.2) $13.14
--------------- ------------- ---------------
Balance as of
December 31, 1998...... 10.7 $44.00 28.2 $19.04 12.3 $14.94
=============== ============= ===============
</TABLE>
F-40
<PAGE>
Information about options outstanding and exercisable at December 31,
1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
--------------------------------------- ----------------- ---------------- ------------------- ---------------
Holding
Company
----------------------
<S> <C> <C> <C> <C> <C>
$18.125 -$27.75 3.7 5.19 $20.97 3.0 $20.33
$28.50 -$45.25 3.0 8.68 $41.79 -
$50.63 -$66.75 2.1 9.21 $52.73 -
$81.94 -$82.56 1.9 9.62 $82.56 -
----------------- -------------------
$18.125 -$82.56 10.7 7.75 $44.00 3.0 $20.33
================= ================= ================ ==================== ==============
DLJ
----------------------
$13.50 -$25.99 22.3 7.1 $14.59 21.4 $15.05
$26.00 -$38.99 5.0 8.8 $33.94 -
$39.00 -$52.875 .9 9.4 $44.65 -
----------------- -------------------
$13.50 -$52.875 28.2 7.5 $19.04 21.4 $15.05
================= ================== ============== ===================== =============
Alliance
----------------------
$ 3.03 -$ 9.69 3.1 4.5 $ 8.03 2.4 $ 7.57
$ 9.81 -$10.69 2.0 5.3 $10.05 1.6 $10.07
$11.13 -$13.75 2.4 7.5 $11.92 1.0 $11.77
$18.47 -$18.78 2.0 9.0 $18.48 .4 $18.48
$22.50 -$26.31 2.8 9.9 $26.28 - -
----------------- -------------------
$ 3.03 -$26.31 12.3 7.2 $14.94 5.4 $ 9.88
================= =================== ============= ===================== =============
</TABLE>
F-41
