SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1995 Commission File No. 0-25280
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THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
(Exact name of registrant as specified in its charter)
New York 13-5570651
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
787 Seventh Avenue, New York, New York 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 554-1234
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None
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(Former name, former address, and former fiscal year if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days.
Yes X No
--- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at August 9, 1995
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Common Stock, $1.25 par value 2,000,000
Page 1 of 31
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
TABLE OF CONTENTS
Page #
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements
o Consolidated Balance Sheets as of June 30, 1995 and
December 31, 1994.................................. 3
o Consolidated Statements of Earnings for the Three Months
and Six Months Ended Ended June 30, 1995 and
1994................................................ 4
o Consolidated Statements of Shareholder's Equity for
the Six Months Ended June 30, 1995 and 1994 ........ 5
o Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994................. 6
o Notes to Consolidated Financial Statements.......... 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 13
PART II OTHER INFORMATION
Item 1: Legal Proceedings ................................. 30
Item 6: Exhibits and Reports on Form 8-K................... 30
SIGNATURES ......................................................... 31
- 2 -
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements.
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1995 1994
---------------- ----------------
(In Millions)
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost....................................... $ 4,946.7 $ 5,223.0
Available for sale, at estimated fair value............................... 9,577.9 7,586.0
Mortgage loans on real estate............................................... 3,691.6 4,018.0
Equity real estate.......................................................... 4,412.8 4,446.4
Policy loans................................................................ 1,885.9 1,731.2
Investment in and loans to affiliates....................................... 579.8 678.5
Other equity investments.................................................... 644.2 560.2
Other invested assets....................................................... 651.2 489.3
---------------- ----------------
Total investments....................................................... 26,390.1 24,732.6
Cash and cash equivalents.............................................. 731.0 693.6
Deferred policy acquisition costs...................................... 3,093.0 3,221.1
Amounts due from discontinued GIC Segment.............................. 2,168.6 2,108.6
Other assets........................................................... 2,150.6 2,078.6
Closed Block assets.................................................... 8,333.7 8,105.5
Separate Accounts assets............................................... 22,627.2 20,469.5
---------------- ----------------
Total Assets........................................................... $ 65,494.2 $ 61,409.5
================ ================
LIABILITIES
Policyholders' account balances........................................ 21,780.6 21,238.0
Future policy benefits and other policyholders' liabilities............ 3,945.2 3,840.8
Short-term and long-term debt.......................................... 1,547.5 1,337.4
Other liabilities...................................................... 2,766.5 2,300.1
Closed Block liabilities............................................... 9,262.5 9,069.5
Separate Accounts liabilities.......................................... 22,585.0 20,429.3
---------------- ----------------
Total liabilities....................................................... 61,887.3 58,215.1
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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................................................ 2,913.6 2,913.6
Retained earnings............................................................. 637.3 484.0
Net unrealized investment gains (losses)...................................... 56.2 (203.0)
Minimum pension liability..................................................... (2.7) (2.7)
---------------- ----------------
Total shareholder's equity.............................................. 3,606.9 3,194.4
---------------- ----------------
Total Liabilities and Shareholder's Equity............................. $ 65,494.2 $ 61,409.5
================ ================
See Notes to Consolidated Financial Statements.
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THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
1995 1994 1995 1994
---------------- ---------------- --------------- ----------------
(In Millions)
REVENUES
Universal life and investment-type
product policy fee income..................... $ 187.6 $ 177.5 $ 376.9 $ 354.0
Premiums....................................... 164.1 148.1 312.5 303.3
Net investment income.......................... 534.0 510.2 1,055.1 1.015.2
Investment gains, net.......................... 3 1.8 5.7 18.9 20.3
Commissions, fees and other income............. 212.2 198.0 412.5 414.7
Contribution from the Closed Block............. 28.7 35.5 57.2 74.9
---------------- ---------------- --------------- ----------------
Total revenues............................ 1,158.4 1,075.0 2,233.1 2,182.4
---------------- ---------------- --------------- ----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account
balances...................................... 309.6 296.9 604.7 600.8
Policyholders' benefits........................ 274.2 214.6 520.7 463.3
Other operating costs and expenses............. 442.9 467.9 898.4 939.2
---------------- ---------------- --------------- ----------------
Total benefits and other deductions...... 1,026.7 979.4 2,023.8 2,003.3
---------------- ---------------- --------------- ----------------
Earnings before Federal income taxes and
cumulative effect of accounting change........ 131.7 95.6 209.3 179.1
Federal income taxes........................... 37.4 27.2 56.0 46.7
---------------- ---------------- --------------- ----------------
Earnings before cumulative effect of
accounting change............................. 94.3 68.4 153.3 132.4
Cumulative effect of accounting change,
net of Federal income taxes................... - - - (27.1)
---------------- ---------------- --------------- ----------------
Net Earnings................................. $ 94.3 $ 68.4 $ 153.3 $ 105.3
================ ================ =============== ================
See Notes to Consolidated Financial Statements.
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THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(UNAUDITED)
Six Months Ended
June 30,
----------------------------------
1995 1994
-------------- --------------
(In Millions)
Common stock, at par value, beginning of year and end of period.............. $ 2.5 $ 2.5
-------------- --------------
Capital in excess of par value, beginning of year and end of period.......... 2,913.6 2,613.6
-------------- --------------
Retained earnings, beginning of year......................................... 484.0 217.5
Net earnings................................................................. 153.3 105.3
-------------- --------------
Retained earnings, end of period............................................. 637.3 322.8
-------------- --------------
Net unrealized investment (losses) gains, beginning of year.................. (203.0) 132.0
Change in net unrealized investment gains (losses)........................... 259.2 (214.8)
-------------- --------------
Net unrealized investment gains (losses), end of period...................... 56.2 (82.8)
-------------- --------------
Minimum pension liability, beginning of year................................. (2.7) (15.0)
Change in minimum pension liability.......................................... - (.3)
-------------- --------------
Minimum pension liability, end of period..................................... (2.7) (15.3)
-------------- --------------
Total Shareholder's Equity, End of Period.................................... $3,606.9 $2.840.8
============== ==============
See Notes to Consolidated Financial Statements.
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THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
-----------------------------------
1995 1994
--------------- ----------------
(In Millions)
Net earnings................................................................. $ 153.3 $ 105.3
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Investment gains, net....................................................... (18.9) (20.6)
Change in amounts due from discontinued GIC Segment......................... - 28.6
General Account policy charges.............................................. (379.1) (353.3)
Interest credited to policyholders' account balances........................ 604.7 600.8
Changes in Closed Block assets and liabilities, net......................... (35.2) (47.2)
Other, net.................................................................. 335.8 (195.2)
--------------- ----------------
Net cash provided by operating activities................................ 660.6 118.4
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Cash flows from investing activities:
Maturities and repayments..................................................... 848.3 877.5
Sales......................................................................... 3,748.4 3,884.5
Return of capital from joint ventures and limited partnerships................ 20.9 11.4
Purchases..................................................................... (5,053.0) (4,235.4)
Decrease (increase) in loans to discontinued GIC Segment...................... 1,155.4 (40.0)
Other, net.................................................................... (369.5) (31.9)
--------------- ----------------
Net cash provided by investing activities................................... 350.5 466.1
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Cash flows from financing activities: Policyholders' account balances:
Deposits.................................................................... 1,535.1 1,029.2
Withdrawals................................................................. (1,495.5) (1,496.8)
Net increase in short-term financings......................................... 207.3 7.7
Additions to long-term debt................................................... - 5.6
Repayments of long-term debt.................................................. (5.2) (5.6)
Payment of obligation to fund accumulated deficit of discontinued
GIC Segment................................................................. (1,215.4) -
--------------- ----------------
Net cash used by financing activities..................................... (973.7) (459.9)
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Change in cash and cash equivalents....................................... 37.4 124.6
Cash and cash equivalents, beginning of year.............................. 693.6 593.4
--------------- ----------------
Cash and Cash Equivalents, End of Period................................... $ 731.0 $ 718.0
=============== ================
Supplemental cash flow information
Interest Paid.............................................................. $ 38.2 $ 30.5
=============== ================
Income Taxes Paid............................................................ $ - $ 138.9
=============== ================
See Notes to Consolidated Financial Statements.
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THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared in
conformity with GAAP and reflect, in the opinion of the Company's management,
all adjustments (consisting of normal, recurring accruals) necessary for a
fair presentation of the financial position and results of operations of the
Company. Such statements should be read in conjunction with the consolidated
financial statements of the Company for the year ended December 31, 1994. The
results of operations for the six months ended June 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made in the amounts presented for prior
periods to conform those periods with the current presentation.
2) ACCOUNTING CHANGES AND PRONOUNCEMENTS
In the first quarter of 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". SFAS No. 114 applies to
all creditors and addresses the accounting for impairment of a loan by
specifying how allowances for credit losses should be determined. SFAS No. 114
also applies to all loans that are restructured in a troubled debt
restructuring involving a modification of terms. Impaired loans within the
scope of SFAS No. 114 are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. The Company provides for impairment of loans through
allowances for possible losses. The adoption of this statement did not have a
material effect on the level of these allowances or on the Company's
consolidated statements of earnings and shareholder's equity.
In the fourth quarter of 1994 (effective as of January 1, 1994), the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which requires employers to recognize the obligation for the
estimated cost of providing postemployment benefits. The Company's
consolidated financial statements for the six months ended June 30, 1994 have
been restated for the adoption of SFAS No. 112 to reflect a charge of $27.1
million, net of Federal income tax benefit of $14.6 million, for the
cumulative effect of initially applying the statement as of January 1, 1994.
In January 1995, the FASB issued SFAS No. 120, "Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts," which permits stock life insurance
companies with participating life contracts to account for those contracts in
accordance with Statement of Position No. 95-1, "Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises". Additionally, in
March 1995, the FASB issued SFAS No. 121, "Accounting For the Impairment of
Long-Lived Assets and For Long-Lived Assets to be Disposed Of," which requires
that long-lived assets and certain identifiable intangibles being held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Management has not yet determined whether the Company will adopt
SFAS No. 120 nor the timing or effect of adopting SFAS No. 121.
3) FEDERAL INCOME TAXES
Federal income taxes for interim periods have been computed using an
estimated annual effective tax rate. This rate is revised, if necessary, at
the end of each successive interim period to reflect the current estimate of
the annual effective tax rate.
- 7 -
4) INVESTMENTS
Investment valuation allowances and changes thereto are shown below:
Six Months Ended
June 30,
-----------------------------------
1995 1994
---------------- ---------------
(In Millions)
Balances, beginning of year....................................... $ 284.9 $ 355.6
Additions charged to income....................................... 47.2 30.6
Deductions for writedowns and asset dispositions.................. (36.3) (33.6)
---------------- ---------------
Balances, End of Period........................................... $ 295.8 $ 352.6
================ ===============
Balances, end of period comprise:
Mortgage loans on real estate.................................... $ 55.8 $ 131.4
Equity real estate............................................... 240.0 221.2
---------------- ---------------
Total................................................................. $ 295.8 $ 352.6
================ ===============
For the three months and six months ended June 30, 1995 and 1994,
investment income is shown net of investment expenses of $110.4 million,
$210.8 million, $100.8 million and $208.2 million, respectively.
As of June 30, 1995 and December 31, 1994, fixed maturities in the held
to maturity portfolio had estimated fair values of $5,243.7 million and
$5,016.9 million, fixed maturities classified as available for sale had
amortized costs of $9,475.3 million and $8,044.3 million. Other equity
investments included equity securities with carrying values of $126.8 million
and $134.1 million and costs of $113.2 million and $126.4 million as of June
30, 1995 and December 31, 1994, respectively.
For the six months ended June 30, 1995 and 1994, proceeds received on
sales of fixed maturities classified as available for sale amounted to
$3,630.3 million and $3,728.4 million, respectively. Gross gains of $90.1
million and $28.5 million and gross losses of $41.5 million and $26.1 million
were realized on these sales for the six months ended June 30, 1995 and 1994,
respectively. The increase in unrealized investment gains related to fixed
maturities classified as available for sale for the six months ended June 30,
1995 amounted to $564.0 million.
During the six months ended June 30, 1995, one security classified as
held to maturity was sold and nine securities classified as held to maturity
were transferred to the available for sale portfolio. All actions were taken
as a result of a significant deterioration in creditworthiness. The amortized
cost of the security sold was $4.2 million. The aggregate amortized cost of
the securities transferred was $71.0 million with gross unrealized investment
losses of $5.3 million transferred to equity.
Impaired mortgage loans along with the related provision for losses
were as follows:
June 30, 1995
-----------------
(In Millions)
Impaired mortgage loans with provision for losses................................... $ 184.1
Impaired mortgage loans with no provision for losses................................ 112.7
-----------------
Recorded investment in impaired mortgage loans...................................... 296.8
Provision for losses................................................................ (47.6)
-----------------
Net Impaired Mortgage Loans......................................................... $ 249.2
=================
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Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral 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 the six months ended June 30, 1995, the Company's average recorded
investment in impaired mortgage loans was $317.1 million. Interest income
recognized on these impaired mortgage loans totaled $10.1 million for the six
months ended June 30, 1995, including $7.6 million recognized on a cash basis.
5) BUSINESS SEGMENT INFORMATION
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
(In Millions)
Revenues
Individual insurance and annuities. $ 850.2 $ 764.6 $ 1,646.8 $ 1,547.7
Group pension...................... 76.3 90.3 135.0 183.1
Attributed insurance capital....... 14.0 16.9 28.6 37.3
-------------- -------------- -------------- --------------
Insurance operations............... 940.5 871.8 1,810.4 1,768.1
Investment services................ 225.5 210.3 437.4 426.4
Consolidation/elimination.......... (7.6) (7.1) (14.7) (12.1)
-------------- -------------- -------------- --------------
Total.............................. $ 1,158.4 $ 1,075.0 $ 2,233.1 $ 2,182.4
============== ============== ============== ==============
Earnings (Loss) Before Federal
Income Taxes and Cumulative
Effect of Accounting Change
Individual insurance and annuities. 92.7 67.8 151.6 130.7
Group pension...................... (.1) 3.2 (11.8) 4.9
Attributed insurance capital....... 5.7 23.5 12.6 35.4
-------------- -------------- -------------- --------------
Insurance operations .............. 98.3 94.5 152.4 171.0
Investment services................ 40.1 29.6 69.5 65.0
-------------- -------------- -------------- --------------
Subtotal........................... 138.4 124.1 221.9 236.0
Corporate interest expense......... (6.7) (28.5) (12.6) (56.9)
-------------- -------------- -------------- --------------
Total.............................. $ 131.7 $ 95.6 $ 209.3 $ 179.1
============== ============== ============== ==============
June 30, December 31,
1995 1994
---------------- ---------------
(In Millions)
Assets
Individual insurance and annuities.................................... $ 47,321.4 $ 44,063.4
Group pension......................................................... 4,105.6 4,222.8
Attributed insurance capital.......................................... 1,755.2 2,609.8
---------------- ---------------
Insurance operations.................................................. 53,182.2 50,896.0
Investment services................................................... 12,788.0 12,127.9
Consolidation/elimination............................................. (476.0) (1,614.4)
---------------- ---------------
Total................................................................. $ 65,494.2 $ 61,409.5
================ ===============
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6) DISCONTINUED OPERATIONS
Summarized financial information of the discontinued GIC Segment is as
follows:
June 30, December 31,
1995 1994
---------------- ---------------
(In Millions)
Assets
Mortgage loans on real estate..................................... $ 1,591.6 $ 1,730.5
Equity real estate................................................ 1,186.7 1,194.8
Other invested assets............................................. 875.7 978.8
Other assets...................................................... 534.3 529.5
---------------- ---------------
Total Assets...................................................... $ 4,188.3 $ 4,433.6
================ ===============
Liabilities
Policyholders' liabilities........................................ $ 1,677.8 $ 1,924.0
Allowance for future losses....................................... 147.5 185.6
Amounts due to continuing operations.............................. 2,168.6 2,108.6
Other liabilities................................................. 194.4 215.4
---------------- ---------------
Total Liabilities................................................. $ 4,188.3 $ 4,433.6
================ ===============
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
(In Millions)
Revenues
Investment income (net of investment
expenses of $38.1, $40.1, $72.3 and
$82.3)................................... $ 68.9 $ 93.4 $ 144.4 $ 194.4
Investment (losses) gains, net......... (5.7) 13.0 (18.9) (5.4)
Policy fees, premiums and other
income, net.............................. .4 (.2) .5 (.1)
-------------- --------------- -------------- --------------
Total revenues......................... 63.6 106.2 126.0 188.9
Benefits and Other Deductions.......... 90.2 106.5 172.2 217.5
-------------- --------------- ------------ ---------------
Losses Charged to Allowance for
Future Losses............................ $ (26.6) $ (.3) $ (46.2) $ (28.6)
============== ============== ============== ==============
Amounts due to continuing operations at June 30, 1995 consist of $2,168.6
million the discontinued GIC Segment has borrowed from continuing
operations. Amounts due to continuing operations at December 31, 1994
consisted of $3,324.0 million borrowed by the GIC Segment from continuing
operations, offset by $1,215.4 million representing an obligation of
continuing operations to provide assets to fund the accumulated deficit of
the GIC Segment. In January 1995, continuing operations transferred
$1,215.4 million in cash to the GIC Segment in settlement of its
obligation. Subsequently, the GIC Segment remitted $1,155.4 million in
cash to continuing operations in partial repayment of borrowings by the
GIC Segment. No gains or losses were recognized on these transactions.
Investment valuation allowances amounted to $51.9 million on mortgage
loans and $80.1 million on equity real estate for an aggregate of $132.0
million at June 30, 1995. At December 31, 1994, valuation allowances
amounted to $50.2 million on mortgage loans and $74.7 million on equity
real estate for an aggregate of $124.9 million.
Allowances for future losses are based upon management's best judgment
and there is no assurance ultimate losses will not differ.
- 10 -
Investment income includes $22.1 million and $44.1 million of interest
on amounts due from continuing operations for the three months and the six
months ended June 30, 1994. Benefits and other deductions includes $35.7
million, $71.4 million, $48.2 million and $96.5 million of interest
expense related to amounts borrowed from continuing operations for the
three months and the six months ended June 30, 1995 and 1994,
respectively.
7) CLOSED BLOCK
Summarized financial information of the Closed Block is as follows:
June 30, December 31,
1995 1994
---------------- ---------------
(In Millions)
Assets
Fixed maturities:
Held to maturity, at amortized cost (estimated fair value of
$1,902.3 and $1,785.0)................................................ $ 1,865.7 $ 1,927.8
Available for sale, at estimated fair value (amortized cost of
$1,650.7 and $1,270.3)................................................ 1,717.5 1,197.0
Mortgage loans on real estate........................................... 1,474.2 1,543.7
Policy loans............................................................ 1,809.2 1,827.9
Cash and other invested assets.......................................... 374.1 442.5
Deferred policy acquisition costs....................................... 851.1 878.1
Other assets............................................................ 241.9 288.5
---------------- ---------------
Total Assets.......................................................... $ 8,333.7 $ 8,105.5
================ ===============
Liabilities
Future policy benefits and other policyholders' account balances........ $ 9,134.4 $ 8,965.3
Other liabilities....................................................... 128.1 104.2
---------------- ---------------
Total Liabilities....................................................... $ 9,262.5 $ 9,069.5
================ ===============
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
(In Millions)
Revenues
Premiums and other income............... $ 191.4 $ 203.2 $ 382.5 $ 406.6
Investment income (net of investment
expenses of $6.8, $3.7, $13.7 and
$7.3).................................. 135.7 128.7 267.4 260.3
Investment losses, net.................. (2.8) (8.2) (6.9) (17.9)
-------------- -------------- -------------- --------------
Total revenues.......................... 324.3 323.7 643.0 649.0
-------------- -------------- -------------- --------------
Benefits and Other Deductions
Policyholders' benefits and dividends... 278.7 265.0 553.3 528.9
Other operating costs and expenses...... 16.9 23.2 32.5 45.2
-------------- -------------- -------------- --------------
Total benefits and other deductions..... 295.6 288.2 585.8 574.1
-------------- -------------- -------------- --------------
Contribution from the Closed Block..... $ 28.7 $ 35.5 $ 57.2 $ 74.9
============== ============== ============== ==============
Investment valuation allowances amounted to $38.2 million and $46.2
million on mortgage loans and $2.8 million and $2.6 million on equity real
estate for an aggregate of $41.0 million and $48.8 million at June 30,
1995 and December 31, 1994, respectively.
- 11 -
8) RESTRUCTURE COSTS
At June 30, 1995, liabilities associated with the 1994 and 1995 cost
reduction programs totaled $13.8 million. During the six months ended June
30, 1995, the Company restructured certain operations in connection with
cost reduction programs and incurred costs of $6.4 million, primarily
associated with severance related benefits. Amounts paid during the six
months ended June 30, 1995 and charged against the liabilities for the
1994 and 1995 cost reduction programs totaled $8.0 million.
9) SUBSEQUENT EVENTS
Due to the continuing uncertainty regarding Orange County
creditworthiness, on July 19, 1995, Alliance purchased approximately
$21.3 million in principal amount of Tax and Revenue Anticipation Notes
Series A issued by Orange County, California ("Orange County Obligations")
from two money market fund portfolios sponsored by Alliance. As a result,
letters of credit totalling approximately $21.3 million, under which
Alliance was contingently liable to the issuing bank, were terminated.
Management of Alliance believes that the loss, if any, resulting from
Alliance's investment in the Orange County Obligations will not have a
material impact on Alliance's financial condition or results of operations.
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") was filed against the Alliance North American Government
Income Trust, Inc. (the "Fund"), Alliance, Alliance Capital
Management Corporation ("ACMC"), the general partner of Alliance, Alliance
Fund Distributors, Inc., a subsidiary of Alliance, The Equitable Companies
Incorporated, the parent of Alliance, certain officers and directors of
the Fund and certain officers and directors of ACMC alleging violations of
federal securities laws, fraud and breach of fiduciary duty in connection
with the Fund's investments in Mexican and Argentine securities. The
Complaint seeks certification of a plaintiff class of persons who
purchased or owned Class A, B or C shares of the Fund from March 27, 1992
through December 23, 1994. The Complaint seeks an unspecified amount of
damages, costs and attorneys' fees. The principal allegations of the
Complaint are that upon the advice of Alliance, the Fund purchased debt
securities issued by the Mexican and Argentine governments in amounts that
were not permitted by the Fund's investment objective and that there was
no shareholder vote to change the investment objective to permit purchases
in such amounts. The Complaint further alleges that the decline in the
value of the Mexican and Argentine securities held by the Fund caused the
Fund's net asset value to decline to the detriment of the Fund's
shareholders. Alliance believes that the allegations in this action are
without merit and intends to vigorously defend against these claims. While
the ultimate results of this action cannot be determined, management of
Alliance does not expect that this action will have a material adverse
effect on Alliance's business.
- 12 -
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements and the related Notes to Consolidated
Financial Statements included elsewhere herein, and with the Management's
Discussion and Analysis section included in Equitable Life's 1994 Report
on Form 10-K.
COMBINED RESULTS OF OPERATIONS
The contribution from the Closed Block is reported on one line in the
consolidated statements of earnings. The following table presents the
results of operations of the Closed Block for the three and six months
ended June 30, 1995 and 1994 combined with the results of operations
outside of the Closed Block. See Closed Block results as combined herein
on page 15. Management's discussion and analysis addresses the combined
results of operations unless noted otherwise.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
-------------- --------------- -------------- --------------
(In Millions)
COMBINED RESULTS OF OPERATIONS
Policy fee income and premiums.............. $ 541.8 $ 528.8 $ 1,070.2 $ 1,063.2
Net investment income....................... 669.7 638.9 1,322.5 1,275.5
Investment gains (losses), net.............. 29.0 (2.5) 12.0 2.4
Commissions, fees and other income.......... 213.5 198.0 414.2 415.4
-------------- --------------- -------------- --------------
Total revenues.............................. 1,454.0 1,363.2 2,818.9 2,756.5
Total benefits and other deductions......... 1,322.3 1,267.6 2,609.6 2,577.4
-------------- --------------- -------------- --------------
Earnings before Federal income taxes and
cumulative effect of accounting change..... 131.7 95.6 209.3 179.1
Federal income taxes........................ 37.4 27.2 56.0 46.7
-------------- --------------- -------------- --------------
Earnings before Cumulative Effect of
Accounting Change............................ $ 94.3 $ 68.4 $ 153.3 $ 132.4
============== =============== ============== ==============
Continuing Operations
Compared to the comparable prior year period, the higher pre-tax results
of operations for the six months ended June 30, 1995 reflected increased
earnings in the Individual Insurance and Annuities and Investment Services
segments and lower Corporate interest expense, partially offset by losses as
compared to earnings in the Group Pension segment.
The $62.4 million increase in revenues for the six months ended June 30,
1995 compared to the corresponding period in 1994 was attributed primarily to
a $56.6 million increase in investment results and a $7.0 million increase in
policy fee income and premiums.
- 13 -
Net investment income increased $47.0 million for the six months ended
June 30, 1995 with increases of $57.8 million and $3.5 million for the
Individual Insurance and Annuities and Investment Services segments, offset by
decreases of $6.9 million for the Group Pension segment and $6.3 million for
Attributed Insurance Capital. The Individual Insurance and Annuities increase
was due to higher overall yields on a larger investment asset base while the
Investment Services increase was attributed to higher business activity. The
decrease in investment income in Attributed Insurance Capital principally
resulted from a reduced investment asset base due to the $1.22 billion payment
of the obligation to fund the accumulated deficit of the discontinued GIC
Segment in January 1995, partially offset by reinvestment of proceeds received
on the Holding Company's issuance of $300.0 million Senior Notes in December
1994.
Investment gains increased $9.6 million for the six months ended June
30, 1995 from $2.4 million for the same period in 1994. Higher investment
gains on General Account Investment Assets of $9.8 million were due to a $30.1
million increase in gains on fixed maturities and a $25.9 million decrease in
losses on mortgages, offset by a $25.2 million decrease in gains on other
equity investments and $19.2 million of losses on equity real estate.
For the first six months of 1995, total benefits and other deductions
increased by $32.2 million from the comparable period in 1994, primarily
reflecting a $74.3 million increase in policyholders' benefits offset by
decreases in other operating costs and expenses of $45.4 million. The increase
in policyholders' benefits primarily resulted from higher mortality experience
on the individual life term business and the larger in force book of business
for variable and interest-sensitive life policies, offset by improved
mortality experience on policies within the Closed Block. Improved mortality
experience and better persistency resulted in an increase to the provision for
policyholder dividends on policies within the Closed Block. The decrease in
other operating costs and expenses was attributable to lower Corporate
interest expense and lower operating costs in the Individual Insurance and
Annuities segment. Corporate interest expense declined primarily as a result
of the previously described cash settlement in January 1995 with the
discontinued GIC Segment. The Group Pension segment's $33.1 million decrease
in interest credited to policyholders due to smaller policyholders' account
balances was more than offset by a $36.4 million increase for the Individual
Insurance and Annuities segment as the size of that business increased.
Discontinued GIC Segment
In the first six months of 1995, $46.2 million of pre-tax losses were
incurred and charged to the GIC Segment's allowance for future losses as
compared to $28.6 million of pre-tax losses in the first six months of 1994.
Investment results declined by $63.5 million in the first six months of 1995
as compared to the year-earlier period. Net investment income declined by
$50.0 million, principally due to the previously described January 1995 cash
settlement with continuing operations. Investment losses were $18.9 million in
the first six months of 1995 compared to $5.4 million in the comparable period
in 1994 primarily due to losses of $4.8 million on fixed maturities as
compared to gains of $7.1 million in 1994 and $4.1 million lower gains on
other equity investments, offset by $3.7 million lower losses on equity real
estate. Benefits and other deductions declined by $45.3 million principally
due to the decrease in interest credited on a reduced GIC contract base and
lower interest expense as a result of the repayment of $1.16 billion of
borrowings from continuing operations, offset in part by a $5.0 million charge
resulting from the economically advantageous prepayment of a GIC contract.
- 14 -
COMBINED RESULTS OF CONTINUING OPERATIONS BY SEGMENT
Individual Insurance and Annuities
For discussion purposes, the Closed Block is considered part of the
Individual Insurance and Annuities segment. The following table combines the
Closed Block amounts with the reported results of operations outside of the
Closed Block on a line-by-line basis.
Individual Insurance and Annuities
(In Millions)
Six Months Ended June 30,
-----------------------------------------------------------------
1995
-----------------------------------------------
As Closed 1994
Reported Block Combined Combined
-------------- ------------- -------------- --------------
Policy fees, premiums and other income........ $ 696.3 $ 382.5 $ 1,078.8 $ 1,072.9
Net investment income......................... 842.6 267.4 1,110.0 1,052.2
Investment gains (losses), net................ 50.7 (6.9) 43.8 (3.3)
Contribution from the Closed Block............ 57.2 (57.2) - -
-------------- ------------- -------------- --------------
Total revenues................................ 1,646.8 585.8 2,232.6 2,121.8
Total benefits and other deductions........... 1,495.2 585.8 2,081.0 1,991.1
-------------- ------------- -------------- --------------
Earnings before Federal Income Taxes and
Cumulative Effect of Accounting Change.......... $ 151.6 $ - $ 151.6 $ 130.7
============== ============= ============== ==============
The earnings from operations in the Individual Insurance and Annuities
segment for the six months ended June 30, 1995 reflected an increase of $20.9
million from the year-earlier period. Higher investment gains primarily on
sales of fixed maturities, lower operating costs and higher policy fees on
variable and interest-sensitive life and individual annuities contracts were
offset by an accrual for future dividend payments to the Closed Block
policyholders, adverse mortality experience on term life insurance and
unfavorable morbidity results on disability income policies. Spreads between
investment results and crediting rates on interest-sensitive products were
largely unchanged. The effect of increased crediting rates on
interest-sensitive life and annuity contracts substantially offset the
increase in investment income.
Total revenues increased by $110.8 million primarily due to a $104.9
million increase in investment results and a $22.4 million increase in policy
fees, offset by a $13.8 million decline in premiums. The decrease in premiums
principally was due to lower traditional life and individual health premiums.
Total benefits and other deductions for the six months ended June 30,
1995 rose $89.9 million from the comparable 1994 period. The increase
principally was due to higher interest credited on policyholders' account
balances, a $20.7 million accrual for future Closed Block policyholder
dividends and the effects of the mortality and morbidity experience noted
above. Interest credited on policyholders' account balances in the segment
increased by $36.4 million reflecting higher crediting rates applied to a
larger in force book of business.
Losses on the disability income business were $19.5 million for the six
months ended June 30, 1995, a $6.4 million increase from the prior year's
comparable period. Incurred benefits (benefit payments plus additions to
claims reserves) for disability income products increased $11.7 million in the
first six months of 1995 from the comparable 1994 levels reflecting a slowdown
in claims termination activity and administration.
- 15 -
Premiums and Deposits - The following table reflects premiums and
deposits, including universal life and investment-type contract deposits, for
the segment's major product lines.
PREMIUMS AND DEPOSITS
(IN MILLIONS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
-------------- --------------- -------------- --------------
Product Line:
Traditional life
First year recurring........................ $ 6.0 $ 8.0 $ 12.1 $ 17.4
First year optional......................... 1.4 1.8 3.0 4.6
Renewal..................................... 214.9 223.1 431.9 446.2
-------------- --------------- -------------- --------------
222.3 232.9 447.0 468.2
Variable and interest-sensitive life
First year recurring........................ 46.5 47.5 95.1 94.6
First year optional......................... 40.6 33.7 80.2 72.9
Renewal..................................... 240.4 216.3 535.6 487.2
-------------- --------------- -------------- --------------
327.5 297.5 710.9 654.7
Individual annuities
First year.................................. 469.5 445.0 945.9 898.1
Renewal..................................... 295.4 283.4 580.1 571.7
-------------- --------------- -------------- --------------
764.9 728.4 1,526.0 1,469.8
Other(1)
First year.................................. 19.8 3.3 48.8 7.6
Renewal..................................... 110.4 94.7 203.3 193.9
-------------- --------------- -------------- --------------
130.2 98.0 252.1 201.5
Total First Year............................ 583.8 539.3 1,185.1 1,095.2
Total Renewal............................... 861.1 817.5 1,750.9 1,699.0
-------------- --------------- -------------- --------------
Grand Total................................. $1,444.9 $1,356.8 $2,936.0 $2,794.2
============== =============== ============== ==============
(1) Includes health insurance and reinsurance assumed.
First year premiums and deposits for the six months ended June 30, 1995
increased from prior year levels by $89.9 million primarily due to higher
sales of individual annuities and reinsurance assumed on individual annuity
contracts. Renewal premiums and deposits increased 3.1% during the six
months ended June 30, 1995 over the prior year period as the $14.3 million
decrease for traditional life products was more than offset by increases in
the other product lines. Traditional life premiums and deposits for the
first six months of 1995 decreased from the prior year's comparable period
by $21.2 million due to the marketing focus on variable and
interest-sensitive products and the decline in the traditional life book of
business. The 5.3% increase in first year individual annuities premiums and
deposits included a net increase of $124.2 million resulting from an
exchange program that offers contractholders of existing SPDA contracts with
no remaining surrender charges an opportunity to exchange their contract for
a new flexible premium variable contract which retains assets in Equitable
and establishes new surrender charge scales. Management believes increases
in total first year premiums and deposits continue to be impacted by the
transition to a new generation of variable life insurance products and the
roll out of a new sales support system.
- 16 -
Surrenders and Withdrawals - The following table summarizes surrenders
and withdrawals, including universal life and investment-type contract
withdrawals, for the segment's major product lines.
SURRENDERS AND WITHDRAWALS
(IN MILLIONS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
-------------- --------------- -------------- --------------
Product Line:
Traditional life.......................... $ 85.6 $ 87.5 $ 174.7 $ 179.2
Variable and interest-sensitive life...... 109.5 91.1 210.1 233.0
Individual annuities...................... 575.8 428.2 1,217.3 821.7
-------------- --------------- -------------- --------------
Total..................................... $ 770.9 $ 606.8 $ 1,602.1 $1,233.9
============== =============== ============== ==============
Policy and contract surrenders and withdrawals increased $368.2 million
during the six months ended June 30, 1995 compared to the same period in 1994,
due to the $395.6 million increase in individual annuities surrenders and
withdrawals. This increase primarily was due to increased surrenders of
Equi-Vest and SPDA contracts due to the aging book of business, the effect of
the aforementioned exchange program which was designed to retain assets in the
Company and the maintenance of crediting rates throughout 1994 despite an
increasing rate environment. Management expects the lev el of total individual
annuities surrenders to remain higher in 1995 than in the preceeding year as a
result of the foregoing factors.
The 1994 six months amount for variable and interest-sensitive life
products included a scheduled withdrawal of approximately $52.9 million of
policy cash value from a large corporate owned life insurance plan issued by
EOC. Excluding the effect of the 1994 scheduled withdrawal, surrenders and
withdrawals of variable and interest-sensitive life contracts for the six
months ended June 30, 1995 increased by $30.0 million from the prior year's
comparable period due to the larger book of business.
Investment Services
The following table summarizes the results of operations for the
Investment Services segment.
INVESTMENT SERVICES
(IN MILLIONS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
-------------- --------------- -------------- --------------
Third party commissions and fees.......... $ 173.3 $ 169.0 $ 337.1 $ 338.1
Affiliate fees............................ 34.2 34.0 67.5 66.8
Other income(1)........................... 18.0 7.3 32.8 21.5
-------------- --------------- -------------- --------------
Total revenues............................ 225.5 210.3 437.4 426.4
Total costs and expenses.................. 185.4 180.7 367.9 361.4
-------------- --------------- -------------- --------------
Earnings before Federal Income Taxes and
Cumulative Effect of Accounting Change... $ 40.1 $ 29.6 $ 69.5 $ 65.0
============== =============== ============== ==============
<FN>
(1) Includes equity in net earnings of DLJ and other items.
- 17 -
For the six months ended June 30, 1995, pre-tax earnings for the
Investment Services segment increased by $4.5 million from the year-earlier
period primarily due to higher earnings for DLJ and Alliance. Total segment
revenues were up $11.0 million in the first half of the year due to higher
revenues at Alliance and increased business activity at DLJ as reflected in
Equitable Life's share of DLJ's net earnings.
Total costs and expenses increased by $6.5 million for the six-month
period of 1995 as compared to the comparable period in 1994 as increases
related to Alliance's minority interest and higher operating costs at
Equitable Real Estate were partially offset by lower operating costs at
Alliance.
The following table summarizes results of operations by business unit.
INVESTMENT SERVICES
RESULTS OF OPERATIONS BY BUSINESS UNIT
(IN MILLIONS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
-------------- --------------- -------------- --------------
Earnings before Federal income taxes and
cumulative effect of accounting change:
Alliance(1).................................. $ 38.0 $ 32.3 $ 72.5 $ 64.5
Equitable Real Estate......................... 11.2 12.2 16.9 20.9
Consolidation/elimination(2).................. (9.1) (14.9) (19.9) (20.4)
---------- -------------- -------------- ---------------
Earnings before Federal Income Taxes and
Cumulative Effect of Accounting Change....... $ 40.1 $ 29.6 $ 69.5 $ 65.0
============== =============== ============== ==============
(1) Excludes $14.9 million, $11.7 million, $28.5 million and $23.1
million related to minority interest in Alliance for the three months and
the six months ended June 30, 1995 and 1994, respectively, which are
included in consolidation/elimination.
(2) Includes Equitable Life's share of DLJ's net earnings of $13.9 million,
$5.7 million, $26.0 million and $18.5 million and interest expense of
$4.9 million, $3.1 million, $9.7 million and $6.1 million related to
intercompany debt issued by intermediate holding companies payable to
Equitable Life for the three months and the six months ended June 30, 1995
and 1994, respectively.
Alliance's earnings from operations for the six months ended June 30,
1995 were $72.5 million, an increase of $8.0 million from the prior year's
comparable period. Revenues totaled $298.9 million for the first six months
of 1995, an increase of $1.5 million from the comparable period in 1994, due
to increased investment advisory fees, offset by lower distribution plan
fees from lower average load mutual fund assets. Alliance's costs and
expenses decreased $6.5 million to $226.4 million for the six months ended
June 30, 1995 primarily due to decreases in employee compensation and
benefits, interest expense, distribution plan payments to financial
intermediaries and other promotional expenditures, offset by increases in
rent and related costs. Distribution plan payments to financial
intermediaries that distribute Alliance Mutual Funds decreased as a result
of lower average load mutual fund asset levels, partially offset by
higher cash management fund asset levels.
Due to the continuing uncertainty regarding Orange County
creditworthiness, on July 19, 1995, Alliance purchased approximately $21.3
million in principal amount of Orange County Obligations from two money
market fund portfolios sponsored by Alliance. As a result, letters of credit
totalling approximately $21.3 million, under which Alliance was contigently
liable to the issuing bank, were terminated. Management of Alliance
believes that the loss, if any, resulting from Alliance's investment in the
Orange County Obligations will not have a material impact on Alliance's
financial condition or results of operations.
- 18 -
Equitable Real Estate's earnings from operations were $16.9 million for
the first six months of 1995, down $4.0 million from the preceding year's
comparable period. The results for the six months ended June 30, 1994
included a $4.8 million disposition fee received on a property sold in the
first quarter of that year. On July 18, 1995, Equitable Real Estate
announced its intention to sell its unaffiliated securitized mortgage
servicing business to AMRESCO, Inc. The servicing of such mortgage
contracts, mostly RTC related, representing $7.5 billion of assets under
management have been managed by EQ Services, Inc., an affiliate of Equitable
Real Estate. EQ Services will continue to service the remaining $7.5 billion
in mortgages owned by the General and Separate Accounts.
On August 8, 1995, the Holding Company announced that it is exploring the
option of an initial public offering of a minority interest in DLJ. Any such
transaction would be subject, among other things, to Board of Directors'
approval.
Fees From Assets Under Management - Though now accounted for on an
equity basis, DLJ's fees and assets under management are included in their
entirety in the table and discussion that follows. Third party clients
continued to represent an important source of revenues and earnings.
FEES AND ASSETS UNDER MANAGEMENT
(IN MILLIONS)
At or For the
Three Months Ended Three Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
-------------- --------------- -------------- --------------
Fees:
Equitable Life and the Holding Company ....... $ 31.1 $ 31.9 $ 61.5 $ 61.4
Third Party................................... 145.1 134.2 281.2 263.4
-------------- -------------- -------------- ---------------
Total....................................... $ 176.2 $ 166.1 $ 342.7 $ 324.8
============== =============== ============== ==============
Assets Under Management:
Equitable Life and the Holding Company ....... $ 49,163 $ 51,246
Third Party(1)................................ 140,992 128,991
-------------- --------------
Total....................................... $190,155 $ 180,237
============== ==============
(1) Includes $1.9 billion and $2.8 billion of performing mortgages at June 30,
1995 and 1994, respectively, under a special stand-by services contract with
the RTC. Stand-by fees are received on the entire portfolio under the
contract; servicing fees are earned only on those mortgages that are
delinquent.
Fees from assets under management increased for the six months ended
June 30, 1995 from the prior year's comparable period principally as a
result of growth in assets under management for third parties. Alliance's
third party assets under management increased by $12.38 billion primarily
due to market appreciation. Third party assets at Equitable Real Estate
decreased by $1.30 billion due to loan repayments, asset sales and the
expiration of RTC contracts.
- 19 -
Group Pension
The following table summarizes the results of operations for the Group
Pension segment.
GROUP PENSION
(IN MILLIONS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
-------------- --------------- -------------- --------------
Policy fees, premiums and other income.... $ 13.8 $ 16.6 $ 27.4 $ 29.6
Net investment income..................... 68.2 70.8 139.8 146.7
Investment (losses) gains, net............ (5.7) 2.9 (32.2) 6.8
-------------- --------------- -------------- --------------
Total revenues............................ 76.3 90.3 135.0 183.1
Total benefits and other deductions....... 76.4 87.1 146.8 178.2
-------------- --------------- -------------- --------------
(Loss) Earnings before Federal Income
Taxes and Cumulative Effect of
Accounting Change............................. $ (.1) $ 3.2 $ (11.8) $ 4.9
============== =============== ============== ==============
The results for the Group Pension segment reflected a decline of $16.7
million for the six months ended June 30, 1995 compared to the same period a
year ago. This decrease was attributed to investment losses in 1995 as
compared to investment gains in 1994 offset by higher policy risk charges and
market value adjustments to participating policyholders' accounts that
transferred to Separate Account annuity contracts. The $39.0 million decrease
from $6.8 million of investment gains in the first six months of 1994 to $32.2
million of losses in 1995 produced an earnings decline of approximately $25.3
million after reflecting the effect of pass-throughs to participating pension
contractholders. The investment losses resulted principally from additions to
asset valuation allowances on mortgage loans and equity real estate.
Investment income for the six months ended June 30, 1995 decreased from the
comparable period of the prior year due to a smaller asset base.
GENERAL ACCOUNT INVESTMENT PORTFOLIO
As of June 30, 1995, the amortized cost of the Company's fixed maturity
portfolio was $18.12 billion (including $172.1 million for the discontinued
GIC Segment) compared with an estimated fair value of $18.54 billion
(including $173.6 million for the discontinued GIC Segment). The Company's
fixed maturity investments identified as available for sale are carried at
estimated fair value.
As of June 30, 1995, net unrealized investment gains increased
shareholder's equity by $56.2 million, net of related deferred policy
acquisition costs, deferred Federal income taxes and amounts attributable to
participating pension contractholders and Closed Block policyholders.
- 20 -
The following table reconciles the consolidated balance sheet asset
amounts to the amounts of General Account Investment Assets.
GENERAL ACCOUNT INVESTMENT ASSETS CARRYING VALUES
JUNE 30, 1995
(IN MILLIONS)
General
Balance Account
Sheet Closed Investment
BALANCE SHEET CAPTIONS: Total Block Other(1) Assets
-------------- ------------ -------------- --------------
Fixed maturities:
Held to maturity ............................ $ 4,946.7 $ 1,865.7 $ (187.1) $ 6,999.5
Available for sale ........................... 9,577.9 1,717.5 (26.4) 11,321.8
Mortgage loans on real estate .................. 3,691.6 1,474.2 - 5,165.8
Equity real estate ............................. 4,412.8 179.8 (21.5) 4,614.1
Policy loans ................................... 1,885.9 1,809.2 - 3,695.1
Other equity investment ........................ 644.2 161.7 11.8 794.1
Other invested assets(2) ....................... 1,231.0 8.2 942.3 296.9
--------- --------- --------- ----------
Total investments ............................. 26,390.1 7,216.3 719.1 32,887.3
Cash and cash equivalents ...................... 731.0 20.6 206.8 544.8
--------- --------- --------- ----------
Total .......................................... $27,121.1 $ 7,236.9 $ 925.9 $33,432.1
========= ========= ========= ==========
(1) Assets liisted in the "Other" category consists principally of assets held
in portfolios other than the General Account (primarily the equity
investment in DLJ) which are managed as part of General Account Investment
Assets and certain reclassifications and intercompany adjustments. The
"Other" category is deducted in arriving at the General Account Investment
Assets.
(2) Includes amount related to balance sheet captions "Investment in and loans
to affiliates" and "Other invested assets".
The General Account Investment Asset presentation set forth in the
following pages includes the investments of the Closed Block on a line-by-line
basis. Management believes it is appropriate to discuss the information on a
combined basis in view of the similar asset quality characteristics of majo
r asset categories in the portfolios.
Writedowns on fixed maturities were $25.6 million and $15.2 million for
the six months ended June 30, 1995 and 1994, respectively. The following table
shows asset valuation allowances and additions to and deductions from such
allowances for mortgages and equity real estate for the six months ended
June 30, 1995 and 1994.
- 21 -
GENERAL ACCOUNT INVESTMENT ASSETS
VALUATION ALLOWANCES
(IN MILLIONS)
Equity Real
Mortgages Estate Total
--------- -------- ---------
JUNE 30, 1995
Assets Outside of the Closed Block:
Beginning balances ....................... $ 64.2 $ 220.7 $ 284.9
Additions ................................ 15.8 31.4 47.2
Deductions(1) ............................ (24.2) (12.1) (36.3)
-------- -------- ---------
Ending Balances .......................... $ 55.8 240.0 $ 295.8
======== ======== =========
Closed Block:
Beginning balances ...................... $ 46.2 $ 2.6 $ 48.8
Additions ............................... .3 .9 1.2
Deductions(1) ........................... (8.3) (.7) (9.0)
-------- -------- ---------
Ending Balances ......................... $ 38.2 $ 2.8 $ 41.0
======== ======== =========
Total:
Beginning balances ...................... 110.4 $ 223.3 $ 333.7
Additions ............................... 16.1 32.3 48.4
Deductions(1) ........................... (32.5) (12.8) (45.3)
-------- -------- ---------
Ending Balances ......................... $ 94.0 $ 242.8 $ 336.8
======== ======== =========
JUNE 30, 1994
Total:
Beginning balances ..................... $ 216.6 $ 211.8 $ 428.4
Additions .............................. 27.5 18.2 45.7
Deductions(1) .......................... (33.6) (7.7) (41.3)
-------- -------- ---------
Ending Balances ........................ $ 210.5 $ 222.3 $ 432.8
======== ======== =========
(1) Primarily reflected releases of allowances due to asset dispositions and
writedowns.
- 22 -
GENERAL ACCOUNT INVESTMENT ASSETS BY CATEGORY
The following table shows the amortized cost, valuation allowances and
carrying value of the major categories of General Account Investment Assets at
June 30, 1995 and carrying value at December 31, 1994.
GENERAL ACCOUNT INVESTMENT ASSETS
(DOLLARS IN MILLIONS)
June 30, 1995 December 31, 1994
------------------------------------------ ----------------------------
% of % of
Total Total
Amortized Valuation Carrying Carrying Carrying Carrying
Cost Allowances Value Value Value Value
---------- ---------- ---------- -------- ----------- ---------
Fixed maturities(1)............ $ 18,146.9 $ - $ 18,321.3 54.7% $ 16,329.1 51.3%
Mortgages ..................... 5,259.8 94.0 5,165.8 15.5 5,582.9 17.6
Equity real estate ............ 4,856.9 242.8 4,614.1 13.8 4,654.7 14.6
Other equity investments ...... 794.1 - 794.1 2.4 846.1 2.7
Policy loans .................. 3,695.1 - 3,695.1 11.1 3,559.1 11.2
Cash and short-term
investments(2) ................ 841.7 - 841.7 2.5 824.2 2.6
---------- -------- ---------- -------- ----------- ---------
Total ......................... $ 33,594.5 $ 336.8 $ 33,432.1 100.0% $ 31,796.1 100.0%
========== ======== ========== ======== =========== =========
(1) Carrying values reflected an unrealized gain of $174.4 million and an
unrealized loss of $542.5 million in fixed maturities classified as
available for sale at June 30, 1995 and December 31, 1994, respectively.
(2) Comprised of "Cash and cash equivalents" and short-term investments
included within the "Other invested assets" caption on the consolidated
balance sheets.
Management has a policy of not investing substantial new funds in equity
real estate except to safeguard values in existing investments or to honor
outstanding commitments. It is management's continuing objective to reduce the
size of the equity real estate portfolio relative to total assets over
the next several years depending on real estate market conditions. Management
anticipates that reductions will depend on the level of mortgage foreclosures
and expenditures required to fund necessary or desired improvements to
properties. With respect to fixed maturities, management anticipates
selective purchases of below investment grade fixed maturities, primarily public
securities.
- 23 -
INVESTMENT RESULTS OF GENERAL ACCOUNT INVESTMENT ASSETS
INVESTMENT RESULTS BY ASSET CATEGORY(1)
(DOLLARS IN MILLIONS)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- -----------------------------------------
1995 1994 1995 1994
--------------------- ------------------- --------------------- ------------------
(1) (1) (1) (1)
Yield Amount Yield Amount Yield Amount Yield Amount
-------- ----------- ------- ----------- ------- ----------- ------ ----------
FIXED MATURITIES:
Income ............... 8.17% $ 362.9 8.05% $ 328.0 8.10% $ 707.4 7.97% $ 652.2
Investment
Gains/(Losses) ...... 0.95% 42.1 (0.02)% (1.0) 0.38% 33.0 0.04% 2.9
------- ---------- ------- ---------- ------ ---------- ----- ----------
Total ................ 9.12% $ 405.0 8.03% $ 327.0 8.48% $ 740.4 8.01% $ 655.1
Ending Assets ........ $ 18,146.9 $ 16,284.8 $ 18,146.9 $ 16,284.8
MORTGAGES:
Income ............... 8.66% 113.3 8.79% $ 134.2 8.61% $ 230.3 8.76% $ 270.4
Investment
Gains/(Losses) ...... 0.09% 1.2 (0.83)% (12.7) (0.28)% (7.5) (1.08)% (33.4)
------- ---------- ------- ---------- ------ ---------- ----- ----------
Total ................ 8.75% $ 114.5 7.96% $ 121.5 8.33% $ 222.8 7.68% $ 237.0
Ending Assets ........ $ 5,165.8 $ 6,075.7 $ 5,165.8 $ 6,075.7
EQUITY REAL
ESTATE (2):
Income ............... 2.77% $ 25.7 3.14% $ 28.0 2.87% $ 53.3 2.77% $ 49.4
Investment
Gains/(Losses) ...... (1.80)% (16.7) 0.03% 0.2 (1.03)% (19.2) 0.10% 1.8
------- ---------- ------- ---------- ------ ---------- ----- ----------
Total ................ 0.97% $ 9.0 3.17% $ 28.2 1.84% $ 34.1 2.87% $ 51.2
Ending Assets ........ $ 3,692.2 $ 3,572.2 $ 3,692.2 $ 3,572.2
OTHER EQUITY
INVESTMENTS:
Income ............... 11.11% $ 22.3 5.70% $ 14.7 11.45% $ 46.8 7.96% $ 41.4
Investment
Gains/(Losses) ...... 1.14% 2.3 4.23% 10.9 1.37% 5.6 5.91% 30.8
------- ---------- ------- ---------- ------ ---------- ----- ----------
Total ................ 12.25% $ 24.6 9.93% $ 25.6 12.82% $ 52.4 13.87% $ 72.2
Ending Assets ........ $ 794.1 $ 1,014.9 $ 794.1 $ 1,014.9
POLICY LOANS:
Income ............... 6.96% $ 64.1 6.68% $ 57.6 6.88% $ 125.4 6.68% $ 114.9
Ending Assets ........ $ 3,695.1 $ 3,456.4 $ 3,695.1 $ 3,456.4
CASH AND SHORT-TERM
INVESTMENTS:
Income ............... 8.93% $ 18.4 6.55% $ 9.1 8.37% $ 34.5 6.91% $ 19.1
Ending Assets ........ $ 841.7 $ 634.6 $ 841.7 $ 634.6
TOTAL:
Income ............... 7.58% $ 606.7 7.38% $ 571.6 7.54% $ 1,197.7 7.38% $ 1,147.4
Investment
Gains/(Losses) ....... 0.36% 28.9 (0.04)% (2.6) 0.07% 11.9 0.01% 2.1
------- ---------- ------- ---------- ------ ---------- ----- ----------
Total(3) ............. 7.94% $ 635.6 7.34% $ 569.0 7.61% $ 1,209.6 7.39% $ 1,149.5
Ending Assets ........ $32,335.8 $ 31,038.6 $ 32,335.8 $ 31,038.6
(1) Yields have been annualized and calculated based on the quarterly average
asset carrying values excluding unrealized gains (losses) in fixed
maturities. Annualized yields are not necessarily indicative of a full
year's results.
- 24 -
(2) Equity real estate carrying values are shown net of third party debt and
minority interest in real estate of $921.9 million and $944.1 million as of
June 30, 1995 and 1994, respectively. Equity real estate income is shown
net of operating expenses, depreciation, third party interest expense and
minority interest. Third party interest expense and minority interest
totaled $16.0 million, $11.5 million, $29.4 million and $20.9 million for
the three months and the six months ended June 30, 1995 and 1994,
respectively.
(3) Total yields are shown before deducting investment fees paid to the
Investment Subsidiaries (which include asset management, acquisition,
disposition, accounting and legal fees). If such fees had been deducted,
total yields would have been 7.64%, 7.03%, 7.32% and 7.10% for the three
months and the six months ended June 30, 1995 and 1994, respectively.
For the six months ended June 30, 1995, General Account investment
results were up $60.1 million or 5.2% from the year-earlier period reflecting
higher income and gains on fixed maturities. On an annualized basis, total
investment yield increased to 7.61% from 7.39%. Investment income increased
by $50.3 million or 4.4%, resulting in an increase in the annualized income
yield to 7.54% from 7.38%. Additions to asset valuation allowances and
writedowns of fixed maturities were $74.0 million in the six months ended June
30, 1995 compared to $60.9 million in the six months ended June 30, 1994
.
Total investment results for fixed maturities increased $85.3 million or
13.0% for the six months ended June 30, 1995 compared to the year-earlier
period. Investment income increased by $55.2 million reflecting a higher asset
base, primarily from the reinvestment of nearly all available funds int
o fixed maturities. Investment gains were $33.0 million for the six months
ended June 30, 1995 compared to the year-earlier gains of $2.9 million.
Writedowns on fixed maturities were $25.6 million in the first six months of
1995 as compared to $15.2 million in the comparable period of 1994. Tota
l investment results on mortgages declined by $14.2 million or 6.0% in the six
months ended June 30, 1995 compared to the same period a year ago largely due to
lower investment income attributable to a lower asset base which more than
offset lower additions to asset valuation allowances. Equity re
al estate investment results were $17.1 million lower during the six months
ended June 30, 1995 than the year-earlier period reflecting higher additions to
asset valuations. During the first six months of 1995, equity real estate with
amortized cost of $99.8 million was sold with realized gains of
$8.1 million. The lower results for other equity investments reflect the
reduced level of capital gains on disposition of common stocks.
Fixed Maturities. Fixed maturities consist of publicly traded debt
securities, privately placed debt securities and small amounts of redeemable
preferred stock, which represented 69.0%, 30.3% and 0.7%, respectively, of the
amortized cost of this asset category at June 30, 1995.
FIXED MATURITIES BY CREDIT QUALITY
(DOLLARS IN MILLIONS)
June 30, 1995 December 31, 1994
Rating Agency ----------------------------------------- ----------------------------------------
NAIC Equivalent Amortized % of Estimated Amortized % of Estimated
Rating Designation Cost Total Fair Value Cost Total Fair Value
- ----- --------------- --------------- ------- ------------- -------------- ------- ------------
1-2 Aaa/Aa/A and Baa.............. $ 15,609.5 (1) 86.1% $ 16,079.4 $ 14,835.9 (1) 87.9% $ 14,129.1
3-6 Ba and lower ................. 2,404.0 (2) 13.2 2,363.7 1,898.8 (2) 11.3 1,742.3
-------------- ------ ----------- -------------- ------ -----------
Subtotal .............................. 18,013.5 99.3 18,443.1 16,734.7 99.2 15,871.4
Redeemable preferred stock
and other ............................ 133.4 0.7 126.4 136.9 0.8 120.2
-------------- ------ ----------- -------------- ------ -----------
Total ................................. $ 18,146.9 100.0% $ 18,569.5 $ 16,871.6 100.0% $ 15,991.6
============== ====== =========== ============== ====== ===========
(1) Includes the EQ Asset Trust 1993 Class B Notes with an amortized cost of
$100.0 million.
(2) Includes the EQ Asset Trust 1993 Class B Notes with an amortized cost of
$100.0 million.
- 25 -
At June 30, 1995, the Company held collateralized mortgage obligations
("CMOs") with an amortized cost of $2.27 billion, including $2.06 billion in
publicly traded CMOs. About 80% of the public CMO holdings were collateralized
by GNMA, FNMA and FHLMC securities. Approximately 57.7% of the public
CMO holdings were in planned amortization class ("PAC") bonds. At June 30,
1995, interest only ("IO") strips amounted to $20.8 million at amortized cost.
There were no holdings of principal only ("PO") strips at that date. In
addition, at June 30, 1995, the Company held $1.18 billion of mortgag
e pass through securities (GNMA, FNMA or FHLMC securities) and also held $632.2
million of Aaa rated asset backed securities, primarily backed by credit card or
car loan receivables. IOs and mortgage pass through securities are classified
as available for sale and are carried at estimated fair val
ue.
The amount of problem fixed maturities decreased from December 31, 1994
to June 30, 1995 largely due to asset sales and writedowns. Potential problems
increased as new information on specific loans led management to have serious
concerns as to the ability of those borrowers to comply with the pre
sent loan payment terms.
FIXED MATURITIES
PROBLEMS, POTENTIAL PROBLEMS AND RESTRUCTUREDS
AMORTIZED COST
(IN MILLIONS)
June 30, December 31,
1995 1994
------------ -------------
FIXED MATURITIES ............................... $ 18,146.9 $ 16,871.6
Problem fixed maturities ....................... 67.6 94.9
Potential problem fixed maturities ............. 140.9 96.2
Restructured fixed maturities(1) ............... 5.8 38.2
(1) Excludes restructured fixed maturities of $12.3 million and $24.0 million
that are shown as problems at June 30, 1995 and December 31, 1994,
respectively, and excludes $0.0 million and $4.8 million of restructured
fixed maturities that are shown as potential problems at June 30, 1995 and
December 31, 1994, respectively.
Mortgages. Mortgages consist of commercial, agricultural and residential
loans. At June 30, 1995, commercial mortgages totaled $3.62 billion (68.8% of
the amortized cost of the category), agricultural loans were $1.58 billion
(30.0%) and residential loans were $60.5 million (1.2%).
- 26 -
MORTGAGES
PROBLEMS, POTENTIAL PROBLEMS AND RESTRUCTUREDS
AMORTIZED COST
(DOLLARS IN MILLIONS)
June 30, December 31,
1995 1994
---------- ------------
COMMERCIAL MORTGAGES............................... $ 3,619.0 $ 4,007.4
Problem commercial mortgages ...................... 181.2 107.0
Potential problem commercial mortgages ............ 158.1 349.4
Restructured commercial mortgages(1) .............. 483.9 459.4
VALUATION ALLOWANCES .............................. $ 90.1 $ 106.4
As a percent of Commercial Mortgages ............. 2.5% 2.7%
As a percent of Problem Commercial Mortgages ..... 49.7% 99.4%
As a percent of Problem and Potential Problem
Commercial Mortgages ............................ 26.6% 23.3%
As a percent of Problem, Potential Problem and
Restructured Commercial Mortgages ............... 10.9% 11.6%
AGRICULTURAL MORTGAGES ............................ $ 1,580.3 $ 1,618.5
Problem agricultural mortgages .................... 79.3 17.5
Potential problem agricultural mortgages .......... - 68.2
Restructured agricultural mortgages ............... 1.9 1.4
VALUATION ALLOWANCES .............................. $ 3.9 $ 4.0
(1) Excludes restructured commercial mortgages of $159.8 million and $1.7
million that are shown as problems at June 30, 1995 and December 31, 1994,
respectively, and excludes $28.3 million and $180.9 million of restructured
commercial mortgages that are shown as potential problems at June 30, 1995
and December 31, 1994, respectively.
Problem commercial mortgages increased from December 31, 1994 to June
30, 1995, primarily due to a mortgage loan package previously classified in the
potential problem mortgage category which became delinquent. During the six
months ended June 30, 1995, the amortized cost of foreclosed commerci
al mortgages totaled $18.6 million. At the time of foreclosure, reductions in
amortized cost for these mortgages reflecting the writedown of these properties
to estimated fair value totaled $10.3 million.
The original weighted coupon rate on the $483.9 million of restructured
mortgages was 9.9%. As a result of these restructurings, the restructured
weighted coupon rate was 8.8% and the restructured weighted cash payment rate
was 6.8%. The foregone interest on restructured commercial mortgages (in
cluding restructured commercial mortgages presented as problem or potential
problem commercial mortgages) for the six months ended June 30, 1995 was $2.8
million.
- 27 -
The following table shows the distribution of problem and potential
problem commercial mortgages by property type and by state.
June 30, 1995
-------------------------
(Dollars In Millions)
Amortized % of
Cost Total
------------ -----------
PROBLEM COMMERCIAL MORTGAGES
PROPERTY TYPE:
Industrial .................................. $ 159.7 88.2%
Office ...................................... 12.4 6.8
Retail ...................................... 6.6 3.6
Apartment ................................... 2.5 1.4
------- ------
Total ....................................... $ 181.2 100.0%
======= ======
STATE:
Texas ....................................... $ 159.1 87.8%
Virginia .................................... 13.7 7.6
Other (no state larger than 5.0%) ........... 8.4 4.6
------- ------
Total ....................................... $ 181.2 100.0%
======= ======
POTENTIAL PROBLEM COMMERCIAL MORTGAGES
PROPERTY TYPE:
Office ...................................... $ 57.5 36.4%
Retail ...................................... 47.3 29.9
Hotel ....................................... 33.9 21.4
Industrial .................................. 18.6 11.8
Land ........................................ 0.8 0.5
------- ------
Total ....................................... $ 158.1 100.0%
======= ======
STATE:
South Carolina .............................. $ 31.5 19.9%
Texas ....................................... 22.9 14.5
Pennsylvania ................................ 19.9 12.6
Puerto Rico ................................. 18.6 11.8
Virginia .................................... 17.1 10.8
Washington .................................. 16.2 10.2
New York .................................... 14.0 8.9
California .................................. 9.5 6.0
Other (no state larger than 5.0%) ........... 8.4 5.3
------- ------
Total ....................................... $ 158.1 100.0%
======= ======
Equitable Life adopted SFAS No. 114 effective January 1, 1995. At June
30, 1995, management identified impaired loans with a carrying value of $339.1
million. The provision for losses for these impaired mortgage loans was $83.5
million at June 30, 1995. Income accrued on these loans in the firs
t six months of 1995 was $12.1 million, including cash received of $10.6
million.
For the six months ended June 30, 1995, scheduled principal amortization
payments and prepayments on commercial mortgage loans aggregated $248.8 million.
In addition, for the six months ended June 30, 1995, $358.3 million of
commercial mortgage loan maturity payments were scheduled, of which $134
.8 million were paid as due. Of the amount not paid, $136.2 million were
granted short term extensions of up to three months, $83.9 million were extended
for a weighted average of 5.7 years at a weighted average interest rate of 9.1%
and $3.4 million were delinquent or in default for non-payment o
f principal. There were no foreclosures of maturing loans.
- 28 -
Equity Real Estate. As of June 30, 1995, on the basis of amortized
cost, the equity real estate category included $3.56 billion (or 73.2%) acquired
as investment real estate and $1.30 billion (or 26.8.%) acquired through or in
lieu of foreclosure (including in-substance foreclosures).
At June 30, 1995, the vacancy rate for the Company's office properties
was 15.5% in total, with a vacancy rate of 11.8% for properties acquired as
investment real estate and 25.3% for properties acquired through foreclosure.
The national commercial office vacancy rate was 15.1% (as of March 31, 1
995) as measured by CB Commercial.
LIQUIDITY AND CAPITAL RESOURCES
Equitable Life has a commercial paper program with an issue limit of up
to $500.0 million. This program is available for general corporate purposes and
is supported by Equitable Life's existing $350.0 million bank credit facility,
which expires in July 1997. Equitable Life uses this program from
time to time in its liquidity management. At June 30, 1995, the commercial
paper program had $49.5 million outstanding and no amounts were outstanding
under the revolving credit facility.
Consolidated Cash Flows
The net cash provided by operating activities was $660.6 million for the
six months ended June 30, 1995 compared to $118.4 million for the six months
ended June 30, 1994.
Net cash provided by investing activities was $350.5 million for the six
months ended June 30, 1995 as compared to $466.1 million for the same period in
1994. Cash provided by investing activities during the first half of 1995 was
primarily attributed to the $1.16 billion decrease in loans to the
GIC Segment. In January 1995, the GIC Segment partially repaid borrowings from
continuing operations. Investment purchases exceeded sales, maturities and
repayments by approximately $435.4 million, partially offsetting the effect of
the GIC repayment. In the comparable period of 1994, net cash
provided by investing activities was principally attributable to sales,
maturities and repayments of investments exceeding purchases by $538.0 million.
Net cash used by financing activities was $973.7 million for the six
months ended June 30, 1995. Net cash used by financing activities during the
first six months of 1995 resulted primarily from the $1.22 billion decrease in
the amount due to the discontinued GIC Segment as a result of continuin
g operations' $1.22 billion cash settlement at the beginning of the year of its
obligation to fund the GIC Segment's accumulated deficit. This decrease was
partially offset by deposits to policyholders' account balances exceeding
withdrawals by $39.6 million in 1995. Net cash used by financing ac
tivities was $459.9 million for the first six months of 1994 principally due to
withdrawals from policyholders' account balances exceeding deposits by $467.6
million.
The operating, investing and financing activities described above
resulted in an increase in cash and cash equivalents during the first six months
of 1995 of $37.4 million to $731.0 million.
- 29 -
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the Form 10-K for the year ended December 31, 1994, it was reported
that eleven complaints had been filed by various groups of shareholders of
Alliance North American Government Income Trust, Inc. (the "Fund"). On July 25,
1995, those eleven Complaints were consolidated into a Consolidated a
nd Supplemental Class Action Complaint ("Complaint") filed against the Fund,
Alliance Capital Management L.P. ("Alliance"), Alliance Capital Management
Corporation ("ACMC") (the general partner of Alliance), Alliance Fund
Distributors, Inc. (a subsidiary of Alliance), The Equitable Companies Incorp
orated (parent of Alliance), certain officers and directors of the Fund and
certain officers and directors of ACMC. The Complaint alleges violations of
federal securities laws, fraud and breach of fiduciary duty in connection with
the Fund's investments in Mexican and Argentine securities. The Co
mplaint seeks certification of a plaintiff class of all persons who purchased or
owned Class A, B or C shares of the Fund from March 27, 1992 through December
23, 1994. The Complaint seeks an unspecified amount of damages, costs and
attorneys' fees. The principal allegations of the Complaint are
that, upon the advice of Alliance, the Fund purchased debt securities issued by
the Mexican and Argentine governments in amounts that were not permitted by the
Fund's investment objective, and that there was no shareholder vote to change
the investment objective to permit purchases in such amounts.
The Complaint further alleges that the decline in the value of the Mexican and
Argentine securities held by the Fund caused the Fund's net asset value to
decline to the detriment of the Fund's shareholders. Alliance believes that the
allegations in this action are without merit and intends to vi
gorously defend against the claims in the action. While the ultimate results of
this action cannot be determined, the management of Alliance does not expect
that this action will have a material adverse effect on Alliance's business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
- 30 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Equitable Life Assurance Society of the
United States
--------------------------------------------
(Registrant)
Date: August 9, 1995 /s/ Jerry M. de St. Paer
-------------- --------------------------------------------
Executive Vice President and
Chief Financial Officer
Date: August 9, 1995 /s/ Alvin H. Fenichel
--------------- --------------------------------------------
Senior Vice President and Controller
- 31 -